The federal debt is sort of like the balance on your credit cards, except with much lower interest rates (which we set ourselves). It also hasn’t been spent on consumer goods: it’s been spent on providing federal services, social services, and — generally — running the government.
So, once again this election cycle you will hear histrionic cries about how the national debt should trump (ahem) other priorities in the economic plan.
As long as we are comfortably able to keep paying the interest payments on the debt, there’s no particular reason to really worry about it — certainly not to the point of failing to provide needed services for the government. We have a solid track rating of paying our debts — one of the best in all of history — so we should probably not have a hard time refinancing if the situation ever becomes dire.
We pay about 2.5% interest on the debt, which ends up being a small fraction of our ~$17 trillion GDP. Much of the “debt" is actually money we technically owe to ourselves — about a quarter is locked up in Social Security and other intragovernmental holdings including pension plans. Of the portion of the debt held by the public, another significant chunk lies in 401ks and other retirement plans.
Talking about debt is meaningless without talking about assets and income
Are we making enough money to keep paying up on our obligations? Check. Do we have enough assets to call in if we get into any serious situations? Check. But there’s an even more fundamental cause for total lack of alarm: the fact the a “debt" means something very different in the context of fiat currency. It is closer to representing an asset we own (like a house with a mortgage) than like a bill that someday comes due. Especially because one of the other ways the federal government is not like our personal credit cards is that it doesn’t die, and doesn’t need to pay off its debts before it does.
Where did all that debt come from? (Hint: not from democratic presidents)
Despite a lot of bluster from fiscally-conservative Republicans, history since 1980 shows debt increasing under GOP presidents. Whether or not trickle-down economics delivered on its promises, the federal debt as a percentage of GDP has climbed under Republican economic policy since Reagan.
It has also grown under President Obama, who inherited the worst economic recession since the Great Depression, and had to use government stimulus accordingly to pull the nation out of the nosedive left by the financial crash of 2007-8 and Bush’s TARP program.
Could the debt balloon out of control?!
Well, anything’s possible. But it’s unlikely, unless we get embroiled in a war or hit another recession. And we can avoid another recession by adopting Keynesian, demand-side economic policies. We would have to run high deficits for some time before starting to get near troubled lands in terms of our inability to pay (…ourselves, mostly) on the debt.
I don’t believe you! I want to analyze the country’s finances for myself! But the media is biased!
Luckily, we live in a country that understands the value of public data — something President Obama really grew during his time in office. There are plenty of publicly available numbers anyone is welcome to pore over:
- Debt to the penny, and who holds it
- Interest expense on the debt outstanding
- Historical budget tables
- Historical finance data: Banking, investing, retirement, lending, insurance, etc.