Sputnik: The US national debt will continue rising until American political leaders finally make far-reaching structural reforms in government and finance, former European Union consultant Paolo von Shirach told Sputnik.
The US national debt last week surpassed the $20 trillion mark for the first time in history after President Donald Trump signed a bill temporarily raising the nation’s debt limit for three months.
“At the moment, there is absolutely no sign that either the Trump administration or the Congress want to seriously overhaul the entitlement programs that are the root cause of this systemic fiscal imbalance,” Schirach, president of the Global Policy Institute and professor of international affairs and economics at BAU International University in Washington, DC, said on Tuesday.
The basic responsibilities and spending priorities of the federal government ensured that the deficit was locked into the very structure of US politics and society, Schirach explained.
“There is no path forward to sustained US global leadership unless the negative social spending/deficit/debt spiral is finally reversed,” Schirach warned.
The problem grew steadily more serious “because of the trend line: Every year Washington spends more than it takes in term of tax revenue and the difference is financed by issuing new debt,” he said.
“The deficits are structural. As a consequence, we keep adding to the national debt, year after year,” Schirach said. “The deficits and hence the national debt are caused by the inability to finance major entitlement programs through tax revenue.”
The demographics of the US population guaranteed that this burden generated by social and health spending was going to get far worse in the coming decades, Schirach cautioned.
“Entitlement spending now comprises more than 60 percent of total federal spending; and it is destined to grow on account of the increased number of retirees who, by the way, live much longer and therefore collect much more,” he said.
This process had already dramatically limited by the federal government’s freedom to launch new programs and initiatives, Schirach remarked.
“Getting into debt in order to finance major infrastructure spending, or better education systems would be good. This would be an investment,” he said. “But America is getting deeper into debt in order to support the standard of living of retirees. This is socially valuable but economically not productive.”
The US financial system could still carry the growing financial burden, but not indefinitely, Schirach added.
“Can this large economy sustain this level of debt? For the moment, the answer is ‘yes.’ The US still has good credit. Investors are willing to lend money to Uncle Sam. But this is not the real problem,” Schirach said.
Getting heavily into debt limited the US government’s options, Schirach concluded.
“A government, little by little, discovers that it can do less and less because it has no longer any discretionary cash,” he said.
The Senate approved the higher borrowing limit by 80 votes to 17 last Thursday and the House of Representatives then also passed it by 316 votes to 90. Both votes would have overrode any veto by Trump had he tried to block the legislation.