America’s current debt stands at $33 trillion, a number that some politicians, financial gurus, and the general public find shockingly high. As a result, budget hawks in the U.S. House of Representatives may try to rein in spending, potentially triggering a government shutdown starting October 1.
But New York Times columnist and Nobel Prize-winning economist Paul Krugman says government deficits don’t work quite like household debt. Make your case in the May 13th proposal. Big, bad numbers aren’t as scary as you might think.
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“Governments are different from people,” he wrote. “[They] You have to repay the debt – you pay interest and repay the principal when the bond comes due – but you don’t necessarily have to. New bonds may be issued to pay the principal on old bonds, and borrowings may be made to pay interest unless total debt increases by more than revenue. ”
Mr. Krugman persuasively breaks down and defends his case, but so many Americans are frightened by today’s debt numbers that ill-informed politicians are trying to turn it into a political football. It’s easy to understand why.
In fact, you have to go all the way back to 1837 to find the last time the United States was debt-free. Texas was still an independent republic with only 26 states.
So how much debt do you actually have?
The number 1 trillion, much less the number 33, is a number that many people don’t understand well. This is “a million times a million,” but the word “trillion” sounds so close to “billion” that it’s easy to lose sight of just how huge an amount it is.
Here’s how to put the current US debt level (approximately $33 trillion) into perspective:
This is 22% higher than the US gross national product (about $27 trillion) as of June 30th. This is six times the amount of US debt in 2000 ($5.6 trillion). If you repay $1 million per hour without interest, $33 trillion will take him over 3,750 years.
It’s natural for voters and elected officials to get sick when they assume that high debt is due to reckless and runaway spending.
We’ve all been told to spend less than we earn and avoid high interest rates. credit card debt And delay material gratification on big-ticket items until you crunch the numbers first.
That’s all true and wise.excess personal debt You will be forced to spend your entire life trying to make a comeback or make a declaration. bankruptcyIt leaves a black mark on your credit score for 7 to 10 years.
But from a debt perspective, it’s a stretch to compare the federal government to a family of four. That’s because the principles of personal finance don’t apply to how governments spend money. So unless you or someone you know plans to dress up as Uncle Sam at the next local Fourth of July parade, ditch the idea that the government is human. They play by completely different pocket rules, and Krugman has made that clear.
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Debt increases, but income also increases
Need an explanation as to why the government doesn’t have to pay down its debt when it has to? In plain Krugmanian terms: “People get old and eventually die. Governments don’t.”
In other words, the ability of the United States or any other sovereign nation to manage its debts comes down to one question. The question is, can we still generate the revenue to meet our obligations? This is where his concept of “paying down” a debt rather than paying it off in full comes into play.
Indeed, Krugman says in Rudyard Kipling’s poem “The Depression” that all nations will become “one with Nineveh and Tire” and cease to exist. But barring such a tragic event, in which case the debt would be irrelevant anyway, governments “typically regulate and tax revenues that increase with each generation as the economy grows.” ,” Krugman wrote.
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