The US economy sustains on debt. Statistics show that one in four Americans worry about their debts and every second American (aged between 25 and 40) is in debt. Be it them or the US government itself, they’re drowning in debt. Interestingly, the US government is as compulsive a spender as the US citizen.

After the $ 800 bailout for US gross debt for the fiscal year 2008, is estimated to be around $ 11.3 trillion ie about 82 per cent of the American GDP. At the current rate, the national debt is increasing by nearly four billion dollars every day and by 2040 the US debt would be $40 trillion more than the GDP. As of February 2008, the national debt was around $30,400 per person of the US population or $60,100 per head of the US working population, which due to the recession, would have grown steeply.

The debt based policies made by the American economist and the former chairman of The Federal Reserve of US, Alan Greenspan, are one of the reasons for the current condition of the US economy. His policies favoured the laissez faire capitalism ie no government interference with trade, free market principles, hence no regulation. It was his incapability to look beyond the short-term benefits that the US economy did not have a sound base for growth. The reason for the exemplary surge of the US stock markets, the US economy and the stable dollar thrived on the principle of creating debt.

Americans are famous for their spending habits. The introduction of credit cards and loans at lower rates boosted their irrelevant spending habits.

Living on the policy of ‘buy now, pay later’ could have taken them just so far into the kind of debt the objectivists wanted. For repaying the current debt, they took more loans (which were made available to them by the same objectivists) and sunk further into higher debt (principal amount of the previous debt + the new, higher interest). For example if I take a loan of $100, which amounts to $120 after the 20 per cent interest added and I’m not able to pay it, I’ll take another loan of $ 120 to pay the previous loan.

The new loan would then amount to $144. The question here is that if I cannot re-pay $ 120, how in the world will I be able to pay back $144? This is exactly how the sub-prime mortgage crisis took place in the real estate sector. There were sub prime lending institutions set up to provide the Americans money to repay the previous debt and ‘cleverly extract more money’ out of their pockets. But for how long can an economy sustain without the any logical back-up for the money lended? Where was this dollar going to come from? And that’s how the bubble burst and the major lending institutions declared themselves bankrupt.

The American economy has no firm base. The kind of theories applied to it (such as free market capitalist, objectivist) could have only further exaggerated the damage caused if the bubble wouldn’t have burst. The only hope for the US is if President-elect Barack Obama changes the absolutely absurd system, on which his country functions and put the America government on the much needed ‘Debt Diet’.