We often hear about how the national debt is skyrocketing out of control, how we need to make tough choices in order to reduce it or face the consequences. No one ever seems to ask the simple question: is the size of the National Debt an actual hindrance to our economy or our government? First, we need to discern what makes up the debt. We often hear about how China owns some enormous amount of our outstanding debt. As of September 30, 2016 the debt amounted to about $19.6 trillion. (All amounts taken from http://www.justfacts.com/nationaldebt.asp#government-trust) Of that amount, approximately $5.4 trillion is owed to other governmental entities such as Social Security and Medicare. Of the remaining $14.2 trillion, only 45% (or $6.39 trillion) is owed to foreign and international lenders. The rest is owned by a combination of the Federal Reserve, investment funds and local governments. So when we say that each American owes over $60,000, we should also say that American also owns a great deal of the debt in the form of government benefits and through investments. In fact, over $100 billion of the debt is owed to holders of US Savings Bonds. So no, China will not be able to repossess California due to unpaid Treasury notes. Second, we often hear about how “if I ran my family budget like the US Government, I’d be broke.” Here are some important distinctions between a family budget and how lenders look at the US government when deciding whether to make a loan. Because, at the end of the day, the amount of money we owe is solely a function of how much banks and other investors are willing to lend. A family is made up of individuals, who may work to earn income, can get sick and injured, will some day die, and must pay their debt in legal tender. The US government represents hundreds of millions of people, levies taxes to generate revenue, can never get sick or die, and can, conceivably, pay debts by simply printing more money. Even if the government was treated like a family or small business, last year it collected revenues of $2.99 trillion. Our federal deficit is almost $20 trillion dollars. That would be the same as a family that makes $30,000 a year having a mortgage of $200,000. At a 5% interest rate, that means payments of a little more than $1,000 a year and likely a high risk borrower. Yet, somehow the US government is able to borrow at rates of less than 3%, meaning that banks and other sophisticated investors believe that the risk is exceptionally low. So why does this matter for Pulaski. First, because fears about the national debt are used to drive cuts in public earned benefits like Social Security (I will never use the word entitlements). Second, because government borrowing is crucial to investments in infrastructure, schools, housing, and other important drivers of economic growth. Whether you support tax increases or spending cuts to manage the debt, we should at least be able to agree that the size of the debt is not a itself a problem. We need investment by the government in broadband internet access, new and improved infrastructure, better education for our children, and quality healthcare. The reason why is that historically, economically disadvantaged communities like Pulaski have never been able to rely on any other entity besides the government.
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Pulaski Explainer: Why the National Debt is not a Problem for Pulaski
Thanks for making the national debt understandable! Why can't politicians explain things with such clarity?! Great job Mr. Reis!