The documentary film I.O.U.S.A by Peter G. Peterson Foundation, released in late 2008, documents the unbeatable growth of U.S. national debt. The film projects the trajectory of the U.S. fiscal debt, showcasing the causes and consequences of how the wealthiest nation can become one of the world's largest debtors, with an outstanding debt of over 20 trillion dollars in current times. The film's crux was in the exciting interviews with noteworthy people, animated graphs and pictorials, and interviews with the common public that could make even a technical topic interesting. The movie successfully explains the issues revolving around the ever-growing federal debt and delivers the message loud and clear that U.S.A.: It Is Time to Wake Up.
The film quickly gives us the history behind the enormous U.S. debt. Some people are born with privileges, but the U.S. was born with debt. As a result of independence from war and lacking the power to tax, the first government of the U.S. started with 75 million dollars of debt, which comprised 40% of its G.D.P. back then. The fledgling government wanted to repay all its creditors through tariffs and taxes, and slowly the economy grew. The Federal government was nearly debt-free in 1835, but the American civil war made matters worse. The uprising of the late 19th-century economic growth and a wee bit of inflation helped the U.S. reduce the civil war debt. The debt associated with world war 1, too, was financed by selling bonds to the U.S. public. The U.S. was somewhat successful in trickling down the debt amount, but it coincided with a time when there was republican dominance, taxes were cut repeatedly and then came the Great Depression followed by World War II. By the 1980s, the fiscal deficit had skyrocketed. Reaganomics, too, couldn't make the situation any better. It was a time when growth based policies demanded attention and were promoted. During Reagan's presidency, the US, from being the largest creditor, had become the largest debtor in the world. Recession, combined with tax cuts championed by Bush, severely affected the budget. By 2008, the U.S.A. was under a debt of 8.7 trillion dollars, which comprised almost 64% of its G.D.P.
Based on the book Empire of Debt by Bill Bonner, the movie essentially is organized around the four deficits, which can be lethal for a nation when combined. Like other films have heroes, we have David Walker of the Peter G. Peterson Foundation and Bob Bixby of the concord coalition. David Walker, Comptroller General of the united states and head of Government Accountability Office partnered up with Mr Bixby and several other foundations to direct the financial wake-up tours across the country, educating people about the national debt and its consequences.
The tours were to enlighten the people about the four deficits: budget deficit, savings deficit, trade deficit, and leadership deficit. When interviewed, people could barely explain the term deficit. The U.S. government had been living way beyond its capabilities. It was spending much more on social security and elsewhere than it was collecting through tax revenues. While the recent budget deficits were the aftermath of excessive tax cuts, costly wars and lack of budget controls, the more significant problem was the humongous fiscal deficits yet to come. The increasing spending on social security and health insurance over the years would burn a far more giant hole in U.S.'s pocket than it could anticipate. The growing budget deficit became a cause for concern for the generation yet to come. The U.S. was spending based on credit, burning dollars they did not have, giving the upcoming youth a life already full of debt. An ever-increasing savings deficit did not shed light on optimism either. Not just the government but even American households had been spending way above their means. The personal savings rate went negative by the late 2000s. Easy credit provided by an unregulated market for ample reasons started to give a false sense of wealth. Globally too, the U.S. emerged as a country that consumed way more than it produced. An expansionary fiscal policy and countries that have lived within their means have increased U.S.'s consumption, demand for imports, need for credit. Worst of all, public and private leaders have allowed the other three deficits to take place and jeopardize the position of the U.S.A. in the world economy. Politicians propounding irrelevant fiscal policies to extract profit and people in business seeking financial gain and improper budget controls have led to the enormous fiscal deficit in the country today.
Enormous spending, impossible budget targets, excessive consumption demand, poor saving, cheap credit and an unregulated market has got the U.S.A.'s national debt clock ticking with a whopping debt of 20 trillion dollars in today's time. The subprime mortgage crisis and congress approving the bank bailout gravely affected the country's financial health. The youth of the nation is battling with financial ghosts of the past and the debt yet to come. The movie aptly described the situation in 2008 wherein if U.S. citizens did not act fast; there would be a demise of sustainable survival. Ultimately in 2008, United States Congress, with the incumbent President George W. Bush, passed the Economic Stimulus Act 2008, a 152 billion dollar stimulus to wave the nation off its debt.
The financial condition in India, too, has come a long way. In 1765, with the emergence of the East India Company, India paid for its administration and the British wars. In 1834, when the company lost its commercial value, all its liabilities landed on Indian shoulders. These liabilities became the onset of permanent debt for India. Furthermore with significant scale expansion of the railways and the irrigation system increased the public debt. Post the second world war; the public debt had increased by multiple folds. After 1951, with excessive expansion and growth, the public debt rose at an alarming rate. Currently, the biggest threat to the country's financial health is the N.P.A.'s (non-performing assets). The decision by the government to recapitalize public sector banks through issuance of bonds will increase the debt to G.D.P. ratio. With an excessive need to stimulate private investment, releasing the stressed-out bank balance sheets has become critical. Having a very similar methodology to that of the U.S.A., there is a Fiscal Responsibility and Budget Management Act (F.R.B.M.A.), 2003, which the parliament of India institutionalized. It plays the role of managing the country's financial health, keeping the fiscal budget in check, and overall public fund management. Thus, according to N.K. Singh, whom the government appointed to review the implementation of F.R.B.M.A., has a fiscal deficit target of 40% of G.D.P. by 2022. India being an emerging economy, it isn't easy to maintain the budgetary target set by the committee.
Nevertheless, setting the target is necessary, otherwise recapitalization and the underlying risks to inflation excess government expenditure. Currently, the fiscal target is supposed to be 3% of G.D.P. for the current financial year. The bank recapitalization might increase the Debt to G.D.P. ratio in the coming few years, which are not necessarily in line with the N.K. Singh committee recommendations.
For an emerging economy like India, overriding national security, acts of war, natural calamities, and far-reaching structural reforms can exponentially increase the public debt. It can lead to a recession similar to that of the U.S. Committees like F.R.B.M.A. act like a mediator in keeping the amount in check to avoid a similar situation like the Great U.S recession 2008.
