You might have heard this already, but the U.S. is in a little bit of a financial pickle. We’re in debt. Lots of debt. In fact, at last count, it was at about $14 trillion. That means that we owe $14 trillion, to all of those nice countries who have been helping us out (like China, Japan, and Luxembourg, just to name a few.) That amount divided equally among the U.S. population is about $46,000 for every man, woman, and child!
But it’s not all bad news. We’ve been here before, and we’ve gotten out of it before. How? By budgeting, cutting back costs, you know little things that you might do to save money—only on a big, huge, national scale.
As of Sunday night, steps toward solving this mutli-trillion dollar predicament have been made, and we are all crossing our fingers that the debt will diminish over time. But it is important to know how we got here in the first place.
So check out this video all about our long-standing relationship with debt.
And if you want to take an in-depth look at our current budget in the works, check out this interactive graphic from the New York Times.
Once upon a time there was a man named Alexander Hamilton, who was the first Treasury Secretary of the United States. Now this was way back in 1788, just after the Revolutionary War, and the U.S. had just spent a lotof money—more money than the new nation even had. Wars are expensive after all.But Hamilton knew what he was doing, and by the 1830s the federal government had successfully paid off the debt from the Revolutionary War, and all seemed well.
Well until the Civil War began. Now, the Civil War didn’t put the U.S. into too much debt, and it was pretty well paid off by the early 20th century.
Then, as with all wars, World War I brought more debt, reaching 35% of GDP. This was pretty short-lived, though, and by the twenties, we seemed to be back on track, having less debt than we did at the turn of the century. This was why the twenties are called the “roaring” or “swinging” twenties—this was a time of hope, fun, and optimism in the U.S.
Until the Great Depression. President Roosevelt tried to combat the financial crisis by spending more money, sending the nation deeper into debt than ever. But it wasn’t just him—local governments did the same, and by 1933, the U.S. debt was up to 70% of GDP. That’s a lot.
But it’s nothing compared to what happened next.
By the time World War II ended, the federal debt was at almost 122% of GDP. Impossibly, over the next 35 years, the government managed to bring the debt down to an almost-manageable amount, but then came President Reagan. He increased the federal debt up over 50% of GDP to fund the Cold War in the 1980’s.
Since then, the debt has fluctuated some, and in the mid-nineties until about 2001, it was actually on the decline. Ever since, though, it has been rising pretty consistently, and in 2008 with the market crash, it reached over 100% of GDP for the first time since World War II.
Today the U.S. National Debt is approximately $14 trillion; 98.6% of GDP, and is predicted to rise to 101% of GDP by 2021, and 187% by 2035, if something doesn’t dramatically change soon.
This “dramatic change” is being discussed constantly in Washington and is the source of some contention amongst Obama and Congress. The difficulty is, we are a nation just coming out of recession, so raising the debt limit is dangerous, but on the same coin, not raising it seems impossible.
So we are in a bit of a financial pickle. But the good news? We’ve been here before and we’ve come out of it okay—maybe even stronger.
What do you think about the agreement recently reached? Will our story have a happily ever after? Comment below and share your thoughts!
Sources: HowStuffWorks.com, Wikipedia.org, CBSNews.com, USGovernmentSpending.com, Brillig.com/debt_clock, NYTimes.com, USA Today
