Devastating Debt, Emerging Consequences

Devastating debt that crushes the potential of emerging markets to emerge, pulling millions back into poverty with deadly consequences, this Fortune article by Bernard Condon highlights the ruthless impact of China's Belt and Road Initiative launched a decade ago. During a period of low interest rates, taking on debt to fund economic growth may be prudent if done thoughtfully and rationally; however, over-binging on cheap debt as if there were no cost leads to dire outcomes when interest rate environments change, especially if the debt were not locked in at fixed rates. This is similar to consumers addicted to maxing out their credit card limits, resulting in a vicious cycle of poverty from trying to repay the high-interest debt that can only be reset with personal bankruptcy.?It would be politically easy to point to China as an evil lender using its rapidly growing wealth to drive strategic national interests, but the leaders of borrowing countries are just as culpable for overborrowing beyond their capability to repay...this is not new, it is a repeat of history multiple times where countries overspend in the name of funding growth, inflation accelerates, and dire consequences result from new policies required to enforce discipline on government spending and tame inflation...sound familiar?

As our political leaders haggle over policies while the debt ceiling train wreck is about to hit, it's a good reminder to look at other countries' situations. We MUST increase the debt ceiling, that is not an option but a necessity to avoid catastrophic economic repercussions. Treasury Secretary Janet Yellen provides an overview of the consequences in this New York Times article on May 1 by?Alan Rappeport?and?Jim Tankersley? The calamitous domino effect of a US default on our own economy, let alone the rest of the world, would be hard to recover from as the US dollar may lose its defacto role as the world’s reserve currency.? While some would argue it’s highly unlikely, China is certainly doing all it can to make its Yuan the potential reserve currency to replace the US dollar. ?That said, things that people believe as normally highly unlikely, unfortunately, seem to be happening pretty often these days. ?

But we MUST also get much more disciplined in government spending going forward and stop binging on debt like there are no consequences. Future generations and our kids' future should not be saddled with repaying the debt we incur, it is not fair, nor is it right. According to USAFacts.org, China is the second largest lender (behind Japan) to the US with $859 billion of the $7.4 trillion we owe the world in the form of treasuries issued.

While the US is far from the financial situation of emerging economies that are at the mercy of China’s Belt and Road Initiative, the cycle of overspending and its implications are the same. We are no longer in a cheap debt environment, as the cost of borrowing has increased dramatically, and so will the future consequences if the excessive spending trend continues. Weening ourselves from the addiction to overspending is not easy, as we feel the sting of policies aimed to slow inflation. We can repay the price ourselves today with some suffering, or our children will suffer even more. Our leaders need to stop bickering to drive their political agendas and focus on what's in the best interest of our country and future generations...let's not doom them with our debt.?