The US National Debt, 3

 
 
 
 

Vocabulary

 

size	tsunami	say/said/said
reach	wave (3)	come/came/come
debt	thing (2)	know/knew/known
earn	common	go/went/gone
revenue	outstrip	spend/spent/spent
mile	hole (2)	buy/bought/bought
deep	let alone	get/got/got
stack	analogy	comprehend
if at all	sound (2)	indefinitely
Earth	specifically	down to earth (2)
invest	believe (2)	bring/brought/brought
bet	care (2)	in other words
loan	impressive	cut/cut/cut
risk	point (3)	interest (2)
guess	dawn (2)	it dawned upon me
fail	overnight	pay/paid/paid
spiral	credit (2)	death spiral
borrow	in line (2)	throw/threw/thrown
deep	inevitably	give/gave/given (2)
ally	chance (2)	grow/grew/grown (2)
option	influence	exercise (2)
moral	saddle (2)	on the hook
hook	massive	feel/felt/felt (2)
incur	generation	leave/left/left (2)
tab (2)	pick up (2)	pick up the tab
senior	safe (2)	drive/drove/driven
bill (3)	deep (2)	pay/paid/paid
way (2)	shrug off	stick/stuck/stuck (2)
robust	revenue	take/took/taken
take on	pay down	spend/spent/spent (2)
suggest	sense (2)	common sense
take in	combine	throw out (2)
trust	finances	worry/worried

 
 
 
 
 

Video

 

 
 
 
 

Transcript

If you’re under, say, 30, you have a tsunami-sized problem coming toward you, and you probably don’t even know it. That killer wave is the national debt.

Countries, like people, go into debt when they spend more than they have. You and I buy things with the money we earn. Governments buy things with money they get from taxes. When spending outstrips revenue, the government is “in the hole.”

Right now, the hole is $17 trillion dollars deep. This is an incomprehensible number. What is a trillion dollars, let alone $17 or 20 trillion? Common analogies like “you’d have to stack $1 bills 67,000 miles high to reach the current debt,” though impressive-sounding, don’t help much, if it all.

So, let’s bring the problem down to earth.

Right now, most investors believe the United States is a safe bet. They believe, in other words, that they’ll get the money they loan to the US back with interest. But this can’t go on indefinitely.

At some point investors are going to say, “you have too much debt; you’re a bad risk. No more money.”

What happens then? We don’t have to guess. We can look at Europe, specifically Greece.

Investors were happy to loan Greece money until 2010, when it finally dawned on them that Greece couldn’t possibly pay them back. Almost overnight, Greece became a very bad credit risk and the economy went into a death spiral. Businesses failed. Thousands were thrown out of work.

The government couldn’t pay its bills. Germany and the other European economies had to step in to bail Greece out. But the Greeks suffered terribly. The same thing happened in Portugal and Spain.

Yes, the United States is much, much bigger than Greece and has a much more dynamic economy. That’s true. But the principle doesn’t change.

We can borrow more money than Greece, but sooner or later, investors will say “no more.” And if they ever do, our economy will go into the same downward spiral the Greek economy did.

Here’s another point. At the time I am giving this course, the interest on our debt is very low, around 2%. But what happens when the interest rate rises from 2% to the much more normal 5% — as it inevitably will?

Where is the U.S. going to get the money to pay the higher interest on its enormous debt? Do we borrow even more? That just gets us deeper in debt.

Raise taxes? That cuts economic growth.

Then there’s the question of who these investors are who are loaning us all this money. The biggest investor right now is China, not exactly a trusted ally. The more money they loan us, the more influence they have over us. Maybe they’ll never exercise this power, but do we really want to give them the option?

And consider one final point: is it moral to saddle future generations with this massive debt they had little or nothing to do with? How would you feel about yourself if you knew that you were leaving your children on the hook for debts you incurred during your life?

You had a great time living in a big house, driving a nice car, but you never paid for these things. You’ve left it to your son or daughter to pick up the tab.

That’s why the people who should care the most about the national debt are young people: they’re the ones who will be stuck with the bill.

Seniors and even those who are now in middle age, the ones who took on all this debt, might be able to shrug it off, but young people in their thirties or younger can’t or at least shouldn’t.

Is there a good way out? Yes, there is.

If the economy grows robustly, the government will take in more revenue. And it can then use that increased revenue to pay the debt down.

The second way out of debt is to cut spending. If we spend more than we take in, which is what we’ve been doing, we’re going to go deeper and deeper into debt.

Common sense would suggest that we bring our revenue, the money the government takes in in taxes, and our spending in line. If you combine the two — robust growth and reduced spending — we have a real chance to get control of our national finances.

So, is the debt a big problem? If you worried just about tomorrow, probably not.

But if you’re worried about the future and, especially, if you have a lot of future in front of you, yes, it really is a big problem – as big as a tsunami.

I’m Michael Tanner of the Cato Institute for Prager University.

*     *     *     *     *     *     *

 

Questions

Money. The main idea or topic about this video was the causes of tsunamis and the necessary precautions. True or false?

Debt, in the red, in a hole. Does the US Federal Government have a balanced budget? Is its finances balanced? Is the US national debt tiny, small, medium-sized, large, humongous or astronomical?

Borrow. Currently, do investors have confidence in the US government? Will it always be like this?

Loan. Is there a historical precedence for overspending and debt crises?

Default. What does the presenter say about interest rates?

Revenue. The logical and straightforward solution is to raise taxes. Is this right or wrong?

Expenditure. Can other countries simply bail the US out, just like Germany bailed Greece out?

Treasury. Does he place the blame for the debt crisis squarely on politicians? Will the Baby Boomers (middle-aged and senior citizens) suffer the full consequences?

Federal Reserve. There is no solution to the debt tsunami. Is this correct or incorrect? What does he suggest?
 
 
 
Balanced Budget. Does your country have a balanced budget, national debt or a budget surplus?

Interest. What are the sources of revenue for the government? Does it vary among different countries?

Deficit. What are some of its main expenditures?

Budget Cuts. Is there a lot of debate, arguments and controversy about taxes and expenditures by politicians, journalists, economists, experts and ordinary citizens?

Reform. Do different people have strong opinions about taxation, expenditures and debt?

Lobby. What might happen in the future?

Inflation. What should people and the governments do?