They Have Ignored PragerU’s Advice From 2014 But Cannot Do So Much Longer (½)

Three years ago in 2014, PragerU released two videos by Michael Tanner an author and senior fellow at the CATO Institute with both videos sharing a similar goal. The first video is titled “America’s Debt Crisis Explained” and the second is titled “How To Solve America’s Spending Problem”. The first video is basically just a video to explain the problem and the second video elaborates by offering a more in depth solution.

1st Video:

2nd Video:

In the first video, Michael Tanner starts off the video by comparing the National debt to a Tsunami sized wave which is pretty accurate seeing how the National Debt is nearly 20 trillion dollars as of the writing of this article and even when PragerU posted this video the debt stood at over 17 trillion dollars.

Although Tanner does not mention this in the video on the PragerU website in the fact sheet related to the video PragerU points out that if unfunded liabilities are counted as debt then the true debt would be 90 trillion (Source: National Review)  which is more than the $74.15 trillion GDP of the entire planet (Source: World Bank). Just think of that for one moment before continuing to read, more debt than the all the goods and services produced by all 7 billion people on earth in an entire year.

He then goes on to explain that governments go into debt the same way as people do which is by spending more money than they take in and begins to elaborate on his reason for why this debt is such an awful thing. He begins his reasoning by telling the audience that right now in  the eyes of an investor the United States is a safe investment which means they believe with a high degree of certainty that if they lend the United States money that eventually that money will come back with interest and continues to say that if the United States national debt continues to rise so much then eventually investors will stop investing in United States treasury bonds because they see the United States as a bad risk.

The best example of what happens when countries continue to have so much debt for so long is what happened in Greece in 2010. As Tanner points out investors would keep on pumping money into Greece but almost overnight the money vanished because of  Greece becoming such a bad credit risk due to investors not thinking there was any way for Greece to pay back all the money it had borrowed. Once this happened the Greek economy collapsed and the government couldn’t pay its bills (similar things also happened in Portugal and Spain).

Although the United States economy is far superior when compared to the Greek economy the same principle applies, the U.S. can handle more debt than Greece can because of a dynamic economy but even with such a dynamic economy eventually if the government continues to spend so much more than it takes in the same results would occur and the American economy would suffer a Greek style economic death spiral. He points out that although interest rates are low right now they are going to go up in the future by a lot. Although he uses different numbers based on different assumptions from 2014 right now the numbers for debt interest payments in the U.S. are as follows. In 2016 the U.S. spent $240 billion dollars simply paying interest on the debt but under current law that spending is set to more than triple over the next ten years to $741 billion (Source: Office of Management and Budget).

He goes on to ask a sincere question: Where is the U.S. going to get the money from this?

The U.S. can’t just continue to borrow more and more money to pay for this because that would just put the country deeper and deeper into debt. It would be an awful idea for the U.S. to pay for this by raising taxes because that would cut economic growth. Before moving on to his next point he points out that the largest owner of U.S. debt is China and that continuing to give them this much control over the country would be silly. Then comparing the national debt to someone living in a luxurious house, with a nice car, and not paying for any of it, just simply giving the bill to their children.

Michael Tanner finally begins to suggest two solutions which he elaborates on in the second video he made for PragerU on this topic. He says that in order to pay down the debt America can follow either one of the following paths or even both. The first of these two paths is to enable robust economic growth which would raise revenue for the government and the second path is cutting spending and once either one or both of these paths are followed then revenues will meet spending in what is called a balanced budget which means that either no new debt is being added to the national debt or that the debt is being paid down.

Politicians from both sides of the aisle have completely ignored this problem but they cannot or at least should not continue to do so.

To be continued…