Things to Know About Government Debt and How They Can Affect Personal Loan Holders
While many people knows that the U.S. government is not doing well financially, very few people realize the magnitude of this situation. In fact, the U.S. government owes way over $16 trillion, a number hard to even to imagine, let alone accept in a period in U.S. history where the people’s economy is in not the best.
But that is not the whole story. In fact, there are some things that us, U.S. citizens will need to consider in order to fully understand how the U.S. government’s debt will affect not just people holding personal loans or any other kind of loan, but just about everyone in the country:
The portion of the total government debt for each of the country’s residents is a staggering $51,100. That means that each and every one of the U.S. 313 million citizens would need to give that amount to the government in order for it to be able to pay off the U.S. national debt.
Even if it is hard to believe, the U.S. government debt is still on the. In fact, this fiscal year alone the U.S. government debt increased by an impressive $1.2 trillion. To make things worse, the gap between debt and income is widening, with the federal government deficit being more than $1 trillion for each and every of the last four years.
Of course, this debt is not fixed in time. In fact, the U.S. government is paying far more than $400 billion every year just in interest, or an equivalent of over $1,400—equivalent to each person living in the U.S. What is even more, this interest payments makes up for a huge 6 percent of the entire federal budget. Additionally, this interest on the U.S. government debt will likely go up, especially as the U.S. faces some uncertainty due to the election period, which tends to drive the U.S. dollar currency value down. Not only is this bad for the government, but also for people and financial entities who granted personal loans and who now have to see their investment degrade over time.
Now, as if all that were not bad enough news for personal loan holders and U.S. citizens in general, the Social Security and Medicaid trustees shows an unfunded liability of $63 trillion. What this means is that the U.S. government has made $63 trillion in payment promises without the money to back it up. This unbelievable number is the equivalent of every single U.S. citizen owing $200,000 without having a cent in their pockets.
Now where the real trouble starts for both the U.S. government and for people and financial entities that granted car, home or personal loans, is that when the government doesn’t have enough fund to meet it obligations and borrowing is not possible due to the excessive amount owed, then the government just prints money. That is exactly what the U.S. government has done, printing over $3 trillion. However, when this large amount of money is added to the money supply, the result is inflation and a severe devaluation of the U.S. dollar.
Inflation on its part causes price increases. Thus, gas prices have no less than doubled in the last few years, as well as the prices of many other imported goods, since providers know the dollar is worth less.
Now, an aspect where people who hold or who plan to get personal loans are affected directly is that whenever someone wants to take an auto or personal loan or get a mortgage, they will be competing directly against the government to borrow money, which will definitely bring interest higher.
On top of that, when the value of the dollar goes down, that means that companies’ revenues also do, making it harder for them to hire new people. In fact, many companies start laying off personnel in order to stay afloat. Likewise, Medicare and Social Security commitments will start to become irrelevant and both are expected to run out of funds as soon as within 20 years. In the long run this will bring both reduced medical benefits and higher taxes.
All in all, regardless of what solution the U.S. government tries, the fix will not be easy. Raising taxes to the rich will not be enough, nor will it be to get rid of useless programs. The only solution is to either lose benefits and pay more taxes. Not for a couples of years, but for a couple of decades more likely.