Seeing the booming stock market and the increasing GDP, many Americans assume our economy is in good shape. Our long-term “balance sheet,” however, is getting increasingly worse. Prior to the Great Recession in 2008, we saw similar stock market and GDP numbers—and we all know how that turned out.
The problem is that GDP doesn’t work well as a measure of the health of our economy. It’s basically the same as measuring your financial health by how much you spend. For instance, if you obtained a bunch of credit cards and went on a spending spree, your financial condition wouldn’t improve—your long-term financial condition would get much worse.
GDP measures the economic activity. It basically shows how much money is changing hands, which doesn’t necessarily equal prosperity. Instead, we should look at changes to assets and liabilities. Simply put, is the increasing activity generating wealth or debt?
The sad news is that only a few companies are accumulating wealth. Almost everyone else is growing their debt at extraordinary levels. Corporate debt has doubled since 2008, US national debt is completely out of control, and household, state government, and local government debts are all at record highs.
So, while you could claim that you’re growing your “personal GDP” by spending $50,000 using credit cards, it would make no sense since you’d in fact just be jeopardizing your family’s financial well-being. Increasing our GDP through increased debt is not a positive thing.
Below are 10 facts that make it clear just how terrible the US financial condition is.
#1 US consumer credit is setting new records. Total consumer credit in 2008 was 2.63 trillion dollars, and today it has reached 3.87 trillion dollars. In just one decade, it has increased by a 48 percent.
#2 Another record-setting number is student loan debt, which is now exceeding 1.5 trillion dollars. Over the past eight years, it increased by a stunning 79 percent.
#3 Numbers from the Federal Reserve show that the credit card default rate has gone up every quarter for the past seven quarters.
#4 According to a recent survey by CreditCard.com, 42 percent of Americans have paid their credit card bill late at least once in the last year, while 24 percent has paid it late more than once in the last year.
#5 Real wage growth (wages adjusted for inflation) recently declined more than we have seen at any point in the past six years.
#6 The bankruptcy rate for people age 65 and older has tripled since 1991.
#7 Retailers are shutting down at an alarming rate. So far this year, 57 major retailers have announced store closing.
#8 The US budget deficit has increased by 21 percent since 2017.
#9 In 2018, the interest payments on our national debt will exceed half a trillion dollars—servicing our existing debt is higher than the GDP of 167 countries.
#10 According to Goldman Sachs, the yearly US budget deficit will surpass 2 trillion dollars by 2028.
Let’s also talk about unfunded liabilities—future commitments that we don’t currently have the money for. At the moment, these amount to more than 200 trillion, according to professor Laurence Kotlikoff in a Forbes article.
Ignorance is bliss
However, if individuals, corporations, and all levels of our government didn’t go into more debt, we would—immediately—enter the greatest economic depression in US history. We can only sustain this debt bubble by increasing out debt. Otherwise, it will blow up.
It’s a terrible, broken system. No one should believe that our economy has been fixed when our long-term financial imbalances are in fact worsening at a frightening speed.
Prior to the Great Recession, the attitude was that because we hadn’t seen any negative consequences of our decisions, there would be no negative consequences. Today, the general public seems to have the same attitude. Many people also believe that just because we have a new White House administration, things will suddenly improve.
What will it take to fix the system?
There is only one way to fix our long-term problems: we must fix the underlying issues. Sadly, this is not happening.
Americans seem to be under the illusion that our current system functions well. Therefore, they don’t want to make any fundamental changes. The fact is that our current system is fundamentally broken, and we desperately need to fix it. Likely, however, we’ll need to experience another major crisis before people are willing to make such changes.