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Tuesday, January 12, 2010

National Debt

I've blogged about the U.S. national debt before, and make it my mission to scream about this issue regularly. So the new year wouldn't be complete if I didn't take it up again. You see, the thing is that I think the numbers are real.

There's always room for exaggeration in statistics, of course. But even allowing for that, the financial affairs of the U.S.A. are a sobering proposition. What I can not understand is why our government leaders aren't making this more of a priority. What I can not understand is why our citizens aren't forcing them to.

A plethora of web sites abound to frighten us about the U.S. national debt. But perhaps the most sobering view is found a web site recently identified in an editorial by Will Deener in the Dallas Morning News. Check it out at

The U.S. national debt now stands at over $12.2 trillion. The interest on that amount of debt, at current interest rates, accrues at the rate of $1.7 million per minute. Did you catch that number? Before our government can provide any services to our citizens, it must pay $2 billion 448 thousand dollars in interest every single day of the year!

Now the naysayers, who think I'm playing the role of Chicken Little, will tell you that our national debt is still only 60-80% of GDP ... and that there are at least a couple dozen countries who have national debts that represent a worse percentage of GDP. And that may be true.

But I will argue that measuring debt as a percentage of GDP isn't really appropriate. After all, that's only measuring it against the economy's ability to service the debt --- and not against the debtors' practical ability to retire the debt. Even then, our debt appears to be lower than these other countries because we don't count all of it. We don't, for example, include debts and obligations like state and local government debt, unfunded national entitlements like Social Security or Medicare.

Mind you, we're only talking about public debt. On top of all the public debt in America, we have a massive amount of corporate debt (owed by companies) and consumer household debt. So consider these against the common measure of debt-to-GDP. Our federal government debt is reported to be only about 60% of GDP. But when you add in the other forms of public debt and obligation it comes to more like 141% of GDP (including state and local government debt).

But when you leave public debt and go to corporate debt, the picture is just as bad. It equals about 317% of GDP. Moreover, consumer household debt is right at 100% of GDP. Add it all up and the nation's debt burden is about 558% of GDP (Robert D. Arnott, chairman of Research Affiliates - Newport Beach, CA). Those are debt levels only matched in God-forsaken places like Zimbabwe ... where the economy has collapsed and the government is in a death spiral.

In practical terms, this means that America owes more than five times it's annual income. Do we really think that is a sustainable economic model?

How would you feel if your own debts amounted to more than five times your annual household income? How would you feel if that's the situation you were in --- and you had to keep borrowing more money at a record pace? And how would you feel if you owed all that money to people who were hostile to your ideals, considered your values folly and had vested interests in unseating you from your position of influence and power in the world?

Getting back to the numbers, the U.S. has about 308 million citizens. Just about 35% of them actually pay taxes. (The rest are children, dependents, not working, or don't have sufficient income to be taxable.) So the interest on our national debt comes down to something like $8,191 per year, for each tax payer.

Do you pay federal income taxes? How do you feel about the fact that the first $8,191 you'll pay this year doesn't provide anything in the way of services such as national defense, health care, etc.? It only goes to pay interest on the national debt? And if we're ever to get out of debt (i.e., actually retire the principal), you'll have to pay a whole lot more than just the interest!

I really don't want to play the role of Chicken Little here. I really don't want to run around screaming that the sky is falling. But quite frankly, I am at a loss as to why the people who run our country and set our priorities aren't doing so already.

Why aren't we slashing government spending like crazy?

Why isn't balancing our federal budget the most important thing anyone in Washington could do?

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