Economics & Personal Finance
Is The U.S. National Debt A Problem?
We all have been hearing about how big our national debt has gotten. The Bush Administration more than doubled the national debt. They also added a bunch of spending and unfunded liabilities that are still adding to the national debt after they left office.
In order to combat the recession, the Obama Administration passed a huge stimulus package to spur the economy and job creation. This added another trillion dollars to the national debt.
Yesterday, the Congress once again had to vote to raise the debt ceiling.
Is the national debt a big problem we should be concerned about?
One problem with the national debt is that it may lead to higher interest rates and inflation. Another problem is that the debt is held by countries we might not want to be enriching with our interest payments.
We also will have problems spending money on things that need to be accomplished when we are facing such a large national debt. This is the argument put forth by Paul Krugman in a New York Times article about how we should be spending more money to rescue the economy. He says the daily drumbeat about the national debt makes it politically impossible to spend the money required to save the economy. He says saving the economy is the first priority because a lot of the national debt is coming from lower tax receipts due to the huge recession we are having.
What are your thoughts about the level of panic we should have about the U.S. national debt?
Tags: national debt, problem
Replies to This Discussion
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Permalink Reply by Larry on -
The national debt is a problem that we should be concerned about, especially if you are just entering the workforce. Senior citizen's on the otherhand are less concerned about the debt because their income producing years have passed and are now entitled the "reap the rewards (medicaid / Social security)" to say. Much like how you said the bush administration passed policies that are still in effect, the most lucrative (best interest rates) are given to long term debt holders. These means that the money spent today, will be paid at that latest point possible; when 20-30 year-old's are in their best income producing years.
On the second hand, ever since the beginning of the US has issued debt, the US has never missed an interest payment. This is pleasing for creditors because they always receive their return on investment. And if you have given someone money 30 years ago, received cash periodically, by the time the 30 years mature, you've already established enough cash to invest in something else, you don't really need to ask for it back; so long as the interest payments keeps coming in....
But this creates a problem in the long run. Eventually the national debt will increase faster than the revenue source, requiring more resources to go towards interest payments than to paying off the debt. In fact, if the national debt is more than 90% of the gross GDP, the US could in-a-sense default their creditors. Increasing the national debt ceiling is linked to a concept like this. Increasing the ceiling will never go over a conservative estimate of the gross GDP. These doesn't address the concept of entitlements and spending....
To get a good assessment of how the debt and political policies play out check out this website:
http://www.iousathemovie.com/
It's a thirty minute video.
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Permalink Reply by paul on
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Yes, I think the national debt is a problem, but I also see what Krugman is arguing in his article.
We have a long-term interest to get our budgets under control, but we have a short term interest in using deficit spending to help revive the economy. If we can get the economy going again (with short term stimulus spending) then the tax revenue will increase and allow us to address our longer term problems.
This argument doesn't work if you don't think the short term spending is actually helping to revive the economy, but most economists agree that government spending is required to combat this deep of a recession. I agree that the credit markets would have been frozen a lot longer if the government had not stepped in to add some immediate liquidity to the economy.
I always think of our current situation with the following analogy. The previous politicians (especially the Republicans the last eight years) were like kids who threw a party when their parents were away from home. When the parents return, they find huge alcohol and pizza charges on their credit cards along with broken windows letting cold air into the house.
Even though the credit cards are nearly maxed out, the parents would be making a good decision by going more into debt to fix the windows. Otherwise the money (heat) would continue to flow out the windows.
This is similar to what is happening now. Previous politicians spent like crazy and didn't fix any of the long-term problems our country is facing. The Obama Admiistration is fixing the windows (stimulus package) and trying to address the long term problems. Most of the long-term deficit projections are caused by the baby boomers putting stress on the medicare, medicaid, and social security programs. This is the primary reason why Obama was making a push to reform healthcare.
The sad part is that Americans are impatient with the progress and so they might elect the Repulicans back into office this fall. This would be like punishing the parents for not cleaning the house fast enough and for taking on more debt to fix the windows. Do we really want the kids back in power?
Republicans have always talked a tough game about fiscal responsibility, but their actions prove they should not be trusted with the economy. I hope people will give the Democrats time to fix the economy and realize they are taking steps (stimulus spending, health care reform, pay as you go budgeting, etc....) that is getting our house back in order.
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