What It Means When National Debt Exceeds Gross Domestic Production

The national debt of the United States exceeded the gross domestic production for the entire economy in 2011. While dire news, what does it mean to you and me?

Debt and GDP Figures

The economic figures are in for 2011 and they are not good. The national debt was a bit over $15.2 trillion at the end of the year. This surpassed the “GDP” for the entire economy that came in at $15.18 trillion. With the deficit growing by $1.3 trillion or so each year, the divide will only grow from here on out unless the politicians do something.

Yeah, right.

A Plan

A responsible plan for dealing with this problem would be to cut spending while raising taxes. Neither of these solutions works in our democracy because people will vote anyone who takes such action out of office. The Republicans cling to the idea that cutting taxes will spur economic growth and tax revenues, even though the Reagan years saw huge increases in national debt levels. The Democrats want to tax just the rich, which won’t come close to paying off the debt. Either way, the people end up getting screwed.

The Fed

Historically, countries have reacted to this type of situation by having their central bank print and print and print. The problem is sooner or later this will cause massive inflation. The dollar will lose value, which makes it easier to service the national debt. The middle class, however, is hammered as is anyone saving money. Their dollars simply don’t go very far when it comes to buying things. You’ve probably already noticed this as food prices rise.

Weimer Germany

The last country to try to and use money supply expansion to deal with its problems while maintaining low interest and tax rates was Weimer Germany following World War I. It didn’t work out well. You’ve probably seen the pictures of people walking with wheel barrows of money to buy bread. The German currency plummeted in value and the savings of people in any class were wiped out. The same could happen with the dollar soon.

Doomed?

Are we doomed when it comes to the national debt? Yes, I think we are. We have a political environment where the parties can barely agree if the sun is out or not. The chances of them fixing this problem are next to none. The only hope is one party sweeps the coming elections. If that doesn’t happen, you need to invest in land and staple commodities as soon as possible. You can live on land. You cannot live on a pile of useless dollars.

Don’t just listen to me. Read up on the situation and history. Make up your own mind, and be prepared.

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