America has transitioned from a creditor to a debtor nation—our survival depends on changing that

[New Sancai Compilation First] A few days ago, while talking to a young man standing in line at the grocery store, he told me that although he works more than 40 hours a week, his family's budget has recently been devastated by inflation.

Now, if you've been following my articles for more than a few minutes, you know how I perk up every time the conversation turns to the topic of inflation, because I've been preaching about the dangers inflation poses to our economy for years. In fact, I even wrote a book about it! Although inflation is a big problem, it's not really the problem. This is just a symptom.

The real problem is our country's (America's) debt, which is bigger and more sinister.

So, how bad is it? Well, now our debt service exceeds our total tax bill. The interest payments alone exceed our entire defense budget.

Look, I'm sure you know people who have a lot of debt that they can't afford, so you know what's going to happen, but when that happens in a country, it's even worse. Especially when most of the world's countries transact in that country's currency. When the United States is unable to pay our debt, our credit rating drops and other countries stop lending to us (they stop buying US Treasuries). We've seen credit ratings downgrades from S&P, Moody's and Fitch in recent years, so this isn't some crazy conspiracy. This has already happened.

How did we get here?

Our debt is a direct result of decades of reckless government spending and a widespread lack of financial literacy among our fellow citizens. Every four years, things get worse, as politicians, hoping to ensure they get enough votes to stay in power, start doling out taxpayer dollars with the same zeal as a sweet old neighbor giving them money on Halloween night. Endless kids playing ghosts, superheroes and heroes handing out candy.

You’ve seen it time and time again—cash for clunkers, job subsidies, PPP, COVID relief, bank bailouts, student loan cancellation, and countless other appalling government spending programs. While these may appear to be intended to help U.S. citizens, they are not. In the short term, these spending plans put very little money into the hands of Americans who need it most, leading to massive inflation in the long term. Ironically, this could have been avoided if we had simply adhered to the gold standard.

So what does this mean for our economy?

Well, three different outcomes could hit the United States simultaneously or at different times and would not perpetuate the “doomsday cycle,” but any one of these three outcomes could potentially destroy our country.

The first is the power dynamic that comes from the creditor rather than the debtor. When a country has enough money to lend, it enjoys powers and opportunities that other countries do not have. Its importance cannot be overstated, as this power dynamic also plays an important role in our security as a nation. If we end up on the losing side of this power dynamic, the next domino to fall will be the dollar losing its reserve currency status or being unable to borrow more funds, although they could happen simultaneously.

The U.S. dollar has been firmly entrenched as the world's reserve currency since the end of World War II, but that is changing over the past few years as a consortium of countries has been lobbying the world to abandon the dollar and switch to another currency. This is the so-called BRICS - an intergovernmental organization made up of Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran and the United Arab Emirates. This would essentially overthrow the United States as the world leader and cause the cost of everything to skyrocket, our incomes to plummet, and food, supplies, and raw materials to become unavailable.

As America's financial health deteriorates and we lose our status as a world creditor, the supply of credit will dry up. You've seen the consequences of this on an individual basis, but for a country it's much worse. This is because when a person goes bankrupt, they can usually find another job somewhere and start over. But when a country goes bankrupt, the infrastructure collapses, making business difficult, if not impossible. If you want a real-world example, Venezuela is the best example.

How to avoid becoming a debtor nation?

We first need to move away from the typical “solutions” offered by elected officials, which might include proposals like raising taxes or borrowing more money.

Raising taxes just pulls productive money out of the economy and makes our government wasteful, so there's no benefit here. Furthermore, we don’t have a revenue problem – we have a spending problem. To put this into perspective, the U.S. government spends about $18 billion every day. More borrowing would create the same problem by adding to our already massive debt.

The real solution is smarter fiscal policy. I'm talking about tough austerity measures here, reducing government spending, and most elected officials today would not agree with that. (Nor will most Americans.) So the only real solution is a long-term campaign to improve the financial literacy of all Americans over the years so that they understand the folly of the failed policies that brought us to this Got here and worked for it. Put fiscally responsible elected officials in place at the grassroots level so this never happens again.

(Author: Dr. David Phelps created Freedom Founders to help its members achieve the freedom they want in life by building the necessary financial foundation. He is A renowned financial expert who is frequently quoted in the media recently helped the Florida Department of Education develop a new financial literacy curriculum.)

(Compiled by: Wang Jimin)

(Editor: Jiang Qiming)

(Source of the article: Compiled and published by New Sancai)