At the time of writing this our national debt is $11.2 trillion (and counting). Another way of looking at this is to realize that the share of debt for each man, woman, and child in our country is over $36,500 each. For a typical family of four this amounts to $146,000 of debt. A sizable portion of your tax dollars go to paying interest on this debt.
Roughly half of our national debt was accumulated under the Bush Administration. Some notable expenses were the war on terror and the wars in Iraq and Afghanistan. Bush inherited a budget surplus and left office with the largest federal deficit ever.
One key number I am fascinated by is the federal deficit as a percentage of the GDP. I think it is a good number to compare deficit spending for different years. To get this percentage I take the federal deficit divided by the GDP using this data from usgovernmentspending.com.
Over the course of the Bush presidency the worst year for this number was in 2004 when the federal deficit was 3.5% the GDP. In 2008 the federal deficit was 3.2% the GDP which is not as bad but close to it. How does Obama compare?
Under the Obama administration the 2009 federal deficit is planned to be a whopping 12.3% of the GDP. This insane deficit spending of 12.3% GDP is more than double the worst value from any year from 1947 through 2008. The closest comparable year for excessive spending was 1983 where the federal deficit was 5.9% of the GDP. Another way of putting this is to say deficit spending is twice as bad now as it was in the worst year over the past six decades.
At the rate of spending planned by the Obama Administration our national debt is becoming a good bet to double during Obama's watch. Perhaps even more alarming, our national debt is on pace to exceed our GDP in a few years. The last time America's national debt exceeded its GDP was during World War II. Fortunately back then we were able to overcome this debt burden because our economy was in a position to significantly outgrow our debt. Our debt still grew back then but our economy grew faster, a lot faster.
Unfortunately for us now, however, our economy is not well positioned to outgrow our debt. We have an aging population with baby boomers already starting to collect social security. Our GDP growth rate in 2009 is looking to be lower than any year over the past six decades. Our economy is addicted to foreign oil which will likely hinder our economic growth because oil prices will surely rise and create a downward pressure as the economy starts to shows signs of any significant growth. Unfortunately, spending money at levels not seen since WWII does not guarantee we will get the economic growth we saw after WWII.
Instead of comparing our current situation to ourselves back in the 1940s, I believe it would be more appropriate to compare ourselves with another highly developed economy that has many similarities to us. The recent economic history of Japan offers us a crystal clear window into what our future might look like if we continue to try and spend our way out of the current economic situation.
Japan's Nikkei average peaked in 1989 and the peak was followed by a major correction. Similarly, the Dow peaked in 2007 and that peak was also followed by a major correction. Japan tried to spend their way out of their economic crisis just as we are trying to do now. How did all this spending work for Japan? Well, in 2009, two decades after the Nikkei peaked, Japan's Nikkei hit a new 26 year low. Also, in 2010 Japan's debt as a percentage of GDP is estimated to be 200%, a massive burden on their economic future.
Japan is a crystal ball that shows where excessive government spending will lead us. Our economic situation now is similar to Japan's situation back in the early 1990s. Unfortunately, our government response to spend, spend, and spend is hauntingly similar as well.
