Solutions Economic and Market Watch

Hello, and welcome to the Economic and Market Watch podcast. This is John Suter of CFC.

Did you realize that the United States' national debt surpassed the $31.3 trillion mark this year? That's 31.3 times one trillion, which is twelve zeroes. It's almost mind numbing to think of how big it really is.

In fact, the national debt is now a figure that is one-quarter larger than America's annual GDP of around $25 trillion, or 125% of the largest economy in the world. And what is even worse at this time is that now the federal government is bumping up against the debt ceiling once again, which will have to be raised in order for the federal government to pay its bills. The United States can ill afford to default on its debt obligations. To do so would spell total economic disaster for the world's largest and most trusted economy.

The problem has been too frequent occurrence as our Washington leaders spend more than they take in in terms of tax revenue. In practice, the debt ceiling has never been reduced even though public debt itself may have declined. Congress has raised the debt ceiling 14 times since 2000 with the most recent ceiling adjustment in 2016.

Think about it. How many Americans get to uncontrollably spend and then call their credit card company at the last minute and ask to have their credit limit raised? Getting approval from a loan officer at a bank to up your credit limit when you have a spending problem is like pulling teeth. The answer is usually a hard no unless payments are forthcoming.

The biggest threat to the U.S. economy next year is probably recession. That probability now stands at 60%, double what the odds were back in June of this year. Recent news has economists stating that brinkmanship around the debt ceiling at $31.4 trillion, the maximum amount the nation can borrow to meet its existing legal obligations, could heighten uncertainty and deepen an economic downturn.

For example, instead of needed fiscal support by the government, financial markets are expecting debt-limit volatility, government-shutdown volatility, and potential spending cuts. The probability of the latter now even higher with Republicans winning control of the house.

None of these threats are good for our national economy when in recession. Historically, we know that when the economy goes into recession, jobs are lost and unemployment rises above 6%. Do you know what is worse than high inflation and low unemployment? It's high inflation and millions of Americans out of work.

There are fixes available, but neither is a quick turnaround solution.

Think back to President Kennedy's classic idea to grow the economy by cutting taxes. The saying went, a rising tide lifts all boats. The underlying theory was to grow the economy, which would bring in more tax dollars to pay down the national debt along with its interest due. However, two recessions in the last fifteen years has greatly hindered that effort by reducing real GDP growth and piling up even more national debt.

The second option is to reduce federal government spending. That has been hard for our Washington leaders to do. And during recessionary times, that's when the federal government spending is supposed to kick in to prop up a weakened economy. So as you can see, it's a tough spot to be in during these very uncertain times, especially during all the negative economic growth events going on here in the U.S. as well around the world.

That's it for today. Thank you for listening and be sure to download our Economic and Market Watch dashboard.