As children across America costume themselves as ghouls, ghosts, goblins and former North African dictators Monday night, they may have missed the most spine-chilling scare of the day. According to calculations based on the International Monetary Fund’s World Economic Outlook, on All Hallows’ Eve the United States’ total debt will surpass its Gross Domestic Product for the first time since World War II.
That means the average American’s share of government debt is more than an average American makes in a year. Spooky!
On October 19 Bloomberg released a chart showing that per capita gross government debt would to exceed per capita GDP in the very near future. As Bloomberg put it, “America’s bills are about to exceed its paycheck.”
The Bloomberg calculations, based on IMF data from the September World Economic Outlook, showed that by 2016, debt will exceed per capita production by $8,000.
A post at Zero Hedge by the pseudonymous Tyler Durden extrapolated the data to show that US debt would surpass GDP on Halloween.
According to the Bureau of Economic Analysis, the United States’ second quarter GDP was $15.012 trillion. As of this writing, the national debt is $14.951 trillion.
In an interview with The Daily Caller, American University executive-in-residence Mark Waldman explained the meaning of the debt landmark. “It’s not as if there’s some big switch in the Treasury Department that flipped when that happened,” he said, “but the world notices, and it makes the world less willing to purchase our securities at existing interest rates. The reason that’s important is if we try to sell new debt and roll the old debt over at higher interest rates, then the cost of carrying the debt gets higher and higher and starts squeezing out other spending.”
And the political climate in Washington has so far squashed any ideas of real spending reductions, meaning investors have little reason to be confident in America’s long-term fiscal health.
“The bottom line is, it’s possible that our debt problem has passed the point of no return, given the political realities,” Waldman told TheDC. “Everybody’s talking about the extent to which they want to reduce the rate of increase in the coming years. That’s a totally phony discussion! Nobody’s actually talking about reducing the level of federal spending. They say that it’s only going to go up 5 percent instead of 7 percent.
“I’m sorry, but that’s not meaningful. We need absolute reductions. But nobody wants their Social Security cut, nobody wants Medicare cut. And I don’t see any leading Republican candidates willing to talk about reducing federal spending.”