America is currently facing a significant debt crisis, with the national debt surpassing $35 trillion. This staggering amount translates to roughly $93,500 per American. In fact, the national debt levels today are comparable to those seen during World War II. Currently, the federal debt in the United States sits at around 104 percent of GDP, excluding intragovernmental holdings, and about 128 percent of GDP when including them. These levels are the highest they have been since shortly after World War II, which raises concerns about the potential impact on our currency if we were to be plunged into another global conflict.
Additionally, corporate debt defaults have been on the rise, posing a problem for cash-strapped companies dealing with high interest rates. According to S&P Global Ratings, the number of companies that failed to make required debt payments totaled 153 in 2023, an increase of 80 percent from the previous year. As of late 2022, corporate debt in the United States had risen to approximately $19.8 trillion, up from about $16.3 trillion just before the pandemic.
The financial challenges faced by Americans extend beyond corporate debt. A growing number of low-income retirees are choosing to move abroad instead of spending their golden years in the United States. The cost of housing and healthcare in the country has become increasingly unaffordable for many retirees, particularly those who rely solely on Social Security payments, which average around $1,900 per month. The data from the Social Security Administration shows that in December 2022, more than 700,000 people were receiving Social Security payments abroad, compared to less than 400,000 in 2000. Moving to other nations provides these retirees with the opportunity to escape the cycle of increasing debt and live more comfortably.
Household debt is another pressing issue in America. It encompasses all liabilities that households have, requiring future payments of interest or principal. This includes mortgage loans, consumer credit, and other accounts payable. As a percentage of net household disposable income, household debt is a significant burden for many Americans.
One of the largest contributors to the overall debt crisis in the country is student loan debt. Currently, millions of Americans are burdened with student loan debt, amounting to over $1.6 trillion as of the end of last year. This overwhelming debt is the result of decades-long borrowing paired with skyrocketing education costs. On average, students graduate with approximately $28,950 in debt. The issue of student loan forgiveness has sparked debates over fairness. Supporters argue that forgiveness provides much-needed relief to those burdened by student debt, especially individuals from low-income backgrounds. They believe that reducing debt would allow individuals to have more disposable income, potentially stimulating the economy. Conversely, critics argue that forgiveness is unfair to those who have already paid off their loans, chose not to attend college, or served in the military to avoid debt. They also express concerns about the potential inflationary impact of debt forgiveness and the burden it places on taxpayers who did not benefit from higher education.
Credit card debt is another area where Americans are struggling. The delinquency rates for credit card balances have reached levels not seen since the financial crisis of 2008-09. Over 9 percent of credit card balances transitioned into delinquency in the past year. It is essential to address credit card debt by evaluating one’s debt, maintaining open communication with credit card providers, exploring relief programs, and implementing payment plans.
Mortgage payments have also seen a significant increase, with the average payment rising by more than 46 percent over the past 12 months. This surge is driven by record-fast home value appreciation and rising mortgage interest rates. Homebuyers are grappling with higher sellers’ median asking prices and the doubling of mortgage rates in recent years.
Furthermore, auto loan payments have been on the rise due to higher interest rates and increased vehicle prices. As of the first quarter of 2024, the average monthly payment for new vehicles is $735, while for used vehicles, it is $523. These rising expenses put additional strain on consumers’ financial well-being.
In summary, the United States is grappling with a debt crisis that affects various sectors of the economy. From national debt levels reaching WWII levels to corporate debt defaults, low-income retirees leaving the country, and the burden of household, student, credit card, mortgage, and auto loan debt, Americans are facing significant financial challenges. It is crucial to address these issues through careful debt management, exploring relief programs, and considering alternative solutions to ensure a more stable financial future.
