The U.S. 10-Trillion-Dollar Debt Limit

The Senate has signed off. The president's borrowing power has been floated up to $10 trillion, which beats the AmEx black card. The president's limit when he came into office in 2001 was $6 trillion. So it's been hiked an average of $500 billion per year during his eight years of office. As of this week, according to the national debt clock, the U.S. government owes nearly $30,000 to every citizen.

Over the weekend Mayor Bloomberg assailed the continuing huge U.S. budget deficits in a friendly speech to British conservatives: "Too many of our conservatives in the United States want to run up enormous deficits and hope that some way, somehow, someone else will pay for it. That's not conservatism, that's alchemy at best, or, if you like, lunacy."

The mayor's comment may stem from envy. New York City must balance its budget every year. A former NYC mayor allegedly said: "a bad loan is better than a good tax."

The United States is not alone in borrowing to finance the national budget. A CIA table shows the national debts of France and Turkey cluster with us at 64.7 percent of our GDPs. Nearly 30 countries have even higher ratios.

Some see no problem with heavy borrowing. If Americans owe the money to one another, it's just a wash that has the side benefit of providing a secure asset for savers. The burden of the debt may be shifted to the next generation, they say, but it's only fair because this generation is leaving behind so much infrastructure.

But there is lunacy in benign neglect of the national debt on at least two fronts:

1. The U.S. debt is largely being financed overseas, which creates the potential for financial crisis.
2. The debt is not accumulating because of major infrastructure improvements or other long-term investments. It is growing to fight wars in Afghanistan and Iraq that are tragically costly in human terms and are not accomplishing their missions.

Foreigners buy U.S. debt to make sure Americans keep buying goods and services from them. Foreign central banks buy the debt to neutralize the extra dollars from foreign countries' current account surpluses. Figures on U.S. external debt, i.e., public and private debts repayable in foreign currencies calculated in U.S. dollars at current exchange rates, show the extent of the cumulative overhang. While U.S. external debt is the highest at $10 trillion, it isn't much higher than the $8.3 trillion figure for the UK, so from the cumulative perspective Mayor Bloomberg was preaching fiscal prudence to the wrong crowd.

Five Countries with the Highest External Debt, 2006

1. United States $10.0 trillion
2. United Kingdom, $8.3 trillion
3. Germany, $3.9 trillion
4. France, $3.5 trillion
5. Italy, $2.0 trillion
Source: CIA, The World Factbook, as of 9/20/07.

The U.S. current account deficit in 2006 was $862 billion, nearly 15 times the UK's deficit of $58 billion. So on a current basis Britain is indeed more thrifty than the United States.

Five Countries with the Highest Current Account Deficits, 2006

1. United States, -$862.3 billion
2. Spain, -$98.6 billion
3. United Kingdom, -$57.7 billion
4. Australia, -$41.6 billion
5. France, -$38.0 billion
Source: CIA, The World Factbook, as of 9/20/07.

The current account balance, ranked for 163 countries, is the trade balance (net export of goods and services such as legal advice) + net factor income from abroad (such as interest and dividends) + net unilateral transfers from abroad (such as foreign aid, pension payments from overseas or workers' remittances from overseas).

The danger is a return to the 1970s problem of expensive oil and other commodities, leading to both high unemployment and high inflation - i.e., a high Misery Index, which peaked at 22 percent in June 1980. For the first half of 2007, the Index was low, under 6 percent. But this level will rise if a weakened dollar shows up more signficantly in what we pay for fuel and food.

Comments

[Kendo Nagasaki]

Bush and Cheney spending is a deliberate ploy to weaken America's middle class to reduce them to pliant serfdom.

Supposedly the fascist Nazis were defeated in 1945, but were they ?

[bushdoescrack]

sadaam was going to ask for oil payments in euros, then iraq was invaded.

[bushdoescrack]

i stand/sit corrected: the outstanding american debt,per capita, including federal, state, mortgages, credit cards, loans is $46 trillion or $161,000.
the america peso is just abouth worthless.

[bushdoescrack]

the american debt per capita on ALL items, national debt, mortgage, credit cards, loads, etc. is in the range of $122k per person.

[robinhood1]

Any way you look at it, the country has run up a lot of debt. But the "American peso" is far from worthless. It still buys a lot more in American stores than the Canadian $ buys in Canadian stores. As recently as 2000, we were on a course to dramatically pay down the US national debt (if not household debt or state and local debt).

I wouldn't expect any major changes in economic policy while the current administration is in office. The question is, do things get any better starting in 2009, or do pork barrel spending, Social Security and (especially) Medicare costs, the war in the Middle East and our refusal, as a country, to raise taxes to pay for our commitments finally do us in?

For a country that in large measure continues to vote for politicians based on their "family values", we are certainly sticking it to the next generation. If Red state voters didn't really have a good understanding of Republican economics in 2000, they should have figured it out by 2004.

The first Baby Boomers qualify for early Social Security benefits in January (only three months away) and for Medicare only three years after that. We don't have a whole lot of time to get our financial house in order.

[dadw5boys]

I disagree.
Assuming debt to repair long neglected infustructure is a problem. Reagan transfered so much wealth to the private secotr from the public that States and Even the Federal Government have been putting citizens at risk.
Few Inspectors of food, we don't know what chemicals are comming into the USA in our foods.
Few mining Inspectors and we all know the result of that.
Few bridge inspectors and they will fall.
Highways getting worse each year around the country.
90% OF THE JOBS CREATED UNDER BUSH HAVE BEEN MINIUMN WAGE JOBS. The taxes are not going to be there to pay the debt or repair our infustructure with assuming more debt.

[denspark]

"it isn't much higher than the $8.3 trillion figure for the UK, so from the cumulative perspective Mayor Bloomberg was preaching fiscal prudence to the wrong crowd."

Uh no. The UK's foreign debt isn't 8.3 trillion dollars even if the CIA claims it is.
That after all is larger than all UK debt, both private and public, combined.
It is however the same amount as the amount of cash that foreigners have invested in the UK, or keep in UK bank accounts. So if a foreign company builds a factory in the UK , that appears in the 8.3 trillion figure. But that's not a loan. Ditto if,say, a german investor buys shares on the london stock exchange , or an american puts money in a deposit account with a UK bank. (and the largest tranche of this 8.3 trillion is deposits held in a UK bank (around 70%)).

See http://www.statistics.gov.uk/downloads/theme_economy/PinkBook2006.pdf for more details.

[avraamjack]

.
Ultimately the debt is not a big a deal as it sounds.
.
The debt is denominated in dollars. We can print dollars.
.
If the debt were denominated in British Pounds we would be in genuine trouble.
.

[bushdoescrack]

Ultimately the debt is not a big a deal as it sounds.
.
The debt is denominated in dollars. We can print dollars.
.
If the debt were denominated in British Pounds we would be in genuine trouble



if countries ever demand payment in euros, americans will be wiping their asses with the $$.

[Rethymniotis]

Mr. Marlin says "the U.S. government owes nearly $30,000 to every citizen". Surely that's a typo, and what he _meant_ to say was:

"Every man, woman and child in America owes $30,000 to the nation's bondholders."

Government is just the middleman. Our "national" debt is called that because it is owed (to the bondholders) by "the nation", and "the nation" is you and me and our 300 million closest friends. It is not "the government".

I will never tire of suggesting that we should privatize the national debt. Split the check. Assign each American his fair share of the "national" debt, to service or pay down as he or she sees fit. The _average_ American would be assigned a debit balance of $30,000. Whether the average American would change his voting pattern or his lifestyle, I don't pretend to know.

-- TP

[olephart]

"I will never tire of suggesting that we should privatize the national debt. Split the check. Assign each American his fair share of the "national" debt, to service or pay down as he or she sees fit."


Let's see, 88% of all the National Debt has accumulated since the beginnings of the economic policies bearing Ronald Reagan's name. Almost 40% has been accumulated since George Bush reinstated these policies. Since Republicans like it so much, why don't we just apportion it to those who brought it to us. There were 62 million votes for George in 2004 so factoring the additional debt accruing until he leaves office would bring the total for each Republican to about $140,000. Should we start putting the notices on all those cars with W stickers or maybe at the next election we could have a Poll Tax? To vote Republican, please deposit $140,000, Thank You.

For me, I was happy paying my share in 2000, when there was a surplus. So to be fair, we should also return to the tax policies of 7 years ago and we could share the burden that was working so well then.

[NYCEconomist]

Or maybe: "If all U.S. residents paid taxes, they would owe nearly $30,000 each to those who have loaned money to the U.S. government." Not all the loans are bonds and if we only count taxpayers, the number is going to be a lot bigger.

[SisterAnn]

Social Security and Medicare are not Welfare. They are self funded programs. We all pay in and we all draw out when our turn comes. We each have our own account.

Medicare costs a lot more than it should because Bushites are giving part of medicare money to substain the private insurances in Medicare. Most have paid into both programs for 45 years or more when they retire.

What bothers me is the interest we are paying out of the country to Japan and China. They are reinvesting it in our stock market and our infratructure.

Someone said if Japan and China call the treasuries all at once, that Bush will just print up more money to pay them, which will make the dollar worthless, so that will keep them from calling in the bonds.

We can pay back the Surplus Social Security which is almost 2 trillion as the boomers retire and need it. They will have to pay regular taxes on every penny they pull out of their 401k, since it is tax deferred and not taxes have been paid on that money. IT is projected they will pay several trillion in taxes. Most will pull out 5% a year, so that will give a steady stream of high taxes collected every year.

Hopefully, it will be enough to pay for the pensions, too.

It is disgusting that companies have restructured and dumped the pensions on the taxpayers. It is also disgusting that those who are making war profits aren't paying enough taxes to pay down the deficit/debt.

[realitytrumpsbull]

Oh, give Billary 2 months, she'll have it jacked up to 18 trillion or so...a year
later, China will foreclose. Cat sandwich? LOL

[NYCEconomist]

Actually, if this is any guide, Bill Clinton paid off some of the U.S. debt. The dollar strengthened against the euro until GW Bush took office.

[themodernleader]

European "whitemen" using the methodology of science devised technology and weaponry that overwhelmed the world and made themselves masters.
Now through arrogance, sloth, fanatically held doctrines and self-interest the Caucasans are beginning to be outpaced on all fronts of knowledge, technology and industry by Orientals, Indians and other so called third world people. And we are becoming economic captives for short term pleasures at the loss of the future. There is a day of reckening when the erstwhile masters become the servants of a more advanced organized citizentry. And the question will be: "Was this dangerous turn of fortune inevitable?"

[CharlesMac]

"The debt is not accumulating because of major infrastructure improvements or other long-term investments. It is growing to fight wars in Afghanistan and Iraq that are tragically costly in human terms and are not accomplishing their missions."

Finally. Nobody ever points this out.

Cheney got it from day One. He sees a tremendous potential for Return on Investment. He sees a cooperative oil producing country and a future of continual influence in the Middle East.

But he is nuts. He is obsessed and nuts. He is obsessed, nuts, and powerful.

Bad combination.

Plus America just doesn't do the military based hegemony and imperialism thing. Our most successfully used "weapon" has always been the economic power of the common wealth of our nation.

We completely dumped a rare foreign opportunity to at least have one success in our endless and imagined "war on terrorism". The situation was perfect for us to help the Lebanese deal with Hezbollah. Endemic groups who use terrorist tactics are best dealt with by their hosting country.

Lebanon finally had itself together. But did we prop up their government and use our influential power of the buck?

**** no. We cheered as they got bombed back to the 15th Century.

Domestically, our most powerful policy has always been the expansion of opportunity. Like giving healthcare to some impoverished kid who someday might engineer the widget that lets us blow off 60% of our energy consumption. With a dash of accessible eduction for a boost.

And fix an occasional pothole, train track, and bridge.

Well spent money is investing in the people who are the foundation for the production of the common wealth.

Our capital, read taxes and debt, is going to guns. And screw the butter.

Who is stupid enough to fork over power, markets, influence, and corporatewelfare to US based multinational corporations, who no longer give a **** about the future of the America People?

When they run out of a middle class to trash, they will just move their headquarters to Dubai.

We have just burned a generation, or two, of opportunity.

[BushSunkOurShip]

This is was is caused when you take jobs for the government and give them to the private sector , which Cheney is doing by his privatization of our jobs, resources , public land, military manufacturing , our security , our intellegent agency, our health organizations and our military.
We no longer own this nation. Bush , Cheney , Bush's family and friends , Halliburton , Exxon , Blackwater military, war contractors , foreign nations.
This country has become a Global Corporation enterprize base , in which Global Corporations have been given the wealth , power and control of running (owning) it.
We the people are numberous and easy to be replaced with any other person in the world for a cheaper wage and younger worker.

[swift goat pet for truth]

For comparison's sake, you might mention the countries with surplusses. I am not sure how many there are, or the pecking order, but I do know that Canada has run annual surplusses for quite a while, and have been paying down their national debt. It is one reason that the loonie has gained parity with the US $.

[BushSunkOurShip]

Bill Clinton's budget was on the way for a balance budget by around the "year 2010".
But , Bush had a better plan , the one where he gives the wealthey a tax break , cheap workers , give the employees no benefits and let them be responsible for the national debt..,
You know Bush's policy where the money
trickle (flows) UP to the wealthy!!!!!
.

[NYCEconomist]

Good idea. Will do this.

[robinhood1]

The US government owes much of this debt to foreigners, not to its citizens. Maybe a better wording of the size of the problem would be that on average, each US resident, owes almost $30,000 of the government's debt to investors (Federal debt per capita). Add in state and local debt, and unfunded government retirement benefits of all kinds, and the numbers become incomprehensible.

I hope the s* does not hit the fan until after I have gone to my reward. But who knows? It took the Germans only 10 years to go from relative prosperity in 1913 to economic chaos in 1923. 10 years later a dictator came to power. 10 years after that, Jews in Nazi occupied Europe were subject to arrest and deportation to the death camps of Eastern Europe, merely because they were Jews. Even a Rothschild went to the gas chambers of Poland. Is anyone at 740 Park Avenue at all concerned?

[mrcontinental]

Nope. They'll be playing golf in Dubai...and I'll be their caddie.

[msjennifer]

So does that mean we're broke? Are we all living on the welfare of other nations? I knew everyone on Social Security and Medicare/Medicaid were on welfare, but I didn't realize the whole country was. What exactly happens when the Chinese, Japanese and South Korea stop supporting us? Forget about the congress funding the war. What if they stopped funding the U.S.?

[davidly]

They better not, or we'd sure show them! (hint, hint)

[robinhood1]

We're not broke yet. But we keep running up the national credit card. My guess is that 10 year US Treasury bonds could easily go to 15% if the Chinese etc. stop buying our bonds, which is where they were in 1981. Maybe the rate would go higher.

[mrcontinental]

What if they stopped funding the U.S.?

Nuclear extortion dear.

[SisterAnn]

I thought a war tax on those who were making profits on the war was a great idea. Something happened and the idea vanished.

Did it make too much sense? Did the mouthbreathers with their 5 year old 'It's my money' mentality have a temper tantrum?

[PADDYWHACK]

jennifer it closer than you think,the English media report that Saudi Arabia is close to cutting it's dollar link.If they do oil will cost a lot more.My guess is only political pressure is keeping them onside.As soon as one Asian country breaks rank there will be a stampede.If there is a depression in the USA a lot of ugliness will be seen,mostly towards minorities.Of course Bush and co.will be ok.