James Hartley talks about the national debt:
In the short run, failing to reduce the national debt will not create giant problems. The interest rate on that debt is near zero, which means that savers around the world still see the United States government as one of the safest borrowers in the world.
Right now, the U.S. national debt is about $16 trillion. That is a big number, slightly larger than U.S. gross domestic product. If the federal government simply stopped running deficits, over time, as the economy grows, the debt burden would decline. Curiously, any attempt to significantly reduce the deficit immediately will necessarily involve a collection of large tax increases and spending cuts, which looks a lot like the fiscal cliff. Long-term economic growth is thus the easiest way to rescue the deficit.
But that $16 trillion debt is not the real problem. The Social Security and Medicare systems are also facing looming deficits. These deficits are simply a demographic inevitability. As the baby boomers retire, the number of people collecting retirement benefits from the federal government will increase rapidly. We know the expected debt that is coming. The future liabilities of the federal government from the assorted retirement programs are around $90 trillion. But, that’s not even the complete picture. If you compare the long-term forecasts for what the federal government has promised to tax and spend, the true debt is $222 trillion. That’s a big number. In a decade or two, all the current antics surrounding deficit reduction are going to look like the easy years of managing the national debt.
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