The United States National Debt: $8,800,000,000,000

The Atlanta Journal-Constitution

Like your monthly mortgage check, government interest payments may not do much to reduce debt, but they are a necessary price for carrying it — and they may keep you cheerfully confident that the debt itself is no problem.

So what if each month you borrow a little more — for expansions, renovations or maybe just for a week in Aruba?

No problem.

Yes, you would have to pay a bit more each month. But you'd be able to handle it so long as you keep your job and your salary grows as fast as that monthly payment.

Of course, as the mortgage keeps expanding, hope shrinks that you will ever pay it off: You become ever more vulnerable to the whims of your banker and to the level of interest rates.

Like your household finances, the government's troubles are twofold: the need to periodically pony up for the interest and, behind it, the huge, ghostly debt, said James Horney, director of federal fiscal policy at the Center for Budget and Policy Priorities. "Interest payments are more a symptom. The real issue is the debt we have."

That debt sounds humongous: $8.8 trillion.

Most economists say it's not a crisis but instead something like having termites slowly erode a structure. And they say there are reasons to worry.

For instance, money earmarked to pay debt service isn't being spent on research and education, social programs, infrastructure and veterans' services.

The tab for interest is more than three times the budget for veterans' services, twice the size of the budget for education and nearly 10 times the budget for science, space and technology.

"Because we are borrowing more and more, we have less to invest in growth," Horney said. "So our economic growth is slower and our economy will be smaller than it would have been.

"A greater and greater share will have to go to repay the foreigners [investors], and that will lower our standard of living."

Huge numbers

$8.8 trillion is more than two-thirds the size of the nation's gross domestic product. But that's nowhere near the record high share.

"The United States has often seen relatively high levels of debt compared to the GDP," said Federal Reserve economist Jim Nason.

Just after World War II, debt was 90 percent of the economy for seven consecutive years, peaking at a stunning 122 percent of GDP. Yet during the next two decades, the United States dominated the global economy like never before — or after.

As the economy surged, debt's importance shrank.

By 1980, debt represented just 33 percent of the economy. It doubled by the mid-1990s, then started to slip, falling to 58 percent of GDP in 2000.

So history suggests high debt is manageable?

Well, maybe not if it keeps growing. The trend now is in the wrong direction and — perhaps more importantly — the timing isn't good.

The Center for Budget and Policy Priorities forecasts that by 2050, debt will be more than twice the size of the economy.

That growth comes despite news that yearly federal budget deficits are going to decline. But even if that's true, it's like saying you are still borrowing from the bank but you are doing smaller renovations these days.

"People talk about cutting the deficit, but they forget that you need to do more than that," said economist Adrian Cronje of Wilmington Trust. "You need to run a surplus for a while to get the stock of debt down to a sustainable level."

Foreign investors

Much of America's debt is owed to foreign investors.

The government borrows money by issuing bonds, which offer investors a safe haven and a payoff pegged to rates that are set by the market. In recent years, hundreds of billions of dollars in bonds have been purchased by foreigners, especially central banks like those of China and Japan.

"The consequences [of high debt] have been largely masked by the substantial foreign investments in U.S. markets," Cronje said. "We really have gotten ourselves into a situation where the [financial] future could be dictated by investors from abroad."

On the other hand, the influx of foreign money has pushed down mortgage rates, which helped fuel the massive boom in housing sales and refinancing.

Because U.S. bonds have been popular with foreign investors, other interest rates have stayed low, too, which makes it cheaper to service the debt — and that makes debt less of a problem, Cronje said.

Still, dependence on foreign investors makes the American consumer vulnerable.

Consumer finances ride on rates for everything from credit cards to home equity loans.

Higher rates?

Foreign investors have a different perspective.

"The private sector wants lower interest rates, and foreign central banks want higher interest rates," said Dimitri Papadimitriou, president of the Levy Economics Institute of Bard College in Annandale-on-Hudson, N.Y.

Any reluctance to invest here would push rates higher, he said. "You might have to have higher interest rates for the foreigners to keep accumulating debt."

Higher rates for households means more income spent on interest — less on other things. For many consumers, that translates to a lower standard of living.

Debt on the rise

Debt is increasing just as we need savings.

As retirement of baby boomers kicks into gear, so will the costs of caring for the growing number of Americans who will not be working. The Social Security Trust Fund has socked away only enough savings for the front end of the wave.

More troubling, Horney said, is the continued acceleration of health care costs.

"As the baby boomers retire and as health care costs keep rising, we are facing big deficits and mounting debt," he@ said.

"If we don't do something about it, that's going to cause a serious problem."

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