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This website provides a visualization of the US debt. It has been very popular via Facebook and other internet sources. The primary intent is to scare Americans about the US debt. The visualization is very effective because most people have no experience with numbers as high as one trillion or more. The problem is that people get frightened about the debt, but they don't really understand the implications. I thought that it would be helpful to provide some points to consider along with the size of the debt.
The debt is around $14 trillion today which is about the size of national income. A large percentage of homeowners in the US with mortgages have a total debt that is greater than their annual income. Moreover, the interest rate on their debt is many times higher than the interest rate paid by the US Treasury, and they have to pay down the principle along with their interest payments. The US Treasury does not make principle payments. It sells new Treasuries to make the principle payments on notes as they mature. The US Treasury has a much better debt to income ratio than most Americans, and its annual interest expense is lower as a percent of national income than it is for many Americans. That is why the government can borrow at low interest rates.
The US debt is an asset to those who own the Treasuries. They have purchased the debt to earn interest and to put some of their wealth into a risk free asset. Most of the debt is owned by Americans who receive the interest payments. A growing share of the national debt is held by central banks, including the US Federal Reserve. Foreign central banks purchase US Treasuries with the dollars that they earn by selling us more of their output than we sell to them. As long as we have trade deficits, and the US dollar is the global reserve currency, they will continue to purchase our Treasuries. Another way to think about a portion of our debt is to view it as a way to pay for US imports that are not paid for by US exports.
The US runs a budget deficit when it spends more on government than it receives in tax revenue. The US debt is the sum of its annual budget deficits, and rare budget surpluses. One way to think about the $14 trillion in US debt is to view it as debt that was accumulated in lieu of taxes. Politicians like to cut taxes to get elected, and to use debt to fund government expenses. That huge $14 trillion pile of US debt can be viewed as pile of foregone tax revenue. The GOP has put most of the foregone tax revenues into that pile by cutting taxes without making similar cuts in government spending. Government spending under GOP and Democratic presidents has been very similar over the years as a percent of GOP. The major difference between the parties has been in tax policy, which has been used as the dominant campaign issue by the GOP. It is the spend and borrow party in America.
My point is not to argue that increasing levels of national debt is a public good. It would be better if government spending and tax revenues were in closer balance. We should just have a better understanding of the national debt and its relationship to tax policy, and to trade policy. We should also understand it in relation to our national income, and to our ability to make interest payments. The US government is not bankrupt, and it is more able to service its debt than most US households and most US businesses.
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