The National Debt: History, Trends and

Impact

Roni Sue PlayerEcon 502 – Southern New

Hampshire UniversityTerm 4: 2008

on-budget money spent

off-budget money spent

off-budget revenu

e

on-budget revenu

e

What is the National Debt?ACCUMULATED

deficitsACUUMULATED OFF-BUDGET

surpluses

on-budget deficits (needed

to keep the Government operating)

REVENUE (receipts)

Money spent (outlays)

MINUS

How Much is the debt?Federal debt totaled about $9 trillion at

the end of fiscal year 2007. However, that number excludes: 

The scheduled and funded Social Security and Medicare benefits gap

Veterans’ health care Miscellaneous other commitments

and undertakings Total National debt with

additional pledges…

…$53 trillion

1 trillion seconds = 31,546 years 1 trillion dollar bills end to end =

96.9 million miles (reaches the Sun) 1 trillion dollars buys more than 35

million cars (at an average new car cost of $28,400)

At a Federal debt of more than $8.7 trillion, a stack of US dollar bills would reach from the Earth to the Moon and back with some to spare

$8.7 trillion in one-dollar bills would cover an area larger than each US state except for Alaska and Texas

How Much?

The total debt and how much is owed by each US citizen to the

government:

Nine trillion, two hundred and five billion, eight hundred and eighteen million, eight hundred and eighty seven thousand, three hundred and sixty

four dollars

Where does the

Money go?

Department of DefenseHealth and Human Services

Treasury Department (includes interest on the Debt)

Social Security Administration

The Debt is Held by the Public and by Intergovernmental

Entities

Federal borrowing absorbs resources available for private investment (this may put upward pressure on interest rates)

Examining Debt Holder #1: The Public

Treasury bills, notes, bonds and savings bonds are sold to the public competing with other sectors in the credit markets

Interest

is paid in

cash

To finance fund redemptions (by the public) the Treasury usually borrows from the public

Examining Debt Holder #2: Other Government Agencies

Borrowing from a sibling Federal agency is simply an accounting function not requiring a cash payment (does not burden the current economy)

Treasury securities have balances held by federal government accounts, primarily federal trust funds (e.g., Social Security) that typically have an obligation to invest their excess annual receipts over disbursements in federal securities

Examining Debt Holder #2: Other Government Agencies (Cont’d.)

Most federal trust funds invest in special U.S. Treasury securities that are guaranteed for principal and interest by the full faith and credit of the U.S. government

These “loans”

represent a

priority call on

future budgetary

resources

The federal government uses the trust funds’ invested cash surpluses to assist in funding other federal government costs

Examining Debt Holder #3: Foreigners

Foreign and international investors held $1,383 billion (36%) of the debt in 2003, to $2,220 billion (45%) by June 30, 2007 (+ $837 billion)

The U.S. government sends foreign-held interest payments abroad, adding to the foreign vs. U.S. residents income

Increasing reliance on foreign and international investors presents potential risk to the U.S. economy (since the U.S. gross national saving rate is low by U.S. historical standards)

Foreign Investment in the United States

"Foreign investment plays an important role in

maintaining America's economic strength.  When foreign companies invest in the United States, they are sending a clear signal of

confidence in the American economy and American

workers.”

Henry M. Paulson, Jr.

Our Treasury Secretary

Historical Debt w/o Inflation and…

…Adjusting for Inflation

Over 28 years, since 1980, the Federal debt increased, from under $1 to $9.4 trillion (about 900%) more than $8.4 trillion dollars…

Historical Debt – Why is the Debt so large?

…the government has the ability to create money. The supply of money (backed by gold and silver) was restricted until 1971 (when President Nixon took us off the gold standard)

Today's

money is

backed only

by "full faith

and credit,"

which the

government

has in

unlimited

supply

How?

When total U.S. debt grows slowly, the economy lags. The reason: Debt and money are synonymous terms.

Trends and Impact of the National Debt

Is the National Debt an indicator of economic productivity?

Trends and Impact of the National Debt

Given the size of the projected imbalance, the U.S. government will not be able to grow its way out of this problem

Retirements of the baby boom generation and rising health care costs place additional pressure on the federal budgetLong-term simulations (by Federal Government Accounting and Budgeting agencies) show that without policy changes, debt held by the public will rise to levels ultimately unsustainable by the U.S. economy

Trends and Impact of the National Debt - Conclusion

Although we manage the Debt, we cannot forestall soaring commodity prices ($900 gold and $125 crude oil) 

Natural resources like crude oil must eventually decrease over time, even if new technology – suppresses the price

150 years ago the planet's total crude oil totaled about 2 trillion barrels; we've got one trillion left. We use 80 million barrels a day which equals 31 years of oil.

We can create more debt, but not more barrels of oil

Trends and Impact of the National Debt - Quote

“Most of us have some vague idea that one trillion is the number that lies somewhere between one billion and one gazillion. But beyond that, we have no clue. And because we have no clue, we have a hard time making a connection between the one trillion barrels of oil that lie buried somewhere inside the earth's crust and the 54 trillion dollars of liabilities that lie buried somewhere inside the US government's balance sheet. 

Trends and Impact of the National Debt – Quote

(Cont’d.)

…And that's why you should listen to that little voice inside your head when it tells you: ‘$200 crude oil may be crazy, but not nearly as crazy as a $54 trillion IOU.’”

[Eric J.Fry (12 May 2008) http://goldnews.bullionvault.com]

Bibliography“2007 FINANCIAL AUDIT Bureau of the Public Debt’s Fiscal Years

2007 and 2006 Schedules of Federal Debt” (November 2007) Retrieved July 12, 2008 from http://www.treasurydirect.gov/govt/reports/pd/feddebt/feddebt_ann2007.pdf 

“Can You Count to a Trillion?” (Monday 12th May 2008) Retrieved July 13, 2008 from http://goldnews.bullionvault.com/us_federal_debt_oil_gold_price_dollar_081220081 

“Facing up to the Nation’s Finances - About Us” (n.d) Retrieved July 11, 2008 from http://www.facingup.org/about-us 

“Frequently Asked Questions about the Public Debt” (February 27, 2007) Retrieved July 07, 2008, from http://www.treasurydirect.gov:80/govt/resources/faq/faq_publicdebt.htm 

“HHS: What We Do” (March 2008) Retrieved July 13, 2008 from http://www.hhs.gov/about/whatwedo.html/  

Bibliography (Cont’d.)“Historical Debt Outstanding – Annual” (January 31, 2008)

Retrieved July 07, 2008 from http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm

“How to cure recessions and inflations, prevent stagflations and depressions while cutting taxes. The solution for Medicare, Social Security, education, the infrastructure, balanced budget, defense and other problems in the economy” (n.d.) Retrieved July 11, 2008 from http://www.rodgermitchell.com/ 

“National Debt” (2008) Retrieved June 30, 2008, from http://www.microsoftencarta.org/encyclopedia_761562370/National_Debt.html 

“The National Debt is 8.4 Trillion!” (n.d.) Retrieved July 11, 2008 from http://www.federalbudget.com/localdebtfacts.html 

“Statement by Secretary Paulson on Executive Order Concerning Foreign Investment in the United States” (January 23, 2008) Retrieved July 12, 2008 from http://www.treas.gov/press/releases/hp768.htm 

Bibliography (Cont’d.)“Treasury Bulletin” (June 2008) Retrieved July 07, 2008, from

http://www.fms.treas.gov/bulletin/index.html“United States Government Accountability Office: Federal Debt

Answers to Frequently Asked Questions An Update” (2004) Retrieved July 12, 2008 from http://www.gao.gov/new.items/d04485sp.pdf 

“United States Public Debt” (July 12, 2008) Retrieved July 12, 2008 from http://en.wikipedia.org/wiki/United_States_public_debt#Amount_of_foreign_ownership_of_U.S._debt