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Time Magazine Discovers America’s National Debt Problem

Saturday April 16th, 2016   •   Posted by Craig Eyermann at 8:41am PDT   •  


It only took them about 7 years to notice it, but the editors of Time Magazine may have finally recognized that the United States has perhaps a bit of a problem with having grown such a large national debt during that time. Economist and financial journalist Jim Grant, perhaps better know for his highly influential observations on interest rates, wrote the cover op-ed piece:

$13,903,107,629,266. Can the nation afford this much debt?

This much I have learned about debt after 40 years of writing and study: It is better not to incur it. Once it is incurred, it is better to pay it off. America, we have a problem.

We owe more than we can easily repay. We spend too much and borrow too much. Worse, we promise too much. We conjure dollar bills by the trillions–pull them right out of thin air. I won’t insist that this can’t go on, because it has. I only say that it will eventually stop.

What Jim Grant is referring to is the portion of the national debt that is “held by the public”, which if you divide it up by the United States’ estimated population of 323,342,221 people, works out to be the $42,998.12 figure cited on Time‘s magazine cover.

Of course, that would be on top of all the other debts you have – for your mortgage, your car, your education, and your own credit cards, to name just the most common forms of consumer debt in America today. The consumer finance site NerdWallet estimates all those other debts add up to $12.12 trillion, which works out to be $37,483.51 of private sector consumer debt for every American man, woman and child.

So just the value of the public portion of the U.S. national debt is over 114% of the amount of debt that regular Americans choose to maintain on their own.

If we add in the amount that the U.S. government has “borrowed” from the Social Security program and the pension programs of U.S. civilian government employees and U.S. service members, and also the money it borrows to fund the Federal Direct Student Loan program, the nation’s total debt rises above $19.2 trillion, which is $8.6 trillion higher than it was 7 years ago. Divided equally, that much larger figure works out to be $59,451.55 for every U.S. man, woman and child living in the U.S. today. That figure is 158% of the amount of private sector consumer debt for every resident of the United States today.

But as we all know, the burden of that sustaining such elevated levels of national debt is not equally shared among all Americans. To estimate how much of that burden is placed on you, run your numbers through the recently updated for 2016 MyGovCost calculator!

Getting back to Jim Grant’s op-ed, we found the following section particularly interesting, because he explains why he focused on just the publicly-held portion of the U.S. government’s total public debt outstanding:

Dollars aren’t so much minted these days. Rather, they issue from the Fed’s computers in billowing digital clouds. The cost of producing them is only the energy expended on tapping the keys. The Fed emits these electronic greenbacks to attempt to control the course of economic events. It’s a heaven-sent monetary system for a big-spending government.

You may struggle to pay that midteens rate on your outstanding credit-card balance. The Treasury gets by paying an average of just 1.8% on that portion of the debt, held by savers and investors both here and abroad. Defined in this way, we owe $13.9 trillion. The $19 trillion figure ticking upward on the famous National Debt Clock adds the debts the government owes itself. (How does this pseudo bookkeeping work? The Social Security Administration takes in–temporarily–more than it pays out. With the surplus it buys Treasury bonds. The bonds enlarge the debt clock’s debt.) It’s not so important that the government pays itself on time. What is important is that the government pay its public creditors on time. So cast your eyes on the exact numerical rendering of that slightly smaller sum: $13,903,107,629,266. It is unmanageable.

If $37,483.51 of consumer debt is difficult enough already for the average American to manage, adding another $42,998.12 on top of that to account for the U.S. government’s debt would indeed prove to be pretty unmanageable.

Considering the Federal Reserve’s role in financing the U.S. government’s debt, by our back of the envelope calculations, as of April 13, 2016, the Fed owns $2.94 trillion worth of U.S. government-issued debt securities. That means that the U.S. government has borrowed 17.9% of the total portion of the debt held by the public just from the U.S. Federal Reserve, which therefore makes the Fed the U.S. government’s largest single creditor. By comparison, the U.S. government’s largest single foreign creditor is China, which has directly loaned 10.6% of all the publicly-held portion of the national debt to the U.S. government.

Which if you think about it, explains an awful lot about whose interests are really being accommodated by the U.S. government these days.

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April 2016