Why are we struggling to pay our loans if the government can’t?

The US government’s spending habits have reached a new record and are currently more than US$34.5 trillion in debt. But due money It’s nothing new – it’s part of the country’s historical narrative. The USA has been in debt since its creation, having lent 75 million dollars to national investors and the French government during the American Revolutionary War.

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But how did we get to $34.5 billion and why do Americans have to pay back their loans when the government’s growing debt remains unpaid? GOBankingRates spoke with financial experts who explained.

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Why is the US so in debt

“The US government owes a lot of money because of the irresponsible tax policies it currently has in place,” Les Rubin, founder of Main Street Economytold us.

“In recent years, the government has spent more than it has raised through revenue and deficits have accelerated consistently from 2001 to today, when those deficits now exceed $2 billion per year.”

He added: “We have a growing national debt that we owe to various countries, the Federal Reserve, various government agencies including Social Security and Medicare, and private investors.”

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Personal Spending Versus Government Spending

According to Eric Mangold, founder of Argosy Wealth Management LLCThe government has an advantage when it comes to paying back loans.

“The biggest difference between personal spending and government spending is that when the government spends – or spends more – and accumulates debt, it has the ability to print more money.”

Mangold noted, “The average citizen can’t just go to the nearest mint and ask for more money to be printed for them, but the government can. But the byproduct is that, ultimately, when the government accumulates more and more debt to nightmare levels, and cannot print more money, at some point the bill will have to be paid.

“That bill usually comes in the form of higher taxes for all of us,” he added.

Repercussions if the US defaults

Have you ever wondered what will happen if the US defaults on its loans? Our economy would suffer and “catastrophic consequences would result,” Rubin said.

“The value of US bonds would fall dramatically, possibly to zero, ultimately resulting in many entities going bankrupt through writing down substantial assets that would deplete their net worth,” he continued.

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Rubin explained: “The government would not pay the interest or principal on the national debt. A default would likely mean that we would not be able to borrow any more money, which means that the country would also not be able to finance the functioning of the government. This would likely lead to the collapse of the world economy and monetary system because the US is so large and the basis of the world monetary system.”

Why the National Debt Is Alarming

According to Rubin, the rising national debt has serious financial implications for Americans.

He went on to explain: “As debt increases and interest rates rise, a more serious problem arises for people who borrow money and use credit cards. For example, as Americans look to buy homes, the interest rate on mortgages has increased dramatically, since these interest rates are tied to the national debt rate. This makes buying a home unattainable for some Americans, adding additional stressors.”

Rubin added: “Ultimately, interest rates influence what we pay, but they also impact the future of the national debt. The country’s interest expenses have risen to more than $1 billion a year, making it increasingly difficult for the government to avoid deficits and repay these loans. This is known as the Doom Loop – as debt increases and interest increases, it causes more debt and more interest, etc.”

Why Americans have to pay back loans if the government won’t

Americans work hard to pay off their mortgages, credit cards and car loans, so why doesn’t the government prioritize the national debt?

“The government CAN pay off its loans due to its unlimited ability to borrow – for now – or print more money, as long as other countries and investors continue to buy our bonds,” Rubin said.

“However, if one day the country is unable to borrow money, we will have to default, which will have serious consequences. I think of US debt as a Ponzi scheme, since there is no source to pay off the debt principal and interest except to borrow more money. The Ponzi scheme will collapse when people don’t buy our debt. When that happens, we will face an economic catastrophe.”

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This article originally appeared on GOBankingRates. with: US debt is $34 trillion: why are we struggling to pay back our loans if the government can’t?