Point of Interest: How the U.S. Burns $14,166 a Second
The American Interest asked in its winter issue (subscription required), "Has there ever been a power as great as the United States that has been a debtor as opposed to a creditor nation?" We are, indeed, a nation of borrowers, and that might not be inherently bad. I have to admit, though, when I look at the interest piling up by the minute on U.S. debt, I get a little queasy.
Across the 30 days of November, we spent nearly $27 billion just on interest payments. Put another way, the United States spent $900 million a day -- a figure higher than the GDP of Leichtenstein -- on interest alone.
For fiscal year 2005, we had to cough up $352 billion in interest -- more than the combined budgets of the departments of education, energy, homeland security, interior, justice, labor, state, transportation and veterans affairs. Assuming there were roughly 109 million households in the United States in 2005, that comes to more than $3,200 each. (Think about what your household could have done with an extra $3,200 this year. Vacation abroad? University tuition? Medical expenses? Pay off interest on credit card debt, perhaps?)
Ensuring we'll be paying more and more interest in the years ahead are the two big deficits (for a quick explanation of "national debt" vs. "budget deficit," scroll about halfway down this page, or go here.) At the moment, the United States is running both a $600 billion current account deficit (we import a lot more than we export) and a $400 billion budget deficit.
What are the likely consequences of this double deficit? Is the record trade deficit simply a reflection of America's economic strength, as the Cato Institute's Daniel T. Griswold argues? A CBO report also concluded back in 2000 that the current account deficit was, on balance, helpful to the United States. That said, Alan Greenspan has warned that there are circumstances under which our deficits could prove "painful."
Are we in a dire situation, facing impending economic collapse? Fortunately, that looks unlikely. But we should tread carefully.
Just for fun, here are the annual deficit and public debt numbers going back to 1962. Look at those glorious years (1997-2001) where not only had the deficit been erased, but the debt was actually going down. (The only other place on the chart where the debt drops is a .01 percent decrease from 1968 to 1969.) Never thought I'd feel nostalgic for the late 1990s, but there it is.
Presumably, we'll always be carrying some vast amount of debt, but it might be nice for our children and grandchildren if that amount were a little less vast. With so much debt already piled up -- roughly $8 trillion -- can we ever bring it down to a manageable level? Will interest payments one day eclipse other expenditures, causing ever larger shortfalls? What should we keep in mind as we attempt to reduce our debt?
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