MOUNTAIN OF DEBT: Rising debt may be next crisis

WASHINGTON — The Founding Fathers left one legacy not celebrated on Independence Day but which affects us all. It's the national debt.

The country first got into debt to help pay for the Revolutionary War. Growing ever since, the debt stands today at a staggering $11.5 trillion _ equivalent to over $37,000 for each and every American. And it's expanding by over $1 trillion a year.

The mountain of debt easily could become the next full-fledged economic crisis without firm action from Washington, economists of all stripes warn.

"Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth," Federal Reserve Chairman Ben Bernanke recently told Congress.

Higher taxes, or reduced federal benefits and services _ or a combination of both _ may be the inevitable consequences.

The debt is complicating efforts by President Barack Obama and Congress to cope with the worst recession in decades as stimulus and bailout spending combine with lower tax revenues to widen the gap.

Interest payments on the debt alone cost $452 billion last year _ the largest federal spending category after Medicare-Medicaid, Social Security and defense. It's quickly crowding out all other government spending. And the Treasury is finding it harder to find new lenders.

The United States went into the red the first time in 1790 when it assumed $75 million in the war debts of the Continental Congress.

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Alexander Hamilton, the first treasury secretary, said, "A national debt, if not excessive, will be to us a national blessing."

Some blessing.

Since then, the nation has only been free of debt once, in 1834-1835.

The national debt has expanded during times of war and usually contracted in times of peace, while staying on a generally upward trajectory. Over the past several decades, it has climbed sharply _ except for a respite from 1998 to 2000, when there were annual budget surpluses, reflecting in large part what turned out to be an overheated economy.

The debt soared with the wars in Iraq and Afghanistan and economic stimulus spending under President George W. Bush and now Obama.

The odometer-style "debt clock" near Times Square _ put in place in 1989 when the debt was a mere $2.7 trillion _ ran out of numbers and had to be shut down when the debt surged past $10 trillion in 2008.

The clock has since been refurbished so higher numbers fit. There are several debt clocks on Web sites maintained by public interest groups that let you watch hundreds, thousands, millions zip by in a matter of seconds.

The debt gap is "something that keeps me awake at night," Obama says.

He pledged to cut the budget "deficit" roughly in half by the end of his first term. But "deficit" just means the difference between government receipts and spending in a single budget year.

This year's deficit is now estimated at about $1.85 trillion.

Deficits don't reflect holdover indebtedness from previous years. Some spending items _ such as emergency appropriations bills and receipts in the Social Security program _ aren't included, either, although they are part of the national debt.

The national debt is a broader, and more telling, way to look at the government's balance sheets than glancing at deficits.

According to the Treasury Department, which updates the number "to the penny" every few days, the national debt was $11,518,472,742,288 on Wednesday.

The overall debt is now slightly over 80 percent of the annual output of the entire U.S. economy, as measured by the gross domestic product.

By historical standards, it's not proportionately as high as during World War II, when it briefly rose to 120 percent of GDP. But it's still a huge liability.

Also, the United States is not the only nation struggling under a huge national debt. Among major countries, Japan, Italy, India, France, Germany and Canada have comparable debts as percentages of their GDPs.

Where does the government borrow all this money from?

The debt is largely financed by the sale of Treasury bonds and bills. Even today, amid global economic turmoil, those still are seen as one of the world's safest investments.

That's one of the rare upsides of U.S. government borrowing.

Treasury securities are suitable for individual investors and popular with other countries, especially China, Japan and the Persian Gulf oil exporters, the three top foreign holders of U.S. debt.

But as the U.S. spends trillions to stabilize the recession-wracked economy, helping to force down the value of the dollar, the securities become less attractive as investments. Some major foreign lenders are already paring back on their purchases of U.S. bonds and other securities.

And if major holders of U.S. debt were to flee, it would send shock waves through the global economy _ and sharply force up U.S. interest rates.

As time goes by, demographics suggest things will get worse before they get better, even after the recession ends, as more baby boomers retire and begin collecting Social Security and Medicare benefits.

While the president remains personally popular, polls show there is rising public concern over his handling of the economy and the government's mushrooming debt _ and what it might mean for future generations.

If things can't be turned around, including establishing a more efficient health care system, "We are on an utterly unsustainable fiscal course," said the White House budget director, Peter Orszag.

Some budget-restraint activists claim even the debt understates the nation's true liabilities.

The Peter G. Peterson Foundation, established by a former commerce secretary and investment banker, argues that the $11.4 trillion debt figures does not take into account roughly $45 trillion in unlisted liabilities and unfunded retirement and health care commitments.

That would put the nation's full obligations at $56 trillion, or roughly $184,000 per American, according to this calculation.

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On the Net:

Treasury Department "to the penny" national debt breakdown: http://tinyurl.com/yrxrsh

Peter G. Peterson Foundation independent assessment of the national debt: http://www.pgpf.org/

"Deficits do Matter" debt clock: http://tinyurl.com/l6mvjb

Comments

[PlasmaX]

As long as the government keeps letting the banks use the American people as their 'patsies' to earn (steal) their way of of the trouble they were largely responsible for creating, we're all in for a very rough and painful period of prolonged financial unstability. If its too big to fail, its too big to exist.

[billw8017]

I agree. The big banks should be broken up under anti monopoly laws. The insolvent fractions can fail, the more solid fractions can be a comfort to stockholders. This isn't about to happen, but, I mean ... it should. We just have to be content to see Obama fire Summers when his schemes in the American consensus prove to work as badly at home as they worked abroad when he enforced it as chief of the IMF.

[armchairQB]

The TARP bank bailout was created by former Treas. Secretary Paulson ("the government") and chairman Bernanke (the Fed) working together. So you are correct that the banks are sticking it to us but incorrect stating that the government keeps letting them do it. The government is driving the taxpayer fleecing through the Fed.

The current Treasury Secretary, Larry Summers, and his predecessor, Hank Paulson are like a reversible jacket: same garment, different look. I know the Obama supporters won't like this news but President Obama's economic policies are a continuation of George Bush's.

If you look at the actions and ignore the rhetoric (not likely on this website) it's quite plain to see.

[wizzardly]

Stop blaming Bush and put it on BO. Even Colin Powell sees BO going crazy with bills on spending that no one has time reading. And we go further in debt. I am so disappointed that BO encourages bill passage without any time for debate...b­ut hey, he's president, and he will suffer the consequences when things keep going south.

[IhateNeoCons]

Wow, factually inaccurate to a HUGE degree. Canada's national debt is something between 30-35% of GDP and STEADILY falling, not 80%. If the author believes this is "similar" to the 80% for the US described here (which by the way completely ignores the full cost of the middle east wars already known to be a liability which puts the US over 100% of GDP already) then he's living in a state of delusion that I would like to visit some day. I don't know about the other countries listed here, but the fact he included India which is hardly a fair comparison considering they chew up about 2% of the world's GDP while accounting for about 17% of the world's population suggests some of them are probably no where near equaling their GDP in debt either. Huffington Post should require a higher standard of fact checking, especially on important issues. Fluff pieces, who cares, but this is not a commentary on Brittany's latest bimbo antics or a fawning oratory to the King of "pop goes my weasel".

[mperry129]

The lead-in isn't entirely accurate: The national debt went to zero under Andrew Jackson, but has been growing ever since he was in office.

[wizedollars]

Andrew Jackson refused to accept Rothschild money to finance wars, many think that's why there were so many assassination attempts on his life. Same for Lincoln and Kennedy, albeit successful.

[billw8017]

The federal government has produced surpluses in other years, most recently under Clinton and Johnson (provided the SS excess is counted). Carter reduced the debt relative to GDP, bringing it to the post WWII minimum of about 38%. Nixon, Ford, Reagan and both Bushs not merely increased the deficit but tended to set peace time records deficits. (If you include the Savings and Loan bailout under Bush I.)

Particularly, as tax cuts are a Republican cure for everything except for whatever challenge expanded military spending is supposed to meet, it is ridiculous to attribute any fiscal responsibility to them. With a Democratic President, Bernanke may attempt to reduce money supplies, but generally speaking fiscal responsibility is another of the things we would have to pry from their cold dead hands.

[mtracy9]

Notice how this author does ignores Bush's tax cut for the wealthy back in 2001 and its effect on the deficit. Bush cut the top marginal rate from 39 percent to 36 percent. Immediately the deficit exploded even before 9/11. This seams to be a taboo subject among much of America's ruling (i.e., wealthy) circles.

[mtracy9]

Ronnie RayGun never produced any budget surpluses; Bill Clinton did. What was Ronnie's excuse?

[Haus]

Democratic congress vs the contract with America under Clinton.

[billw8017]

Reagan entered office promising to reduce the debt, cut taxes and increase military spending. As the debt ballooned, he came finally to say, he had never promised to cut the deficit but that it was an ideal.

Republicans did attempt to sabotage Clinton's prosperity. They calculated that raising taxes and cutting government expenses would do it, but Alan Greenspan also raised the Fed's overnight rate to 6 3/4s, only dropping it after the November elections and bringing it down finally to 1% during the early years of Bush's "jobless recovery." Under a Republican administration, Republicans were happy enough to let the debt double.

Peterson's calculations are absurd. To include Social Security and Medicare as unfunded liabilities when these are self amortizing insurance programs is like McDonalds figuring that every hire represents an indebtedness for all their future salaries.

[Transcendentobserver]

It was not just the war debt of the Continental Congress that the Federal Government assumed following the Revolutionary War. In point of fact, funding of the national debt was the primary motivator for replacing the Articles of Confederation with the US Constitution. It was the assumption of accumulated by the newly formed Federal Government of war debt from wild speculators who manipulated individual states' war debt to personal advantage precipitating a profound economic crisis. Indeed resolution of that crisis was the principal motive for calling the Constitutional Convention and its timing. A consequence, of course, is the constitution prohibition of states from making other than "gold or silver" tender to satisfy debt, leaving the Federal Government (more particularly the US Bank, at that time by federal charter, able to "create" wealth through printing of currency. The solution worked well until Andrew Jackson in a populist wave, terminated the US Bank charter in favor of "pet banks" which obviously created its own set of problems of currency and debt manipulation Prescience perhaps??

[fifty8]

So much of America's budget is for militarism that the Pentagon faces overstretch while the nation is so indebted it's effectively a deadbeat with amounts impossible to repay. For countries like China, the problem is especially acute given its $2 trillion holdings "denominated in yuan."

A "return to the kind of dual exchange rates common between World Wars I and II" may be the solution - "one exchange rate for commodity trade, another for capital movements and investment­s."

With or without these controls, "foreign nations are taking steps to avoid being the unwilling recipients of yet more dollars" that face lower valuations the more of them America prints. If SCO countries and Brazil have their way, America "no longer (will) live off the savings of others....­nor have the money for unlimited military expenditures and adventures­." For these nations and many others, it can't come a moment too soon.

http://www.marketoracle.co.uk/Article11787.html

[LeLoup]

To all the posters that want to make this issue a Dems vs Repubs blame game, I say:

Buzz off! Take a hike! Bite me!

The debt is here and that is that.

For those of us who still can use this wonderful creation of the Good Lord called the cortex, I believe we can agree on one premise: the problem is one of not enough revenues and too much expenses.

Revenues: Who pay less taxes (compared to their total income) than the rest of us? Let's find them and tax them. Time to see who the real patriots are. No ifs, buts and "Mommy! this is sooo unfair Boo! Hoo! Hoo!" I say fair share for everyone, period! Congress..­.if you listening?

Expenses: Medicare, SS and defense. Hmmm!

1) Medicare-Medicaid: Single-payer for all baby! In other countries where they've got this system, I have yet to see waves of people dying in the streets by droves. Better still: they have overall equivalent outcomes for a far better price.

2) Social Security: Raise the cap and that is that! People making more than what? 110,000$ if I recall correctly, don't contribute on the portion of their income past that level...co­me on!

3) Defense: What a doozy! We could have a strong defense at a better price (F-22s anyone?) if we whipped Congress into submission. (roll eyes) Hard work but it's doable...i­f we really want.

[Samalabear]

The three biggest expenses. We need to get out of these endless wars and now we're ramping up big-time in Afghanistan and it looks like it is going to be a nightmarish long, long haul -- we in there to stay, folks, until we go the way of Russia. Iraq we're on the outskirts now, but if the Iraq can't get it's act together we are within shouting distance and will be right back in the thick of it yet again.

It is no secret -- except to Obama and Congress, apparently -- that single-payer is the secret to saving Medicare by extending it to all, getting rid of all the other programs out there. Talk about stimulus! If you don't understand why the public option will be a very expensive nightmare, as opposed to single payer, do your homework. This is especially for those who like to attack other posters and make comments like do you have a link? This is called research. You should have learned it in grade school. If you didn't, well, now is a good time to learn.

On Social Security, I don't know much, but that is the case, are you kidding me? We've got all these multi-millionaires and billionaires out there and don't pay any SS above $110,000? That's just downright criminal.

And, lastly, you are right. This is not a Dem or Repub thing. It's time to clean up both parties and bring in a viable third party.

[RomeoMD25]

Our days as the dominant economic power are numbered. The dollar is going to collapse, and Americans are going to experience stagflation on an unprecedented scale in the form of recession and hyperinflation. Those of you who act smartly and quickly by taking measures..

[Rich Hosking]

I think you are right.

The core problem, beneath everything, is that we have exported well over half of our manufacturing to other countries in the last 25 years. There are few "good" jobs. The financial sector had made up 40% of corporate profits. Now that that is about over, the credit bubble has collapsed and people will have to pay with WAGES.
That's right--real money, which they don't have.

The government is sugar coating the problem, but there really is no solution that would be workable even in a 10 year time span, assuming we had the political will, which we (congress) don't.
On top of that, our politcal system is so sluggish, inept, and massively corrupt that true change is virtualy impossible. Many of you may have noticed, we don't have exactly an embarrassment of riches when it comes to intellect on capital hill. many of these representatives really can't even understand the issues, let alone govern morally.
Unless we reexpand a bubble through cheap money, no regulation, etc..., we will face a long, protracted period of shrinking GDP. Utlimately, this means shrinking wages/purchasing power, and a much, much lower standard of living.


The fun part will be watching the locust horde of "capitalists" move overseas and to developing economies, after having ravaged this country...

[jericho4119]

The author of this "article", presents no evidence to back up this claim:

"Some major foreign lenders are already paring back on their purchases of U.S. bonds and other securities­."

Perhaps that's because there isn't any.

US Treasuries continue to do well at auction and at very low rates. If we have to finance our obligations through debt - and we do - then we should be happy to do so at such low rates.

There is no tax policy significant enough to resolve the national debt. Or it should be stated like this: asking each citizen to cut a check to the federal government for their share of the national debt is not an option. We don't have the money.

There is no spending policy significant enough to resolve the national debt. Or it should be stated like this: reducing our spend rate to our current level of revenue intake (annual tax receipts) would send millions out of work and into breadlines - except there would be no bread as it would have to be borrowed too.

The only answer is to return our economy to the path of growth. A growing economy produces the tax revenue to reduce annual deficits as well as the national debt. We saw this in the late 90s when the folks who ran the debt clock in NYC actually turned it off as we were running surpluses. Of course, the Internet economy turned out to be false. And we are still learning how

[ronnie423]

The country should just declare bankruptcy and all dept zeroed out. Start over with a across the board 15% Federal tax for everyone. I'm sure other countries would protest especially China ,but then so what.

[billw8017]

The debt is not such a burden, but rather, it is the base to our entire money supply. This was the design of Alexander Hamilton and why he wanted to pick up at face value the discredited debt of the Continental Congresses. While the most of our money is bank made money, the federal printings will encourage bank credit. Our debt is a burden. As Andrew Jackson said, the debt of the United States amounts to a tax paid to eastern financial interests and Europeans that our economy cannot suffer without occasional distress.

Anyway, it gets monetized by inflation. This is how Clinton could talk about eliminating the whole thing in ten years or so. As we do nothing about it, inflation will begin to pay it off. Rather like the man who awoke in 2200 to discover his savings had compounded to a few million dollars. He was so delighted, he had to tell somebody. He made a random phone call, and shortly the operator cut in to say, "Your three minutes are up. Please deposit another 5 million dollars."

[climatebabes]

Jeez..What kind of crisis does this author think we're in? A SAVINGS SURPLUS CRISIS?

[jaschrod]

What do you mean "could" ? It is guaranteed.

[urweatherman]

HP needs to start running the debt clock right here on the main page. Also MSNBC, CNN, COLBERT, ABC, NYT, WP all should feature it right up front! Stand up and lead, all of you!