The Effect of Debt

It is the effect of debt that matters more than the debt itself.

That is what Keynesian macroeconomists like Paul Krugman and Robert Reich totally ignore to the detriment of this nation.

We can talk about current low interest borrowing rates until we are blue in the face, but that is inconsequential compared to the effects of debt itelf.

Today, I hope to put the cost of debt into proper perspective.

The Effect of Debt

As of today the national debt stands at $15.6 trillion. That number is so large that it is meaningless to most voters. The intelligentsia tells you not to worry about it.

Allow me to provide you meaning to that number… then decide for yourselves.

The chart at right lists the budgets of a bunch of federal departments.

Those departments and their total 2010 budgets are:

  • Transportation: $72.5 billion
  • Veterans Affairs: $52.5 billion
  • Department of State: $51.7 billion
  • Housing and Urban Development: $47.5 billion
  • Education: $46.7 billion
  • Homeland Security: $42.7 billion
  • Energy: $26.3 billion
  • Agriculture: $26 billion
  • Justice: $23.9 billion
  • NASA: $18.7 billion

Their combined total is LESS than the INTEREST paid on the national debt in 2010.

Interest paid: $414 billion

Without debt this country could have funded all those programs without problem.

Interest paid is bigger now, but this puts things into proper perspective.

By the way, the budgets for these departments went up significantly in 2010. The Department of State’s budget, at nearly 41%, went up the most.

On the whole, budgets increased about 10% in a year seniors were denied a Social Security COPA increase because there was no inflation.

Conclusions

We are really lucky right now.

The cost of borrowing to pay government’s expenses is a bargain. Since Barack Obama was elected we have borrowed $4.3 billion per day to pay for ARRA and day-to-day government expenses at very low, near 2% interest rates.

For “stimulus” we reduced Social Security contributions for our national retirement plan every year since Obama was elected. That has been funded by low interest borrowing rates, too.

That is all about to end.

What is not about to end is the interest we waste “servicing” the national debt. Its nearly 11% of the total federal budget right now (including interest owed on Social Security and such). That is about to increase. How much it will increase nobody knows, but 2% interest rate borrowing is history.

If this nation does not get serious about reducing it’s ginormous debt “servicing” soon then there will be no American Dream.

Remember that when you are at the ballot box this year.

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Mar 24, 2012, in 2012 Elections, Debt crisis, Deficit, economics, National Debt, news, Opinion, Paul Krugman, Politics, Robert Reich. Bookmark the permalink. 9 Comments.

  1. Eventually, our massive debt is going to stop being just a big number and start being a real problem for our economy. Don’t get me wrong, it’s already a huge problem. But soon, our debt is truly going to start collapsing our economy for good. What happens when the foreign investors who hold trillions of our debt want their money back? We certainly can’t just give it to them. Our debt is currently 100% of GDP. Greece collapsed with debt equaling 10.5% of GDP. That should scare everyone.

    • Actually Greece’s debt to GDP ratio was closer to 120%.

      • Complicating the issue is that the U.S. debt-to-GDP level isn’t really at 100%, either.

        That is because “Intragovernment Holdings” – debt owed by the government to itself – isn’t included in the calculation of debt-to-GDP ratio. That is true for all countries, not just the United States.

        As of today, U.S. “Intragovernmental Holdings” is $4.7 trillion!

        By that standard the real U.S. debt-to-GDP ratio is only around 70%… far, far lower than Greece and other countries in deep fiscal trouble.

      • If that’s true, then I’m mistaken. It doesn’t change the fact that our debt is way too large. Either way, thank you!

      • Patrick… you are right as rain about the debt being far, far, FAR to large!

        There ain’t nobody that can bail out the USA when we get in to deep!

        And your mistake is very commonly made by zillions of people.

        The logic behind the lower debt-to-GDP ratio is that a government can default to itself and outside investors aren’t hurt. They could care less if a government defaults to itself. They just care if it defaults to THEM.

        Outside debt is called “sovereign debt”… which is what we read and hear about all the time in newspapers and on TV. The US Treasury calls sovereign debt “Debt Held by the Public”.

        Personally, I think debt is debt whether the government owes it to itself or not.

        Outside investors might not care, but Social Security retirees whose $2.5 trillion in the SS trust fund that got lost would definitely care!!

  2. The United States has certain advantages over other countries because the U.S. dollar is still the primary currency of world trade. The world has a vested interest in a strong U.S. dollar. That is why Treasury yields are so incredibly low right now.

    But that will not last and when things start to go south it won’t be pretty. U.S. debt is greater than the three largest economies outside the U.S. combined.

    There isn’t anyone out there that can bail us out when we get in trouble.

  3. Excellent article. The numbers are staggering. I have a question: where did you get these numbers? Particularly the amount paid on interest. I have been working on a post about the debt and I was trying to find a source for this. It would help me out a lot. Thanks.

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