At the present rate, our debt will be 350% of GDP in a few decades
|December 8, 2007||Posted by Jeffery J. Smith under Progress Report, The Progress Report|
At the present rate, our debt will be 350% of GDP in a few decades
National Debt Grows $1 Million a Minute
We condense and reply to this Associated Press article of December 3, 2007.
By Tom Raum, AP Writer
You may 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. It’s expanding by about $1.4 billion a day — or nearly $1 million a minute.
The national debt — the total accumulation of annual budget deficits — is up from $5.7 trillion when President Bush took office in January 2001 and it will top $10 trillion sometime right before or right after he leaves in January 2009. That’s $10,000,000,000,000.00, or one digit more than the “national debt clock” near New York’s Times Square can handle. When the clock was activated in 1989, the national debt was $2.7 trillion.
Texas billionaire Ross Perot, who owned part of it, made paying down the national debt a central element of his third-party presidential bid in 1992. The national debt then stood at $4 trillion and Perot displayed charts showing it would soar to $8 trillion by 2007 if left unchecked. He was about a trillion low.
Social Security and Medicare benefits are the biggest items in the federal budget. The Pentagon is next. And moving up fast in third place is interest on the national debt, which keeps compounding and totaled $430 billion last year.
As much of the expansion of the budget comes from spending on the military, much of the interest payment should actually be attributed to preparing for, waging, and cleaning up after wars. The nonpartisan Congressional Budget Office estimates our wars in Iraq and Afghanistan could cost $2.4 trillion over the next decade.
The national debt as a percentage of the US Gross Domestic Product has grown from about 35% in 1975 to around 65% today. By historical standards, it’s not proportionately as high as during World War II — when it briefly rose to 120% of GDP — but it’s a big chunk of liability.
Who is loaning Washington all this money?
Those who buy Treasury bills, notes, and US savings bonds: ordinary investors, banks, pension funds, mutual fund companies and state, local and increasingly foreign governments. This accounts for about $5.1 trillion of the total and is called the “publicly held” debt. The remaining $4 trillion is owed to Social Security and other government accounts.
Foreign governments and investors now hold some $2.23 trillion — or about 44% — of all publicly held US debt. That’s up 9.5% from a year earlier. Japan is first with $586 billion, followed by China ($400 billion) and Britain ($244 billion). Saudi Arabia and other oil-exporting countries account for $123 billion.
The dollar is down about 35% since the end of 2001 against a basket of major currencies, making the return on US bonds less valuable. The first day some major investors quit buying US paper, then the debt becomes unmanageable. A recent comment by a Chinese lawmaker suggesting the country should buy more euros instead of dollars helped send the Dow Jones plunging more than 300 points.
Not long ago, it actually looked like the national debt could be paid off — in full. In the late 1990s, the bipartisan Congressional Budget Office projected a surplus of a $5.6 trillion over ten years — and calculated the debt would be paid off as early as 2006. Instead, the nation went to war.
And peace is not cheap, either. Over the next 25 years, the number of Americans aged 65 and up is expected to almost double. The taxpaying population will shrink and more and more baby boomers will be drawing Social Security and Medicare benefits.
Under unchanged policy, the national debt will hit 350% of the GDP by 2050. A major economic slowdown, as is looming, could hasten the day of reckoning. How could Congress change policy?
Politicians could sharply raise taxes or steeply cut basic services or both. Of all federal budget categories, interest on the national debt is the one the president and Congress have the least control over. Cutting payments would amount to default, something Washington has never done.
JJS: Presently, we let our children pay for our wars; if Americans had to pay for war in real time by paying higher income taxes, how militaristic would we be?
We could save trillions by letting the UN become the worlds cop and paying our dues to the UN. And by halting corporate welfare, such as subsidies to oil companies and agri-business. And by ending the medical monopoly, letting competition lower the cost of medical care. And we could eradicate bureaucratic overhead — the costs of HUD and most other Cabinet level departments — by simply paying citizens a dividend directly.
We could raise trillions by taxing the super rich, who per capita own most of the debt, only until the debt is paid off. And instead of taxing earned income, just charge full market value for government issued privileges, everything from corporate charters to resource leases and including medical licenses. Use the surplus from that to fund the dividend.
Finally, for those occasions when government has a legitimate reason to borrow — say it needs a mess of capital to rebuild a heavily traveled bridge — it could sell bonds as it does now but also pay its construction contractors in part with new US notes that never existed before. Printing and issuing these notes, like the old US notes now replaced by Federal Reserve Notes, the federal government would not have to pay any interest on them. To make sure Congress doesnt go wild printing new money 24/7, resulting in runaway inflation, wed have to legalize competing currencies so people could always switch to another currency more reliable if need be.
These broad reforms would solve the US federal debt. What would solve Americans equally onerous private debt? Collecting all the rents for sites and resources, so nobody would any longer want to speculate in land, inflating its price; when land costs less, people need not borrow so much. Then use the raised revenue to pay the Citizens Dividend; enjoying the extra purchasing power, again people would not need to max out their credit cards. Thats how geonomics would make debt a manageable part of any economy.
Jeffery J. Smith runs the Forum on Geonomics.
Part II, Behind the Deflating Stock Market Bubble
Wasting Billions on Military Spending
Government Lost Track of $21 Billion
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Our editor published The Geonomist which won a Californian GreenLight Award, has appeared in both the popular press (e.g., TruthOut) and academic journals (e.g., USC’s Planning and Markets), been interviewed on radio and TV, lobbied officials, testified before the Russian Duma, conducted research (e.g., for Portland’s mass transit agency), and recruited activists and academics to the Forum on Geonomics. A member of the International Society for Ecological Economics and of Mensa, he lives in America’s Pacific Northwest.