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The Crushing Power of Debt

If you’re like me and a lot of other people, you’re a little concerned with the ever-increasing government debt.  According to the most recent estimates, the U.S. Government will rack up a record-breaking $1.6 trillion deficit this year.  This doesn’t include the billions of dollars of current deficits and $2.4 trillion of debt by our state and local governments. 

I would encourage you to read this Washington Post article.  It analyzes the current debt levels with those in 1946, immediately following World War II.  Keep in mind that the Washington Post doesn’t have a reputation as a conservative news organization.  In my opinion, it’s significant that people from both ends of the political spectrum are sounding the alarm about the national debt.

I particularly liked the quote by Robert D. Reischauer, former director of the nonpartisan Congressional Budget Office.  He said that the debt accumulated by 1946 “was for a very different purpose, which was to preserve freedom and democracy versus totalitarianism rather than to throw a huge party and put it on the credit card.”  Like every other party, the celebration eventually ends and someone has to clean up the mess, which I think is a good description of our current times.

I’m not a pessimist or an alarmist, but I do agree with the general premise of the article – there are tough times ahead. I believe the economy is incredibly resilient, and I don’t think an economic apocalypse is on the near horizon. However, I do believe that it’s possible.  Call me crazy, but I know that we can’t continue overspending at the current rate without severe consequences.

You only need to look at the devastating effects of the recent mortgage crisis to realize the power debt has to inflict financial and personal ruin.  You may believe people are suffering from the consequences of their poor decisions, and you may be right.  However, a lot of innocent people have also suffered, through no fault of their own.

If you’re a student of history, you know that the fall of mighty and powerful nations can have far-reaching impact.  The fall of the Roman Empire was followed by the Dark Ages.  The Great Depression may have been born in the U.S. but soon affected people worldwide.  The economy is much more globally intertwined than ever.  Although the mortgage meltdown was primarily triggered by the collapse of the U.S. housing market, investors all over the globe lost billions.  As the largest economic engine in the world, the U.S. economy and government have tentacles that reach into the lives of people worldwide.  The faltering of the U.S. economy and government will have a global effect.

You may believe it would be a good thing if America lost some of its dominance in the world, and that may happen.  However, if history repeats itself, which it often does, the process of transition may not be very pleasant.

The overall economic recovery that has occurred over the past 18 months has been a mixed blessing.  The good news is that it proves the resiliency of the economy.  The bad news is that it can give us a false sense of security that we as a nation are invincible and too big to fail as well.  As strong as our economy and government may be, debt has the power to crush them both.  It’s not inevitable that it will occur, but if we don’t’ change course soon, it might.  If debt has the power to crush you, it can also crush our nation.

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