The Frightening Growth of Public Debt
The worst debt growth news this month for the federal government isn’t that the U.S. national debt topped $15 trillion for the first time ever on November 15th. And, yes, that’s bad!
Nope, the really scary news is that most of our debt growth in recent years has shifted to public debt growth and that is much worse.
Since 2000 the national debt has shifted from good debt to bad debt at a disturbing, accelerated rate.
Today there is three times more bad debt than there was on 10/1/2000. This month 96% of all acquired debt is public debt. That is not good.
Allow me to explain…
Good Debt and Bad Debt
Hard to believe but its true. For all nations, there is good debt and bad debt.
In the United States the Treasury Department lists them in two separate columns as we see above:
- Good Debt: “Intragovernmental Holdings”
- Bad Debt: “Debt Held by the Public”
Good Debt (“Intragovernmental Holdings”)
Good debt is money that a government borrows from itself. Its good because that debt doesn’t count against your credit rating. It doesn’t affect the cost of borrowing.
An example of good debt:
The federal government borrows excess payroll tax collections and uses that to pay for it’s other bills.
Money borrowed from itself and spend on other programs is still real debt but gets added in the “Intragovernmental Holdings” column.
Generally speaking, internal (good) debt is ignored by credit agencies and lenders when it comes to deciding if the U.S. is a good credit risk or not.
Bad Debt (“Debt Held by the Public”)
Bad debt is money that a government borrows from outside sources. Its bad because it counts against a good credit rating. It makes borrowing costs go up.
An example of bad debt:
According to the U.S. Treasury Department as of September 2011, the United States owes $4.6 trillion to foreign countries, including $1.15 trillion to mainland China.
That debt matters to creditors and credit agencies. That debt affects the cost of borrowing.
If we ignore internal (good) debt then the United States debt-to-GDP ratio is a very, very respectable 69%. Creditors don’t get worried about a debt level that low. That is why the United States doesn’t have a credit problem yet.
As of yesterday, 11/23/2011, our federal government can borrow money at only 1.86% interest on 10 year bonds. That is a terrific rate.
The Alarming Growth in Public Debt
Back on 9/29/2000 the percentage of the national debt that was bad debt (“Debt Held by the Public”) stood at 60% of the total national debt.
Back then total public debt was $3.4 trillion.
As of today, this very minute, the percentage of bad debt has risen to 68.6% of total debt and is growing rapidly.
Today, 11 years later, public debt is $10.3 trillion… three times higher than it was back in 2000.
Here is where it gets worrisome…
Of all the money borrowed so far this year, just over $1 trillion dollars, 91.6% of it is public (bad) debt. Only 8.4% of it is good (“Intragovernmental Holdings”) debt.
As can be seen in the opening graphic above, so far this month the federal government has borrowed $76 billion… $73 billion of that total went to public debt.
That is an alarming 96% of total borrowing.
The sources for internal borrowing for the federal government have dried up.
The federal government’s biggest source for internal borrowing, Social Security, no longer brings in a surplus. Under the current system it won’t for the next 75 years. That change happened last year.
From now on we are draining the SS trust fund… until its gone. All of the fund has already been borrowed and spent internally. It is in the “Intragovernmental Holdings” column.
As we drain Social Security’s $2.6 trillion trust fund all that debt will transfer from “Intragovernmental Holdings”(good debt) into “Debt Held by the Public” (bad debt).
Today, we borrow mostly from foreign governments and outside sources. This year 91.6% of all borrowing is from outside sources. This month it is up to 96%.
If this trend continues it won’t be many years before all our debt is the bad kind.
When that happens this nation will be in deep trouble.