So far, the cost of the war in Iraq (oh, yeah, and Afghanistan, remember them?) has reached levels that exceed: all U.S. development aid since 1979, over half a century of State Department operations, and all loans given by the World Bank since 1989. (Source)

I’m just a regular working stiff, so I can hardly comprehend the ludicrous amount of dollars being thrown down the Iraqi rathole (shoot, I’m just worried about how my budget is going to handle $4/gallon gas this summer!), but even without considering the enormous number amount, the cost has doubled since the inception of military action.

This country is in debt up to its eyeballs and spending money like a drunken sailor on leave. If America was Mr. Joe Citizen, there’s no way on God’s green earth anyone would loan him more money with the reckless way it has been mismanaged thus far.

How long can the US realistically continue incurring these enormous costs?

What are the consequences of the country being this deeply in debt and constantly accumulating more debt?

This issue comes up quite often and is very much misunderstood.

I could ask a similar question: Can Amlord afford to get a loan to buy a new $50,000 Lexus?

The answer is: we don't have enough information to answer. What is Amlord's income? How much debt does he currently have? How much of his income is going towards paying past debts?

The sheer enormity of the numbers involved with the federal government baffles most people. How can we spend $x billions on this or $y billions on that? The answer is that the total budget is in the trillions, a thousand times higher than billions.

Let's look a bit closer at the United States and what is called the debt ratio: the ratio of public debt to GDP. Here we have a graph of debt ratios since 1940. Amazingly, the current debt ratio is fairly average by historical standards.

The Heritage Foundation did a nice write up of this issue in 2005: link. As they say:
As the debt is revolved (just like a credit card) the payments get higher and higher as more and more debt is added to them. The danger is not related to interest rates (as the article shows, interest rates have little correlation to deficits), but strictly related to how much of future revenues must be paid to finance expenses in previous years.

The other danger is the estimated $33.2 trillion unfunded mandate represented by Social Security and Medicare (Source: See page 182 of this report). This unfunded mandate is four times the national debt.

How long can the US realistically continue incurring these enormous costs?

Realistically? For as long as the country lasts. The current debt burden is not very high by historical standards or when comparing us to other countries.

What are the consequences of the country being this deeply in debt and constantly accumulating more debt?
As the Heritage Foundation put it, the consequence is having to spend money next year to pay for debts incurred this year (and the years preceding this year). Social Security and Medicare will have a much bigger effect on our future if they are not reformed.

That does not mean that I advocate the deficit spending practices currently in place. They certainly do put a burden on future taxpayers which should, in all fairness, fall on today's taxpayers. I was a bit mad when the PAYGO system was stalled in Congress. Although flawed, PAYGO represented some amount of fiscal restraint. The entire budget process is currently out of whack. Budgets are constantly late, too complicated, and omit key information. The whole thing is a fiasco.

However, the current debt burden is not something akin to bankruptcy, which many people seem to think it is.

Amlord, I use to make the argument about the national debt being a declining % of GDP in the days when conservatives believed in balanced budgets and liberals wanted to use stimulative fiscal policy in an anti-cyclical way. However, at that time our national debt was largely owned by domestic lenders - one pocket owing the other pocket. Now the foreign share of our national debt is approaching 50%. In the pre 1980 period we could also point to the fact that the national debt as a % of GDP had sky rocketed in WWII but that it was consistently dropping since then. (Incidentally, the graph you reference conviently begins with the high WWII debt). With Reagan national debt as a % of GDP again climbed. The Congress and the Clinton Administration acting together managed to reverse the climb but Bush II reversed it again and the debt is set to explode over the next decade. (See Wikipedia for a more objective view of the debt).

I would argue that no country can go on and on borrowing more and more from other countries particularly at a rate faster than its growth in GDP without setting itself up for massive economic instability. Add the loss of our manufacturing base, global warming and the end of low cost petroleum to the equation and I think we are in for some rough times.

Of course the cost of the war is part of the growth in the debt. Essentially China, Korea, and Japan are loaning us the money to fight it. But the unfunded cost of the war is even greater Stiglitz and Bilmes in their economic analysis estimated that the total budgetary cost of the war would be between $750 billion to $1.2 trillion. When indirect costs like the loss of the contribution of killed and injured soldiers and macro-economic costs were added in, their conservative estimate for the total cost of the war ranged from a conservative $1.026 trillion to a moderate estimate of $2.239 trillion. A number of costs that couldn't be quantified were omitted.

I think I'm going to play the "since there is no gold standard, what is money?" card.

Our government is not in some sort of fiscal crisis, Bush has not had to request monetary aid from a foreign source nor has economic inflation reached rapid states as it normally would in a different country. Our government is designed to handle massive amounts of debt.

Anyway, money does not really matter to the country telling the world what money is. Without America, the global economy would not be as massive, corrupt or rich as it is today. We'll be able to maintain a war of this scale until the day we're all eaten by mutant radioactive dinosaurs from Mars on orders from the Easter Bunny... Oh, wait, that's currently whats going on in the White House.

How long can the US realistically continue incurring these enormous costs?

My short answer is not only no longer, but that we are already in crash mode for doing it this long . We just don't know it yet.

The direct $'s cost is bad by itself. The publicly un-assessed several indirect and "externalized" costs (fully legitimate, objective and acceptable formal economics and systems modeling concepts and quantities) I fear is much, much worse!

The human and "moral" costs, such as Post Traumatic Stress Disorder (called once "the invisible disease in invisible people"), and which cannot be given a $'s cost, though many "political marketers" try, is unbearable (both meanings). I'm speaking from first hand experience, cuz I "caught it"!

What are the consequences of the country being this deeply in debt and constantly accumulating more debt?

Total disaster to the present US way of life .

Just the cost, usually unspoken about, to "us the people" of getting a loan is a present un-assessed killer! (The loan system, essentially being a market system. raises prices as demand increases. Our govt's. "assumed privilege" to deficit spend, and pay by loan is an out-of-control demand that is a big bad culprit. At least so I believe!)

I think the cost of war could be reduced, especially the interest rate of injured, maimed, totured, etc. of Americans if the following was applied. All construction people who are contributing be dressed in all black and have their faces covered with any and all technology at the government's disposal. The masks should have video camera eyes, masks of air filtration, personal heartbeat ratio's programmed into the ears, etc. The re-construction effort people here should also have a velcroed American flag on their vest area. Now, when it comes to the actual combatatants who are in there to crush all known resistance to a seemingly proposed constitution, I would suggest the before mentioned technologies be applied as well as all known non-bullet piercing intelligent armour. These two issues addressed, apply all known air technology support. The safer they all are, the least cheap it's going to cost in the long run. Especially in U.S. American currency, namley, the $. Also worth mentioning, is the strangeness of the very hot, construction, nightmare, of foreign languages, and associated structures thereof, I saw on a cover of Time magazine the other month or so.

R.S.

How long can the US realistically continue incurring these enormous costs?

The US can continue as this along this path as long as the rest of the world allows or accepts to buy American bonds and mortgages and has faith the American people can one day repay those debts. The dollar has been continually losing value, should a watershed event cause the dollar to fall too quickly, investors will stop using the dollar en masse and all the perks of the reserve currency status will be lost overnight.

What are the consequences of the country being this deeply in debt and constantly accumulating more debt?

To answer this question one must first understand how the federal reserve has been handling the debt up to this point.

The method over the last ten 10 to 12 years has been to inject a lot of dollars into the market. Now to print them on paper is the worst, most obvious sign of inflation because suddenly there is a brief rise in demand as people attempt to spend them. In economic terms money velocity is increased or said another way the time a dollar bill spends time in your pocket is reduced. Dollars which are not tied to a commodity in any way, shape, or form are at the mercy of governement. They are printed as quickly as possible and on whim – this is known as false wealth creation or fiat. Now to avoid an excessive rise in price, the fed directs this lump sump of liquidity into the stock market rather than the real economy.

What happens is the fed creates a bubble. Ten years ago the dot com bubble was born. After it popped in 2000 the fed decided to inject money back to the mortgage holders so they could give low interest loans.

This is important to this discussion for two reasons:

One, if you have a credit card that is near the limit, the only way to increase the debt limit is to make more money or revalue your assets IE asset inflation via housing prices. They peddle this concept by telling you your net worth increases.

Two, money injected to the housing market promotes a false sense of demand leaving the casual observer to assume, if people are buying more houses than disposable incomes are up! This is not the case. Disposable incomes have fallen over the last two decades. This explains a fall in the dollar index and a drop in personal savings. It also promotes a rise in the price of real things and commodities like gold and silver get a boost.

Creating false demand is necessary because the governement issues a bond which is then picked up by foreigners (most notably the Chinese) for a modest interest rate. Ever here of Fannie Mae and Freddie Mac? They are two quasi-governmental institutions which are financed by asians.

The lump sump of money is now an issued iou or debt held by a foreigner. This means anything which jeopardizes investor confidence can damage the purchasing power of the dollar. It is important to note Britain lost it’s reserve currency status from a failing sterling, not a military defeat.

The record increases in military spending are telling me the stability of the dollar is threatened and a depression lies ahead.

If foreign acceptance wanes, the government will be forced to print alot of these dollars and convince the international community to pick them up because people will be too poor domestically to this themselves.

This is accomplished by high interests rates.

Look for 78-79 Paul Volcker-like rates in the years to come.

How long can the US realistically continue incurring these enormous costs?

Good question, meaning I don't have a clue. I've heard a little bit about the economy edging up to better performance lately, but then with gold breaking $600 an ounce, looks like speculation about inflation is going on too. Remember the 1970s and 1980s when hard assets were big dot investment deals? Had a girlfriend who sold investment-grade diamonds for a gig. This speculation is probably based on the $4/gallon gas that has cropped up already.

Well, the economy works differently now than before globalization. I really don't think anyone has a clue.

What are the consequences of the country being this deeply in debt and constantly accumulating more debt?

Ultimately it means loss of credit, probably enormous inflation and maybe mass migration, except there's nowhere to go. However, that also means that if the sandbox is full and there aren't any others, such as an escape planet, then we, along with the entire world, better learn how to play well together. I have a sense that this is going on, although just how is far beyond my understanding.

Let's put it this way: The rest of the world has enormous wealth invested in US debt. These countries do not want the US to default, as it could lead to world-wide economic collapse. In order not to default, the tax revenue has to keep flowing in order to pay interest on the debt. Voila, we need to create more good-paying jobs in the US for US workers.

So, we need leadership that understands this and believes in a brighter future for the US. This in turn means we don't need people who think that the world will end soon, and so why worry? We don't need people who think that science is junk and that myth should be taught as alternative realities. We don't need people who regularly lie -- to themselves.

Remember when the Iraq liberation was supposed to pay for itself? Yeah, sure. That is such an old sales pitch, yet some folks bought it. It's really quite amazing still.

Bottom line is that it probably isn't too late yet, but we need higher quality leadership.

What are the consequences of the country being this deeply in debt and constantly accumulating more debt?

Basically, when a country incurs debt the consequence is the acceleration of currency inflation. In the US, the Federal Reserve Bank can counter this acceleration via increasing the interest rates on loans made from US banks. That decreases spending, and in doing increases price competition. Decreased spending is kind of intrinsically bad in itself, so its really a matter of choosing the lesser two evils...

Our currency can get away with more then most can, because it is the worlds reserve currency. 90% of all international exchanges are carried out through dollars, and all oil is sold in US currency (though Iraq was selling it for Euros before we invaded).

More and more the dollar is looking like less of an ideal currency, what with all the inflation, and with the rise of Euro, but frankly, any quick switch is liable to have massive consequences for the world economy. Europes hoping for a gradual switch, and they just might get one, as widespread speculation of a Euro take over is slowly becoming self fufilling. Some countries have ceased peging our currency, and are begining to build up Euro reserves.

If the dollars falls from the lime light, so will our economy. We are only rich, because of the exportation of dollars. It is what allows us to consume so much more then we produce in a material sense. We are dependent upon the status quo for wealth, and it is now far to late to turn back into being successful industrial nation. More dollars are overseas, then are in the US itself, and if foreign countries were to no longer need those dollars for trade with eachother, all of that money would flood back here, causing hyper inflation and destroying our economy.

The consequence of the currenct government pushing us further and further into debt, is an increased likliehood of the above doomsday scenerio.

Mind you, the invasion of Iraq did resecure the petro-dollar monopoly (that is, there is now once again no place in the world, were you can directly buy oil with Euros).

Just a note: The CBC did a small expose on why the Canadian dollar is the highest it has been in over 30 years compared to the US dollar, a fact what has most Canadians thrilled. Three years ago the Canadian dollar was 60 cents US. Now it is 90 cents US, and climbing. As the report shows, some of that has to do with the booming Canadian economy, but most do do with the fact that the US dollar has been in steady decline for years thanks to the spendthrift ways of the curent administration:

Here is a small quote from that report, cited blow:

"So what's behind the buck's run-up? Well, there are several reasons and Washington holds the key to some of them. he Canadian dollar is constantly being measured against its U.S. counterpart because Canada and the U.S. are neighbours and form the world's largest trading partnership.

The loonie's been flying in large part because the U.S. economy has been struggling to get off the ground. Washington is facing budget and trade deficits that have never been higher. In 2005, the U.S. bought $723.6 billion more in foreign goods and services than it sold, registering yet another record annual trade deficit.

To pay for those imports – including huge amounts of oil, gas, cars and car parts, lumber and numerous other products from Canada – U.S. consumers in effect have to buy them with foreign currencies. To do that, they have to sell U.S. dollars in international money markets. As in any market, the unending supply has pushed the price of the greenback down, as measured in other currencies.

For several years, American sales of U.S. dollars didn't have much effect on the price of the Canadian dollar, but that started to change in 2003. The greenback fell 22 per cent against the loonie during the year – and fell almost exactly the same amount against the euro."

http://www.cbc.ca/news/background/dollar_cdn/