We, as Americans, have reached the apex of our consumption. In 2006, the United States reached a debt of $48 trillion — which grew by 9 percent ($3.9 trillion) in the same year. This debt takes into account spending from the federal government down to consumer abuse of credit. Despite attempts by the Bush administration to downplay the importance of America's compiled debt, evidence shows that America and Americans are on a dangerous path toward economic implosion.
In August 2006, for the first time in American history, the American consumer held more debt than income. Debt per household grew 8 percent, putting total consumer debt at $2.17 trillion. Most of this debt falls on middle-class America, which consumes the most. According to the Center for American Progress, the reason, in this case, does not lie in over-consumption and greed, but rather the stagnation of the national economy and specifically, wages.
Although the debt is rising at a near exponential rate, the American National Income has been growing in a more linear fashion, and in 2006 was a mere $10 trillion. So the question then arises: How is the United States able to maintain stability with such a massive gap between its income and its debt? The answer is simple: foreign loans. Twenty-six percent (approximately $1 trillion) of the total national debt increase in 2006 was due to foreign investment. We, as a nation, currently owe countries such as Japan, China, Kuwait and Saudi Arabia. Such status leads to the questioning of the value of the dollar itself.
In 1971, former President Richard Nixon began the process of abolishing the gold standard so that the dollar's value could more readily meet the demand of an increasingly globalized economy. The elimination of the gold standard also meant that America could now create money more freely without worrying about matching its reserves of gold. However, the problem this has created is that the current dollar is being held at a synthetic value. The dollar is currently maintained by increased foreign loans rather than the true value of our assets.
Although we may not notice the repercussions of an exponential debt in the immediate future, it is likely that soon enough, the value of the American dollar will drop. This can be attributed to fears of a stagnant American economy. Also, continents like Africa and Europe are starting to gain the eye of investors and loaners due to the potential for increased returns and profits.
What was once powerful about America's economy (market expansion, investment, size) is no more. With the creation and stabilization of a unified European economy and investment opportunities within developing countries in Africa and the Middle East, America is beginning to be looked upon by nervous loaners as a stagnant dinosaur of economy. The only thing to save this country from economic collapse is to limit the amount of foreign money borrowed and then to reevaluate the dollar.
Outside of America's foreign debt and consumer debt is the question of the effects on the American socioeconomic hierarchy. With so much debt landing on the middle class, forcing them into poverty, this country is losing what once made it powerful. America, in the modern era, has been known for having a flourishing middle class, and according to various economic theories, this was wonderful for the stability of a society. The more disparate the rich and the poor become, and the more the middle class dwindles, the closer a society moves toward dramatic change — and perhaps even revolution.
We must pull away from borrowing more money. We must stop engaging in wars we cannot afford. We must turn all spending inward and revitalize our economy. We cannot allow the middle class to suffer while the rich waste and grow richer. We must begin to ask our government to work for us again.
Wasim Salman ([email protected]) is a senior majoring in international relations.
