Why Debt Doesn’t Doom the American Economy

With the U.S. government continuously choosing to borrow money from foreign nations, it might seem as though generations of future Americans are destined to suffer beneath the enormous mountain of debt that has not-so-steadily accumulated. Presently, the U.S. debt to GDP ratio stands at 110% – a figure that is well above the 77% at which point creditor nations start to worry, according to the World Bank. However, Zoomers and beyond need not fret, for it is incredibly unlikely that the national debt will wreck the U.S. economy, even though it is rapidly growing with no sign of slowing down any time soon.

There are several reasons for why this is the case, but the main one is that the U.S. is not under any pressure to pay off the national debt immediately. This is because creditor nations are not concerned with the fact that the U.S. has taken out so much money in loans, and still remain very confident that the U.S. will eventually pay all its debt back. The fact that there is no immediate reason for the U.S. to begin paying off its debt has made the American government comfortable with taking out more money before repaying its loans, and this will not change until creditor nations grow skittish and start having doubts.

Furthermore on this point, creditor nations have more to gain than they have to lose by loaning money to the American government. Not only do they have faith that the U.S. will pay back the money they owe in full, but they also get the benefit of being paid interest on top of the amount of the initial loan. And even if we take these benefits out of the equation all together, creditor nations still have no reason to stop lending the U.S. money, because the U.S. will not default on its debt. The reason being that the American legislative branch, which controls the budget, knows full well that defaulting on its debt would shake faith in America in the financial markets. This would be a devastating blow to the U.S.’s major economic presence on the world-stage, and so Congress would be very unlikely to take this step.

This brings us to another concern – how does the American economy not collapse when U.S. Federal Reserve continues to print money with no end in sight? The answer to this is that the U.S. dollar is the reserve currency for all other countries. It took the place of the gold standard, and today it anchors the value of foreign currencies. For this reason, international business transactions are completed by using the U.S. dollar. As a result, there is an infinite demand for U.S. debt. Because banks and businesses want to safeguard their wealth, they must hold the world’s reserve currency (the U.S. dollar), and so the Federal Reserve does not have to worry about potentially printing too much money.

Some claim that the American economy will fail because it will be replaced as the world’s reserve currency, perhaps by the yuan, the euro, or maybe even a cyber-currency like bitcoin. The reasoning behind this is that the U.S. dollar will decline in value in relation to these currencies, and therefore will no longer be the preferred reserve currency. However, this is unlikely because no other form of currency matches the U.S. dollar’s high rates of circulation – making it near impossible for them to replace the dollar. 

Another point to keep in mind is that because the U.S. prints its own money, it controls its currency. This means that it can handle a much higher debt-to-GDP ratio than many other countries can – so that 110% we discussed earlier is no cause for immediate concern. Skeptics who continue to doubt the ability of the U.S. economy to manage such high ratios of debt-to-GDP need look no farther than Japan to see the truth of this. Japan is another country that prints its own money, and thus controls its own currency, and its debt-to-GDP ratio is over 200%! This is also not a recent development, but rather has been the case for years. And yet, despite having such a high ratio of debt-to-GDP, Japan’s economy remains strong and has not shown any signs of impending doom – indicating that there’s no reason to believe that the U.S. economy will react any differently as its ratio grows.

Of course, there’s no guarantee that the U.S. economy will not fail. However, it is a highly unlikely outcome, and not one that we should anticipate or chew our nails over any time soon.

 

On the Necessity of Universal Mail-in Voting this November

With the presidential election looming ever closer, the pressure on legislators to produce a solution for crowded polling places amidst a global pandemic mounts. As the Democratic and Republican parties spar on the Capitol floor over whether or not the country should completely transition over to mail-in voting this November, many Americans are left wondering whether or not they will be able to vote at all in this election. 

Republicans claim that mail-in voting will allow voter fraud to run rampant through this election, with President Trump tweeting out on April 8th that with mail-in voting there is a “Tremendous potential for voter fraud, and for whatever reason, doesn’t work out well for Republicans.” Meanwhile, Democrats claim that not instituting the universal option to submit a mail-in ballot is a suppression of many Americans’ right to vote. However, regardless of the potential risks that come along with doing so, it is increasingly clear that not only should the United States institute universal mail-in voting, but that it must make systematic bureaucratic changes in order to ensure that this policy will not inhibit a free and fair election from taking place.

Of course there are numerous risks that come along with this policy – but we should expect some growing pains from the process of moving an entire national election to the post. The first issue, which has led President Trump and the Republican party to decide that blocking this policy is the hill they wish to die on, is that of the possibility of fraudulent votes being cast. Though this is unlikely to be the case because a lot of personal information would be needed to cast a fraudulent mail-in vote (in most states you need to include the last four digits of your social security number, your driver’s license number, and your signature must match the one already on file), there is some truth to the notion that the vote count will not be entirely accurate. 

This is because a certain number of legitimately cast votes will not be counted for trivial reasons – perhaps someone’s hand slipped on election day and their signature was not close enough to the one on file, or maybe they filled out most of the ballot and forgot to sign it at all. This is obviously problematic because it will silence millions of Americans who wish to exercise their right to vote for the next leader of their country. Even more so when we consider the fact that votes cast in poor communities and in communities with large populations of people of color are disproportionately thrown out for such reasons. 

However, by not instituting the universal mail-in vote, we are still infringing upon certain Americans’ right to vote in the election. The elderly, those with chronic illnesses, and the family members who live with them will be put in a difficult position due to their vulnerability to covid-19. They will be forced to decide between putting themselves or their loved ones at risk in order to cast a vote at their polling place, or staying home on election day and not voting at all. It doesn’t seem fair to ask citizens of this country to put their own health or the health of their families on the line in order to exercise their right to vote. 

For these reasons, it is clear that not only must the universal mail-in policy be instituted, but also that systematic changes must be made to the way that mail-in votes are counted in order to ensure that every American is able to properly exercise their right to vote this November.