By: Dr. Mike Campbell
The United States has the world’s largest economy. The economic output of the USA is a staggering $15 trillion – the equivalent of $2500 for every person on earth (there being about 6 billion people on earth) per annum.
According to the Congressional Budget Office (CBO), a conservative estimate of the nation’s debt for 2011 suggests that it will come in at 10% of GDP or $1.5 trillion. Given that there are some 200 million Americans; that works out as a debt of $7500 each. The costs of servicing this debt are obviously very considerable. The CBO estimate is based on a very unlikely and benign set of assumptions about existing spending, so the true figure is almost certain to be higher.
The cost of servicing these debts currently amounts to 1.5% of American output. However, since interest rates are at record low levels, the CBO expects that this figure will more than double to 3.3% of output over the next decade, assuming the rate of indebtedness remains constant.
A Bleak Future?
With the American population aging, social security and Medicare costs will rise over the coming years, adding to the debt burden. Currently, health and retirement spending accounts for 10% of output, but this is expected to rise to 16% within the next 25 years. Whilst the CBO expects that there will be a “sharp fall” in the debt burden over the medium term, this level of borrowing is clearly unsustainable.
US unemployment remains obstinately high at 9.4%. It is thought that it may take until 2016 until this falls back to the normal level of 5.3% since the recovery following the global recession is proving to be slower than usual.