America is the richest nation in the world, the nation with the highest Gross Domestic Product (GDP), and the highest Gross National Product (GNP) bar none. Not only does America have all the advantages of being the de facto currency or reserve currency of the world, it has the military might and economic influence that permeates or influences virtually every nation on this good earth. In addition, to all these wonderful things, America is the destination of choice of the best and brightest throughout this world, along with its being the favored nation for bringing real assets and knowledge by accomplished entrepreneurs to our shores in either actuality or in practicality. Yet, with all these massive advantages, America seems incapable of keeping their fiscal house in order.
When President Clinton left office at the end of 2000, the deficit of America was $5.67 trillion dollars, a massive amount but in comparison to our real GDP of $12.56 trillion dollars, perhaps manageable, under the right circumstances. Since then, under Presidents Bush and Obama, America's deficit has soared to $19.39 trillion dollars, whereas the real GDP is just $16.73 trillion dollars. Further troubling news is that our real GDP growth from the years 2005-2016, has not exceeded 3% per annum in any of those years, which is unprecedented for America, and proof positive that America does not have the ability to grow its way out of its massive current debt.
In point of fact, in order to have enough escape velocity to alleviate the current debt crisis, America must either grow its way out of it, by producing real higher growth, something that would appear to be improbable, cut deficits, something that the politicians of this great nation refuse to take the necessary steps to accomplish, or, essentially debase the monetary currency of the realm, by inflation, which is, no doubt, the plan of the moment, but with incredible perils of its own.
The problem with stoking the inflation fires, is as follows, of which on one side, American tax revenues increase because prices, salaries, and fees will correspondingly increase, and by virtue of our progressive tax system, higher incomes mean higher tax extraction rates, effectively meaning that wage earners while earning more money nominally, are actually netting less money in actuality which also translates into less buying power. The other positive of inflation for the government is, in theory, they are able to pay down their debt with money that has been effectively devalued, so inflation has made that ongoing deficit lower in real terms.
However, as always, for every winner, there is a loser, in which, those that invested in bonds, and other fixed interest instruments, will while still being paid what they have due to them, are being paid back in debased currency, to wit, they will lose out not only from the interest that they should have received giving them a real positive return, but because of inflation, their real return will actually be negative.
There is though one additional problem to higher inflation, which is the biggest debtor of them all is America, and America will therefore have to pay higher interest rates on its debt, because the lenders of such, will, once convinced that inflation is here to stay, mandate that they get a net positive return for their risk.
This, would then indicate, that there is no easy or ready solution for our massive deficit solution, and in fact, if America insists on not getting its house in order, by continuing to run incredible debilitating deficits each and every year, now and into the future, this house of cards will inevitably collapse and a new monetary issue will be created, amongst the absolute chaos of this momentous and unsettling event.