It isn’t clear which of our current government leaders are equipped or concerned enough to deal with this issue.
Or is it even an issue? Could it merely be a figment of economics?
Assuming it is an issue, ISTM we really ought to do something about it. What?
Or if it is not an issue, convince me it doesn’t matter.
ETA: Total US debt is actually $69 trillion.
The absolute number looks frightening. But what matters is debt to GDP, i.e. scaled by the size of the economy. By that measure, U.S. debt is not exceptional.
Japan 250%
U.S. 105%
Euro area 89%
U.K. 88%
China 46%
While it’s certainly true that the federal government is different in many important ways from private entities like individuals and corporations, one of the obvious criteria for judging debt load is debt service cost and how it relates to income and budget. In the last fiscal year the federal government spent a net[sup]1[/sup] of over $276 billion on debt interest payments, or nearly 7% of all federal spending. In the 1990s more than 15% of federal spending went to debt service, mostly because interest rates were higher, and that will inevitably happen again.
So while some of the economics around public debt is staggeringly complex, there are some simple questions regarding whether the debt matters. One question is, how much of the federal budget are you comfortable with just being thrown out the window to service debt, much of it to foreign entities? And to what extent are you comfortable with the fact that for the past few decades the national debt has been growing at close to an exponential rate? And how about the fact that historic GDP growth may not be sustainable for a variety of reasons, including globalization and global resource and environmental limitations? What happens to the federal budget when GDP growth slows down for the long haul, and interest rates rise at the same time[sup]2[/sup]?
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[sup]1[/sup] The gross debt service cost was nearly $474 billion, but some of it was paid to itself since government trust funds like Social Security own federal debt.
[sup]2[/sup] If you’re a Republican, the answer is obvious: cut taxes some more, and drive the debt into the exosphere halfway to the moon! 
And if you’re a Trump Republican, consider demonstrating the full faith and stability of the United States government by defaulting on the debt.
Debt service payments are not “thrown out the window”. They are largely offset by inflation. It’s real interest rates that matter. The U.S. borrows money very cheaply, even when notional interest rates are high.
Interest payments servicing the US debt are not dollars just thrown out the window. It serves a very important function as a historically safe investment vehicle. The people who buy US debt are investing in the United States economy every bit as surely as people who buy Apple debt are investing in Apple’s profitability.
This is a bigger problem than the sheer size of the debt. What we’re actually DOING with the money matters a whole lot, and the faith people have that we will actually pay it is most important of all.
One possibility would be to elect politicians who are willing to cut spending and raise taxes. We did that in 1992; the Omnibus Budget Reconciliation Act of 1993 was a truly memorable effort (gathering zero Republican votes — that’s Zero with a Z) that not only ushered in one of the most prosperous decades in American history, but also did such a good job of deficit reduction that some financiers were worried about contracts tied to the interest rate on the Treasury long bond. How could those contracts be enforced if the Treasury no longer needed to issue long bonds!
The American voters reacted to this monumental Act by … turning power over to Newt Gingrich in 1994. :smack:
BTW, other debt also matters. Chevron owes more than $35 billion, students are in debt, and I’ve heard that some Americans have balances due on their credit cards.
Who the money is owed to also makes a difference. If Billy Taxpayer eventually has to redeem Bobby Bondholder’s bonds, what’s the problem? This is the least of your worries if you’re concerned about wealth inequality.
But much U.S. debt is owed to foreigners. The Japanese are net creditors, so that 250% figure isn’t as scary as it looks. The U.S. Treasury owes several trillions to foreign central banks, and much American private property is in hock to foreigners as well. This will make a difference [del]if[/del] when America’s dollar crisis plays out.
Oil future contracts start to be priced in yuan this month, so if you haven’t yet kitted out your survivalist hideaways in Montana now wold be a good time to buy powdered milk.
Times right now are about as good as they get; low unemployment, etc. If we can’t get the deficit down now, even start to pay down the debt, we’re gonna be in trouble the next time the economy goes bad. And there’s always a next time.
US debt held by the public is around 15 trillion, or around 75% of GDP.
Debt held by the public is an issue. It’s larger than it should be, and growing faster than it should be.
The 6 trillion dollars of intragovernmental debt is financially fictitious. It is meaningless outside of the scratches on government paper. (It is politically very important, but has no direct effect whatever on any market, financial or otherwise.)
The rest of the debt – debt held by the public – is not a figment of anything. It’s real and important and larger than is advisable and growing faster than advisable. It would be nice if it were smaller.
Spend less money.
Spend more efficiently.
Tax more efficiently.
This is not some kind of deep mystery.
People might be excited about the economy now but it’s hiding the deepening crisis that is Republican misrule. We’re already on our way to a recession, and quite possibly a deep one. We’re not going to escape the consequences of trade barriers, loosening financial rules, tightening money supply, and massive twin deficits.
What’s the return on investment for this $21t? … if this is more that the debt service costs then we’re money ahead … if we as an individual borrow $100k at 3.5% interest, buy equities that pay 6.5%, then we’ll earn 3.0% on someone else’s money … [ka’ching] … that’s the American way …
Paying off the debt is easy on paper, just pull back all the military to within our own borders … the nations with dirt cheap labor will quickly burn down … consumer goods in the USA will skyrocket in prices … interest rates will go over 20% again … THEN that 3.08% yield on 30-year T-bonds will look pretty damn good for the Federal government … easy peasy …
Well yes, that does sound effective. But we have not moved in that direction for a rather long time, despite all the chatter around the issue.
How do we get people in Kentucky to vote out Mitch McConnell? That guy’s plan seems to be to blow up the deficit sky high, then point to it and claim cutting Social Security is the only solution. Of course he’ll scream about deficits and debt when Dems are in power, but it is empty bluster. as he is on record voting to block any moves that actually address the issue. People in Kentucky seem oblivious to this, or don’t care, or ?. Penetrating the propaganda bubble of red state suckers can seem impossible- at the very least it may take more aggressive means than have yet been employed.
The real-world road to your simple-sounding solution will involve rassling an awful lot of moving parts, in a country where people are trained to not understand the issues, by billionaires who like it that way. I guess if you don’t mind a country full of senior citizens living in alleyways subsisting on cat food, let 'em have their way and eliminate Social Security, Medicare, food stamps for all the good it will do and so on. ISTM the human cost of that will seem unacceptable to most, but apparently only after we have already irreversibly arrived there.
Your comment also applies to the inflation-adjusted value of any investment, but it would only be relevant here if the average real inflation-adjusted cost of government borrowing was close to zero. IANAE, but as it turns out, current real 10-year Treasury bond yields are just recovering from inflation-adjusted zero returns in 2017, so what you posted is not historically representative. Historically, long-term Treasury yields sit well above inflation on average – not all the time, but on average – and represent real costs to the public. Yields minus inflation hit nearly 10% in the early 80s, nearly 6% in 2009, and 2% in 2015 before sinking to zero from which it’s now rebounding.
So what you’re saying is worth noting – that inflation should be considered when assessing the real cost of public debt – but it should not be interpreted as meaning that the real cost of public debt is not significant.
While this is true to some degree, I don’t see it as justification for $20-something trillion in debt. At this staggering level of debt, one is inclined to object that it isn’t the fundamental business of government to provide investment instruments to the public, nor is it the taxpayers’ responsibility to expend a significant chunk of tax revenue to pay for them. You make it sound like buying Treasury instruments is patriotic, but I doubt that the Chinese and Japanese, who between them hold about $2.5 trillion in US debt, really care about anything more than getting their guaranteed returns. Just like an Apple bondholder, unlike a stockholder, doesn’t really care what happens to the company as long as it’s able to honor its obligations.
Right now, the US government is able to borrow money at less than 2% interest. The people who profess concern about the debt are largely the same ones who say that the government should be run like a business. But if you give any business the opportunity to borrow money at those rates, they’re going to borrow as much as they can, and then find something or another to use all of that money on. Which is, unsurprisingly, exactly what the government is doing.
I have no idea.
I’m an economist, not a political consultant. Most people ignore us even on those few topics where we have relatively strong consensus. There’s another thread going right now on “trade deficits”, where people are clearly ignorant of basic insights that are literally two centuries old. Some of these same posters are avid participants in other economics threads. Why participate, if they’re not interested in educating themselves about the most basic stuff? Again, I have no idea. But it happens all the time.
Your OP had no politics in it. It seemed like a straight econ question. And so it has a straight econ answer.
Yes.
The same instantaneous evaporation of interest in the debt happened to the Republicans after the 2000 election. It’s only a talking point when they’re out of power. Sucks, but there it is.
The solution sounds simple because it is simple. If outgo exceeds income, then the debt goes up. It’s basic arithmetic.
You’re right, of course, that politics is complicated. Whose ox gets gored is a tricky question. But your OP was exclusively focused on the economics questions, not political ones. Is the debt potentially a problem? Yes. Can the problem be confronted? Yes, in a mathematical straightforward way.
Is there the political will to do this, given the individual costs at play? I don’t know.
Doubt it.
Pffffft.
People don’t understand because they have no interest. And frankly, it’s hard to blame them for that. If any one person out in the world educates themselves to our satisfaction, then what have they accomplished exactly? There are plenty of people who do understand this stuff, and they are already comprehensively ignored by the voting public. One more person is not going to change anything. The requirement here is some more fundamental change in behavior, and I don’t personally know where that might come from.
Yeh, seems highly plausible that only crisis will lead to change.
The big problem is Medicare. If anything breaks the fiscal back of this country, it will be out-of-control health care costs.
There are many things we could do to bring down those costs. Almost none of them seem to be politically feasible at the present moment. Politics is strange. We live in a country where 63 million people thought it would be a good idea to vote for Donald Trump. It’s more than a year into his presidency, and I still haven’t quite internalized that fact. I can’t get a grip on it. So the GOP passes a tax plan that increases the debt by more than a trillion over ten years? Okay, sure, that’s fucking stupid but whatever. Given the current context of our politics, it’s not out of line with anything else that’s happening.
Well, it’s was relevant to point it out to the extent that you had ignored inflation, which offsets much of the nominal interest rate throughout history. You have cherry-picked the highs in real rates, but the link I posted shows the current market forecast for real interest rates - under 1% in the 30 year.
In any event, as others have pointed out, the relevant question is not whether we are paying interest, it’s what return we are getting on that investment. I’m not defending expanding the deficit, but we should analyze the situation in sensible terms. Scaremongering about the absolute size of the deficit, or about the absolute size of interest payments, is not a good way to think about it.
It also matters who you owe it to. In a sense, it is debt owed by past and present generations to future ones. As long as the costs of servicing the debt don’t reach levels the markets consider unsustainable or beyond the taxpayer’s tolerance and, by the same token, the return in terms of future productivity/income/capital growth is considered acceptable, the nominal absolute amount of debt is not that important. Of course, those pre-conditions are highly debatable and subjective at any time: and so is any question about the nominal absolute total of debt.
$20 trillion is a staggering amount of debt to you. Not to the US gov’t. Would you say a person who makes 100k a year is in a “staggering” amount of debt because he bought a house for 300k? Probably not.
Are you arguing against the very concept of Treasury bonds itself? It sounds like you’re casting doubt on the legitimacy of government debt of any kind. If so, then this is a totally different debate than I thought we were having.
I didn’t say anything about patriotism. Nobody who buys treasury bonds is doing so for any reason other than the belief that it’s a stable investment. All of the data that everyone has available about the strength of the US economy and government is built into the rate people are willing to pay for treasury bonds. So far, the market has clearly spoken and announced that it strongly disagrees with your assessment that the American debt is “staggering” or otherwise at an unsafe level.
Well, I did say
I welcome the input of economists, though at the end of the day “what to do about it” amounts to getting our political leaders to set policies that reduce the deficit.
I appreciate you challenging my little conspiracy theory. Maybe we are both correct? Because I must say, there appears to be an awful lot of disinformation spread on the subject. If we limit ourselves just to the actions of the POTUS, Speaker and Majority Leader, raising taxes on high incomes appears off the table. Cutting the military is simply not an option either. No, we need to cut taxes on the wealthy and cut or eliminate Social Security and Medicare according to the guys who actually set the policy.
But this isn’t the popular opinion of how to solve the problem. Our political leaders aren’t listening to the popular opinion though. Who are they listening to? I submit it is their political donors. So, “what to do” involves somehow subverting this relationship such that political leaders get in line with the popular opinion (informed by economists and other wise observers). The only method I can think of is a spectacle of congress critters’ heads rolling. Which brings us to: How do we convince people in Kentucky to vote out McConnell, and vote in someone who will promote an approach that better serves the public interest? And so on for other problem 'critters.
And I think one person can make a difference. It is at least precedented, no? I’ll show you, I’ll show you all! 
I would sure like to avoid that.
So, these people are suckers? What happened? We need a specific plan for cutting the debt that the public can be more or less happy with, a plan that can serve as a political litmus test for candidates, a plan the electorate would have to be convinced of enforcing.
Right, I would not. In fact under suitable circumstances – a young person with a promising future, in a good housing market – I might even advise them to consider a house for twice that price, or even more. The operative factor here is that one can compute a rational trajectory based on past history and reasonable expectations wherein that mortgage will gradually become less and less onerous and the principal amount more and more rapidly paid off, until finally the debt in question is reduced to zero and the person owns, debt-free, a house worth probably many multiples of the original purchase price. Can one make the same case for the national debt, which just keeps ballooning with no end in sight?
While one should be wary of making too many comparisons between public and private finances, at some level debt is debt and imposes the same kinds of costs and obligations. From a public policy standpoint, making no attempt at all to address the explosive growth of the national debt and the federal deficit, and cutting taxes when the deficit may hit $1 trillion just for fiscal 2018 alone, is just madness. Unlike your house analogy, the national debt doesn’t automatically get paid down in the natural course of events; instead, with growing deficits it’s going rapidly in the opposite direction. Enacting tax cuts on the wealthiest sectors of society while continuing profligate spending is not just madness, it’s a reckless attack on future generations.
No, to be clear, I am not making that argument at all. But since you were suggesting that Treasury bonds create a market for safe investments, I was just saying that this isn’t particularly relevant to the discussion; while this is a nice side effect of government borrowing it’s not its primary purpose.