Argentina is a beautiful country of 40 million people blessed with great natural resources, fertile plains called pampas and a world-famous wine-growing region near the majestic Andes Mountains. But in 2002 the nation defaulted on its sovereign debt. “When Argentina defaulted on some $100 billion in bonds 11 years ago, its debt represented 166 percent of gross domestic product. Bank deposits were frozen and devalued, the economy shrank 11 percent in one year, and millions lost their jobs” (Reuters, May 13, 2013, Hilary Burke). Argentina had experienced hyperinflation, riots and the fall of its government. After that collapse, the Argentine economy rebounded for a while, but the nation lost its access to many of the world’s capital markets. Once again, sadly, this beautiful country is experiencing high inflation, a weak economy and social unrest. Default on at least some of debt is again a concern. Will the U.S. soon experience a similar circumstance?
In 2004, the total sovereign debt of the United States stood at $7.3 trillion or about $70,000 per taxpayer. But after the financial crisis in 2008, the government began incurring trillion-dollar deficits attempting to stimulate the economy. For the current fiscal year, according to the Congressional Budget Office, the staggering pace of debt buildup is projected to decline somewhat to around $759 billion—about 4 percent of GDP. That is far less than the $1.4 trillion deficit—10.1 percent of GDP—that the government ran in 2009, but it is still an unsustainable pace.
Regrettably, the 2013 projected decline may be temporary, since it came largely from temporary, one-time gains from mortgage giants, FNMA and FMCC. Foxnews.com reported Rep. Chris Van Hollen, (D-MD), top Democrat of the House Budget Committee, as saying, “The good news is the near-term deficit is dropping, but it appears to be dropping primarily as a result of additional, one-time revenues rather than any uptick in economic growth” (foxnews.com, May 15, 2013). Maya MacGuineas, president of the Committee for a Responsible Federal Budget added, “The rosier-than-expected near-term projections do not change the fact that rising health care costs, an aging population, Social Security’s looming insolvency and ever-increasing interest payments will greatly expand the national debt” (ibid.).