National Debt Grows $1 Million a Minute

A lefty friend of mine sent me the following article [and I'm testing to see if I can finally get the formatting right on Econospeak messages].

National Debt Grows $1 Million a Minute
By TOM RAUM, AP

WASHINGTON (Dec. 3) - Like a ticking time bomb, the national debt is an explosion waiting to happen. It's expanding by about $1.4 billion a day - or nearly $1 million a minute.

One problem we have on the left is that we like the idea of crisis so much that we sometimes fall under the influence on non-crises that are disguised as crises. This is one of them.



The national debt is $9.13 trillion, about $30,000 for every person in the U.S. The total is worrisome because interest payments on the debt strain government resources -- and things could get worse if the economy slows down, as some economists predict.

It should NOT be called the "national" debt. It's the _government's_debt and about 75% of it is owed to people in the U.S. So 75% percent of it should be considered part of the nation's assets. If you don't see this, please e-mail me and I will give you my home address -- so you can mail me your government bonds. If they're such a burden, I'll take them off your hands.

The interest payments on the _government's_ debt do represent a problem in the government's budget. (But remember that about 75% are paid to people inside the U.S.!) The problem of interest payments is not a problem in the short run, even if a recession hits, because the Federal government can and does run deficits -- it does not have to balance its budget. Smart economists and politicians don't force a budget balance in a recession, since they know it makes matters worse.

Over the long haul, the economy grows, generating more & more tax revenues for the government. These (along with tax hikes or spending cuts) allow the government to pay interest. The problem occurs only if the government debt grows _faster_ than the economy for several years, so that the government debt to GDP ratio rises. But last time I looked, the government debt was not at its previous peak (67% of GDP in 1996, for gross debt). It was far below its previous peak (122% of GDP) at the end of WW2. It's like 66% now. Note that the US economy did very well during the 1950s, despite the debts left over from WW2.

The government's debt is going to be more of a problem in the future if the medical-cost inflation problem isn't solved (because the Federal government's Medicare costs rise with those of the private sector), if the Bush tax cuts for the rich are not allowed to lapse, if the Iraq war is allowed to continue and grow, and if the "alternative minimum tax" problem (which is pushing more and more middle-class people into rich-people tax brackets)is fixed without compensating tax hikes.

Even so, the government's deficit would not be a problem if the borrowing went to do something productive, i.e., that promotes the growth of the economy. Examples include fixing New Orleans and investing in public health and education. Of course, the government squandered the borrowed money on tax cuts for the administration's rich friends, and the effort to conquer Iraq.

Instead of worrying about the government's debt, worry about:

1. the way the government has wasted its borrowings (see above).

2. the severe debt loads that private consumers have -- and they, unlike the US government, are likely to go bankrupt.

3. the increasing deficits of state and local governments, most of which are forced by law to balance their budgets.

4. the deficit of services that are needed but the government does not provide.

5. global warming.

6. etc.
--
Jim Devine