The Alarming Price of Debt

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This much I have learned about debt after 40 years of writing and study: It is better not to incur it. Once it is incurred, it is better to pay it off. America, we have a problem.

And that problem, according to James Grant in a recent issue of Time Magazine, is a staggering $13.9 trillion debt. Grant provides an alarming overview of the large US Debt and how we got to what Time calls “the United States of Insolvency.”

So how did the debt get so large? An excess of spending over taxes and bad fiscal habits of the past has left an unpaid tab for our future, our children’s future and their children’s future. As of the date of publication, the debt burden for each American (man, woman and child) stands at $42,998.12. This compares with a figure of $16,802 in 1990 (inflation adjusted dollars) and $8,348.23 in 1981. And this debt level is on its way to over $62,000 per citizen in 2020. (See image above)

Grant points out that “we owe more than we can easily repay. We spend too much and borrow too much. Worse, we promise too much. We conjure dollar bills by the trillions –– pull them right out of thin air. I won’t insist that this can’t go on, because it has. I only say that it will eventually stop.”

Why should we care? Because the price of debt is interest. And currently, interest rates are at an all time low and debt is at an all time high. When interest rates normalize, interest payments are projected to triple. As Grant points out, the government would pay more in interest (at a rate of 4.8%) than it spends in national defense. What then?

We encourage you to take the time to read this article, to understand the national debt and its impact on our future.  Send it to your friends and grown up children and start a conversation. This is our future. For the complete Time Magazine article, go here. For more from James Grant, go here. And for the live debt clock, go here.

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