CP Politics

Wednesday, Jul 23, 2014

National Debt Now Bigger Than the Economy

  • (Photo: Reuters/Chip East)
    Tourists from India photograph the National Debt Clock, which displays the current United States gross national debt and each American family's share, hanging on a wall next to an office for the Internal Revenue Service near Times Square in New York May 16, 2011. The Treasury Department said the nation had hit its $14.294 trillion debt limit – a milestone that has little practical impact beyond injecting a note of urgency into the debate over taxes and spending that has dominated Washington this year.
January 9, 2012|2:45 pm

The U.S. national debt, now more than $15.23 trillion, has surpassed the amount of economic output in a single year.

The gross domestic product (GDP), the value of all goods and services produced in the United States, for all of 2010 was likely around $15.3 trillion. The last time the national debt surpassed the GDP was for three years during and after World War II.

Diane Lim Rogers, chief economist for The Concord Coalition, a non-partisan organization advocating responsible fiscal policy, said, in an email to The Christian Post, that the milestone should be understood in proper context. The important numbers to look at are the net debt and the growth of that debt relative to GDP.

The $15.23 trillion is gross debt, which is the amount owed to investors plus the amount the government owes itself, due to the Social Security trust fund. The net debt, or debt held by the public, is of more economic significance, Rogers explained. The net debt is about $10.5 trillion, which is about 65 to 70 percent of GDP.

Additionally, the size of the national debt is a “huge concern,” Rogers said, because of how fast the debt is growing relative to GDP. As large as the national debt is, if the economy was growing faster than the rate at which the government is borrowing money, the debt would not be much of a concern. Unfortunately, this is not the case.

“The federal fiscal outlook is on an economically unsustainable path,” Rogers explained, because, deficits as a percent of GDP have been much larger in recent years than the growth rate of the economy. Deficits as a percent of GDP have been around eight to 10 percent in recent years while the economy has grown around two percent a year. (In the past, economic growth averaged around three percent a year.)

Having debt is not, in and of itself, a bad thing, Rogers believes. It is when government debt (or household debt for that matter) exceeds its capacity to repay the debt that it runs into trouble. When the cost of keeping debt (interest payments) consume a greater part of the budget, the government has less capacity to spend money on things that could help the economy, which ultimately help to pay the debt.

Another problem with the nation's debt growing faster than its GDP, Rogers points out, is that at some point investors will no longer view U.S. debt as a safe investment. When that happens, the U.S. will have to pay more interest on its debt, thus reducing its capacity to pay down the debt and limiting its ability to spend money on other parts of the budget.

“We don't know exactly where that cliff point is reached,” Rogers said, “but we know it's somewhere along the path between where debt is today and where debt is projected to go in coming decades if we stay on the 'business as usual' policy path where spending and tax cuts continue to be routinely deficit financed.”

Contact: napp.nazworth@christianpost.com
Source URL : http://www.christianpost.com/news/national-debt-now-bigger-than-the-economy-66724/