Your browser will redirect to your requested content shortly. Since this is an election year, you’re hearing a lot about the size of the national debt — and the how Much Money Will It Take To The Student Grant Disappear imperative to expunge it before it gets passed on to our kids and grandkids. 21 trillion very soon because of the omnibus budget, which is a disaster. If I had my choice I’ll take no debt every time. While he suggested earlier that it would be possible to pay off the entire national debt in about eight years in part by renegotiating existing trade deals, he told Fortune that this isn’t necessarily his goal.
12 thanks to Washington’s free-spending ways. MONEY and Time are both owned by Time Inc. Grant expresses many of the common fears — and a few misconceptions — surrounding the national debt. But the only way to advance the debate is to get past the myths. To understand our financial fix, put yourself in the position of the government. Say you earn the typical American family income, and you spend and borrow as the government does. 10,000 to your already slightly overburdened credit card. Grant goes on to add that a big difference between you and Uncle Sam is that the federal government has a central bank to manipulate the economy, the currency, and interest rates to make life easier for Washington policymakers. The federal government has a lot more financial flexibility than an American family to manage its mountain of debt.
Financial adviser William Bernstein, author of The Four Pillars of Investing, adds that a family’s finances are much more dependent on the strength of the economy than the federal government’s is. Workers, for instance, may have trouble accessing credit if they’re out of work, their homes are losing value, and the economy is lousy. Also, the United States government does not have a finite lifespan — the average American lives less than 79 years. When individuals die with debt, those obligations must be taken care of by their estates, which cuts into what’s left for their heirs. So someone is always on the hook for repayment. Even if government finances were like a family’s checkbook, things aren’t at a boiling point — yet.
At the very least, you probably want your elected representatives in Washington to spend within their means, like any family must. But the health of a family’s finances aren’t measured this way. 2 trillion in total revenues last year. American households aren’t just victims of the national debt — we’re benefiting from it too. But in his Time article, Grant points out that some of this money is owed by the Treasury to other parts of the federal government — for instance, the Social Security Trust buys Treasury securities with short-term Social Security surpluses. 12 per man, woman, and child—the figure on the Time cover. In fact, you’re probably investing in U. And about two trillion dollars more is held by public and private pensions, trusts, and insurance contracts that are managed for individuals’ retirement needs. 3 trillion of the federal debt owned by the Chinese.
So foreign governments aren’t the only beneficiaries of Washington’s borrowing binge. The question is, are Americans benefiting enough? To be sure, recent efforts to get the economy into gear — through government spending programs that grew the debt and the Fed’s near-zero interest rate policy — have led to historically low interest rates that have hurt savers who have earned next to nothing on their cash over the past decade. And despite a massive amount of stimulus and extremely low borrowing costs, the recovery has been tepid by historic standards. And falling market interest rates have boosted the value of bonds held by American families, despite low stated yields. There are some unintended consequences to lowering the debt.
As Uncle Sam has fallen deeper into the red in the aftermath of the global financial crisis, the balance sheets of corporations and individuals have improved significantly. There is an underlying relationship between government and private-sector finances. Putting aside foreign capital flows, rising public deficits lead to growing private-sector surpluses. 1 billion more than it receives in taxes, that money doesn’t just disappear — it flows into the hands of workers or companies or institutions. Even if you think this is wasteful spending, the fact is these dollars are moving from the public ledger to the private sector.
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All things being equal, many economists believe it’s preferable to have rising government debt and private-sector surpluses than the other way around. During the Clinton years we had a budget surplus with correspondingly ballooning private debt. Meanwhile, lower Treasury debt could affect investors in one way that’s not often discussed. Grant’s Time essay, by the way, doesn’t argue for a debt-free federal government. Treasuries — which are the government’s I. Of course you still have to worry about inflation. With fewer Treasury bonds floating around, it would be harder for investors — from pension funds to mutual funds to households to the Social Security Trust — to find ballast for their portfolios.
Even if the debt isn’t at crisis levels, it is an important issue. In the days after the Time cover story was published, Grant has been pilloried in the press for oversimplifying the issue. Yet many of those critiques were so harsh that they made it seem as if there’s no potential negative effect of having record levels of debt. Thankfully, in addition to the power to tax, the United States has the near magical ability to print dollars.
There is no danger that we will run short of them. Rather, the only potential problem is that one day, we will print so much of our currency that it will create excessive inflation, our debts will become worthless, and the bond markets will strike. They can do real harm not just to the economy, but to the lives of everyday Americans. Just ask anyone alive in the 1970s. Grant also raises an important point in his article: The size of the Federal Reserve’s balance sheet. In recent years, the Fed took unprecedented steps to help the nation avoid a deeper and more protracted recession, in part by adding trillions of dollars of bonds to its own portfolio. Even in monetary policy, no good deed goes unpunished.
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P Index data is the property of Chicago Mercantile Exchange Inc. Powered and implemented by Interactive Data Managed Solutions. You need to login to do this. I once heard somebody — I think it was Batman — say that criminals are a cowardly, superstitious lot. Let me just add that costumed ones are not all that bright either. If you had a so-called Philosopher’s Stone that transmuted anything you wanted into anything else, would you put on a costume, steal something and then defy the cops to take you in? When a person is pursuing a goal, especially if it’s something tempting like wealth, fame, or political power, there may come a time when they have to choose between doing what’s easy and doing what’s right.