Since Reagan, both parties have been whistling this tune past the graveyard:
As long as I keep making more, I can keep borrowing more.
What this means is that our politicians have been relying on an ever increasing economy to fund an ever increasing debt obligation. (And when it becomes apparent that the debt is getting out of hand, well we just take those obligations out of the budget - don't count them at all)
In the beginning of 2008 and even late 2007, the economy started to shrink. And tax revenues also started to shrink. As a country, we have less money (I believe because of the 2007-08 price of oil and other energy), we spend less, therefore companies sell less and employ fewer. Unfortunately, it also means tax revenue goes down substantially, driving up the deficit and increasing the percentage of your money that goes to the government. Start the cycle over. The only people who come out ahead are the ones that don't have any money and therefore nothing to lose. But we feel bad for them, so we will give them some money to lose in hopes that it will make things better for the rest of us. Huh?
Fortunately, the decline in business and employment means a decline in the use of and therefore the price of oil. Remember, the money we pay for oil goes overseas, not back into our economy for the most part. We tripled the amount of money we sent overseas for oil between 2006 and 2008. And then we wonder why we don't have any money left to spend here. Duh. The housing bubble was happening before oil prices peaked. But I digress and should probably put this in another post.
Of course, the other side of debt is the ability to pay it. The gross domestic product (GDP) is the total value produced by the economy in the course of a year. In 1980, the debt was about half of the GDP. Last year, it was about 75% (three quarters) of GDP. In 2009, the GDP will be less and the debt will be substantially more. In 2008, the estimated GDP was $14.3 trillion.
As of February 5, 2009, the total U.S. federal debt was $10.71 trillion , or about $37,703 per capita. 2009 GDP is estimated at $13.26, -3.86% from 2008. 2009 is also expected to add at least $2 trillion to the debt (not counting the future payments of benefits, nor the federal reserve lending). Basically, it looks like the GDP and the national debt (as figured on a cash basis) are going to be about the same in 2009, closing that 25% gap in just about 15 months.
Disturbing: It took 25 years to have the national debt go from 50% of GDP to 75% of GDP. It is taking less than 2 years to go from 75% of GDP to 100% of GDP - the same relative distance in less than 10th the time. The future of the national debt is increasing far faster than any rosy best scenario for the GDP. So in 2011, the debt could be 125% of GDP (if the rate stays constant) or 200% of GDP if it follows the current trend. This is an astounding, possibly disastrous shift in federal policy with implications far into the future (decades upon decades). Yet we have not discussed this in Congressional hearings, in national debates, in political campaigns at all.