Why the U.S. National Debt May be Headed Towards Bankruptcy

US National DebtOver the past few years, the U.S. national debt has increased drastically since the financial crisis. To give some perspective, since President Obama has taken office, U.S. public debt has jumped by $7.0 trillion. (Source: Committee Responsible Federal Budget, May 11.2015.)

With stocks at an all-time high, people aren’t paying much attention to the U.S. debt level. But know this: rising national debt is a problem, and the U.S. debt is only expected to increase.

The Trajectory of U.S. National Debt

As it stands, Obama’s proposed budget would result in a deficit totaling $6.0 trillion between 2016 and 2025. These projections are too optimistic.

According to Congressional Budget Office (CBO) current baseline projections, under current law, the federal deficit will be $486 billion in 2015 and the cumulative deficit over the 2016–2025 period will total $7.2 trillion; $1.2 trillion higher than Obama’s proposal.

We believe it will be much higher than this.

It’s worth noting that five months into the current 2015 fiscal year, the U.S. government has already overspent by $77.0 billion per month. With this sort of spending, the expected annual budget deficit for 2015 would mean that $486 billion would be reached in less than seven months. (Source: Congressional Budget Office, March 12, 2015.)

Also, the current projections by the CBO or the Obama administration don’t include impacts of recession and other factors that can force the government to spend more.

The Other Threat to U.S. National Debt

There’s another threat to national debt where not much attention is being paid; the increasing number of baby boomers and subsequent cost of Social Security and Medicare.

The number of people paying Social Security taxes is expected to grow more slowly than the number of those receiving the entitlements. The number of taxed workers will increase 20% between now and 2045, while beneficiaries of Social Security’s Old-Age, Survivors, and Disability Insurance (OASDI) funds will increase 57% over the same period, according to the Social Security Board of Trustees. (Source: www.socialsecurity.gov , May 11, 2015.)

Someone will have to pay for the entitlements and this will force the U.S. government to borrow even more.

National Debt to Double?

Rising public debt never ends well. The U.S. government may be able to borrow money for now, but in the long run, this is not sustainable. It’s only a matter of time before those who are lending to the U.S. say they can’t pay their debts, or even worse, ask for their money back.

It will impact the credit rating of the U.S. as well as the greenback.