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Jul 09

America's Borrowing Binge-what is the long-term cost?

Posted by: Steve Marr

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In 1985, the U.S. became a debtor nation, owing other nations more than they owe to us. Since that time, we have continued to borrow even more,and early this year our national debt reached 25% of our Gross National Product. If this trend continues, the debt will grow to 40% of the GNPin 2007 and to over 60% by the end of the decade!


To put it in perspective, consider a family with a net income of$60,000 that increases their personal debts from $15,000 to $24,000 in four years and then to $36,000 in seven years. As the debt increases,so do the interest charges that negatively impact the family, and nothing has been done to decrease the overall loan amount. Clearly, the family is in trouble. 

As a nation, the current debt seems manageable, but only because interest rates are at historically low levels. The net interest on our national debt is $4 billion dollars, which is a manageable sum,primarily because the U.S. earns more on foreign investments than the U.S. is required to pay.

However, if the value of the dollar drops and interest rates rise, we will be required to pay much more in interest while receivingless from other nations. The result will be a much higher cost tofinance our credit binge. 

If the family with the $60,000 income and $15,000 debt had financed with an 8% home equity loan, the annual interest payment would be $1,200, a manageable amount for most. However, if the family debt grows to $36,000 in seven years and interest rates increase to 12% fort hat same loan, the total interest paid increases to $4,320, almost quadrupling the payments-and the strain-on the family budget.

Economists estimate that by 2007, the U.S. will pay $150billion in interest to foreign interests, up from the current $4billion. This will have a major impact on our economic growth,affecting us on all levels … even the personal level. As time goes on, you can watch the growth in debt on this link: .

Steve Marr, Your Christian Business Coach

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