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How to Rack Up $18 Trillion in Debt and How to Pay It Down

Friday March 27th, 2015   •   Posted by Craig Eyermann at 6:21am PDT   •  

We’ve answered the following question that was recently asked at Quora:

How did the USA end up with $18,000,000,000,000 of debt? More importantly, can the US government pay back the debt?

The United States federal government has ended up with a total public debt outstanding of more than $18 trillion (at this writing) because it has chronically run annual budget deficits for decades, as indicated in the following chart that was put together by the Heritage Foundation:


But these chronic deficits only explains a little over $17 trillion of the national debt. In addition, there is also a hidden budget deficit, where since 2009, the U.S. government has borrowed well over $700 billion for the purpose of issuing direct student loans:


This additional borrowing adds to the national debt, but is not reflected in the U.S. government’s annual budget deficit figures.

The U.S. could pay down its national debt rather painlessly if it adopted a policy where it restrained the growth rate of government spending to be less than the growth rate of the nation’s Gross Domestic Product. This kind of policy has been extremely successful in places like Switzerland, to name one international example, and also individual U.S. states like Colorado.

The U.S. government would also improve its fiscal situation with respect to the growth of the national debt by getting out of the student loan business, which the Obama administration primarily did as a backdoor way to increase the amount of money the federal government collects from low and middle income earners without appearing to directly increase their income tax rates. Selling its portfolio of student loans back to the private lenders would go a long way toward moving that portion of the national debt off the government’s books.

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March 2015