In the February issue of GQ, Wil S. Hylton has a good piece about Sen. Tom Coburn (R-OK) that contains describes our $9,000,000,000,000 national debt as:
A figure so enormous that even if the fifty richest people on earth–including Bill Gates and Warren Buffett and Michael Dell, along with the richest men in Saudi Arabia and Russia and Hong Kong–got together and sold everything they owned, right down to the last buttons on their last embroidered shirts, and then they donated all their money to the U.S. national debt, they still couldn’t afford to pay a single year of interest at 10 percent.
I find it very difficult to wrap my head around enormous numbers like $9T — reporters tossing around figures without providing a sense of scale is a pet peeve of mine. I never knew how much $9T was. I’ve got a better idea now.
I hope we’re paying an interest rate lower than 10%.
Yikes. Thank you for posting this, Waldo. I too had no concept of an amount so staggering. Even if the rate is only 5%, that is still $450 billion dollars a year. What would also be interesting to see is a breakdown of exactly who is holding all of this debt. Yep, very interesting – I bet it would explain lots of foreign policy decisions…
For the month of January, we paid a 5.04% interest rate, which is quite an increase from 4.82% one year ago, but down from the 6.59% we were paying in January of 2001. Trouble is, our debt was a lot lower back then. It looks like it steadily dropped until November of 2004 (perhaps not coincidentally, the month that President Bush was reelected), when it bottomed out at 4.46%. It’s climbed on up since then.
Karl Rove not only controls gas prices and the integrity of levees, but interest rates as well? I had no idea.
I think that’s news to all of us, JS.
Mr. Coburn voted for the unpaid-for war, and continues to support it. He’s one to talk.
I have been perplexed about this as well. I’ve read some compelling macro-economic analysis, but I still can’t seem to wrap my head around it all. Maybe I’m old fashioned but I think debt limits your options and it is generally better to collect, rather than pay, interest.
Besides a debt that’s close to $9 trillion, we also have an economy that’s close to $14 trillion and climbing. The debt relative to the size of the economy is staying almost constant. The debt is not a problem today, and won’t be as long as we have a healthy, growing economy.
Some would rather pay down the debt principal to avoid paying future interest on the principal. I’d rather keep paying the interest to avoid paying down the principal. In either case, the net present value is identical.
In other words, an economy with $9T debt and $14T GDP has a “debt load” of 64%. An economy of $90T debt and $140T GDP has an identical debt load (64%), and can afford to pay the interest from its tax receipts with equal ease. The biggest difference, however, is that everyone’s income is ten times higher in the latter economy.
The government’s debt is the private sector’s asset. That asset will maintain its value as long as inflation is under control and the dollar maintains its value — which will almost certainly be the case as long as the debt-to-GDP ratio remains in the 50%-70% range.
@ Steve:
Interesting post, but how do you respond to the people that all that government debt raises interest rates and tightens the money supply?
Also, back in the 80s when the Japanese economy was kicking ass and they were thought to be buying up American companies and real estate at a prodigious rate, there was a bood published whose title was “A Japan That Can Say No [to America]”. Obviously, the reports of the Japanese taking over teh world were premature. Now it’s China that owns a lot of our debt. Is that a strategic problem for us as well?
My response is that deficits and increasing debt have had no visible effect on interest rates; in fact, some researchers have detected a small inverse relationship. The “crowding out” theory is easy to believe, but unsupported by evidence.
Regarding China (and Japan): why are so many people uncomfortable that Chinese people think US T-bonds are a safe place to park their dollars? Shouldn’t we be happy that they want to help us fund, among other things, our war on terror? Why would the Chinese, who own $0.3 trillion of our $8.6 trillion debt, want to dump it all at once, undermining their own assets in the process — in effect, becoming financial suicide bombers?
As long as we maintain a healthy, growing economy, neither the debt, nor who owns it, will be problems. Don’t you ever wonder why we hear nothing from our politicians about how they propose to enhance our economy’s growth rate?