Wikinvest Wire

Lest we not forget the national debt

Monday, December 03, 2007

With the mess that has been made of the credit and housing markets lately, its easy to forget about the national debt and other seemingly intractable problems that just keep getting pushed further and further into the future for someone else to solve.


[Did these debt counters actually go in reverse back when we had those phony budget surpluses because borrowing from Social Security wasn't included?]

The whole idea of the national debt getting paid down without a serious debasement of the currency seems increasingly unlikely.

In fact, it looks like we'll continue to pile up even more debt with an even weaker currency - some day our foreign creditors will wise up and it probably won't be pretty.

The national debt doesn't seem to be getting too much attention from the presidential candidates these days, what with people losing their homes in record numbers and the pace set to pick up in 2008.

Maybe it's better that way.

Maybe it's better if the only attention the $9+ trillion national debt gets is from the occasional story like this one in today's edition of USAToday:
U.S. Debt: $30,000 per American
Like a ticking time bomb, the national debt is an explosion waiting to happen. It's expanding by about $1.4 billion a day — or nearly $1 million a minute.

What's that mean to you?

It means almost $30,000 in debt for each man, woman, child and infant in the United States.

Even if you've escaped the recent housing and credit crunches and are coping with rising fuel prices, you may still be headed for economic misery, along with the rest of the country. That's because the government is fast straining resources needed to meet interest payments on the national debt, which stands at a mind-numbing $9.13 trillion.

And like homeowners who took out adjustable-rate mortgages, the government faces the prospect of seeing this debt — now at relatively low interest rates — rolling over to higher rates, multiplying the financial pain.

So long as somebody is willing to keep loaning the U.S. government money, the debt is largely out of sight, out of mind.

But the interest payments keep compounding, and could in time squeeze out most other government spending — leading to sharply higher taxes or a cut in basic services like Social Security and other government benefit programs. Or all of the above.
It sounds like they might have to get "innovative" in financing the government debt at some point - just look what "innovation" did for the housing market.

Maybe if house prices had kept going up, homeowners could have come up with $30,000 or so apiece and whittled the debt down, but with home values declining, that plan probably won't work now.

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13 comments:

Anonymous said...

oh yeah, i keep forgetting how were spending all our kid's money, too bad about that.. for them

Anonymous said...

http://www.jamestownre.com/proppdf/2007-NOV-Dec%20TRtour.pdf

November / December 2007 Foreclosure
Tour Schedule
Jamestown Real Estate agents conduct weekly caravans to foreclosed property in the Bay Area.
Homebuyers and investors are invited to join our agents on our caravans to learn more about
foreclosed property in our area. Tours meet at a central location in the area or at the first
foreclosed property. Tour cities and times are subject to change. Please contact us for the most
current information. Agent contact information appears with tours. Email
buysellrealestate@mac.com or call a Jamestown agent today to RSVP.

Anonymous said...

I'll go for the caravan if they do it with wagons and horses.

Anonymous said...

In our current fiat money system, if there were no debt, there would be no money. Let's party hard. It's not like TPTB have any intention of paying everyone back, unless they intend on inflating the debt away (though it seems like inflation is the road they're taking).

EconomicDisconnect said...

Tim,
Thanks so much for adding me to the blogroll. I appreciate it.
I had a question for the board here:
For those of us that only were financially aware during the weak 2001 business led recession, could someone please explain to me how a few quarters of negative growth will end the world as we know it? With all the fear and dread about the "R" word you would think the beast has the power to be able to cause job losses in the hundreds of thousands, make foreclosures increase exponentially, and cause a comet to hit the earth by perturbing the Oort Cloud. Any comments?

Tim said...

Well, job losses in the hundreds of thousands are pretty much inevitable - it's when it gets into the millions (like it did in 2001-2002) that it starts to hurt and we Americans don't handle pain very well. Aren't foreclosures already increasing exponentially?

Anonymous said...

Federal debt is now two-thirds of GDP. Argentina's peso collapsed when federal debt hit 41% of GDP. Makes you wonder when how long the reserve-currency mystique can forestall a similar fate here.

EconomicDisconnect said...

Tim,
the construction job losses are so far muted, due to illegal immigration workers not being reported as well as a fantasy land birht/death model for jobs. Foreclosures are increasing exponentially, but thats my point, whether the economy grows very little, or goes through a recession will have no effect on the housing situation. I think the analysts know that.

Anonymous said...

Whether the Fed lowers interest rates or not right now will not matter an iota in the long run. We're screwed regardless.

If they raise rates, this will be the proximate cause of a nasty downturn. If they leave rates alone, we will slide into a downturn anyway. If they lower rates, the economy may get buoyed for a time but the resulting dollar crash will bring horrendous inflation home with imports, particular in fuel costs (esp. if/when the dollar loses reserve status).

Basically, do you want your contractionary dish seasoned with deflation or inflation? The FDR plate or the Weimar dinner special?

Hmmm. Come to think of it, which way the Fed turns might just matter. Inflationary contractions are arguably the politically messier of the two.

-Vespucian

TJandTheBear said...

THANK YOU THANK YOU THANK YOU for the comment under the debt clock. I can't tell you how often I just want to scream when people talk about that so-called "surplus".

Anonymous said...

I think the national debt deserves much more attention than it gets. It's to the point where people think a deficit is normal. And then there are those who think that the deficit IS our national debt, when really it is only how much we are adding.

Another point: presenting GIANT numbers doesn't compute with most people, therefore putting it in terms of an amount per person can bring it home to people.

Anonymous said...

Many European countries and Japan have over 100% debt/GDP.

The U.S. can handle a lot more debt. The question is who should borrow? The Federal government to pay for wars and welfare, or business and individuals for investment and consumption?

If you want to solve the government deficit, get out of Iraq and privatize Social Security and Medicare. Anything less will result in bigger government and bigger deficits.

Anonymous said...

To the previous poster:

How much of the European and Japanese debt is owed to foreigners?

-Vespucian

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