This campaign season, the voter hasn’t heard much about government debt, probably because, not only is the subject boring, but it is also depressing. According to an article in Bloomberg Businessweek, “The U. S. government is the world’s biggest debtor…” (“Why the U. S. Isn’t Locking In Cheap Rates, by Eliza Reynolds-Hannon and Liz Capo McCormick, Bloomberg Businessweek, June 13-26, 2016, pg. 51.) That debt comes in three flavors: The deficit: This is the amount the government overspends yearly. The primary deficit: This is the difference between current government spending on goods and services and current revenues from taxes and other sources. The Total deficit: This is the primary deficit plus interest payments on the debt. The interest is what we pay to bondholders who loan us money to pay our liabilities. In sum, if the government spends more than it takes in each year, that debt is added to the accumulated debt of past years.
In some annual reports, the Treasury may announce a decline in the deficit or even a surplus of money; but that is for a single year and has little impact on the total deficit which stands at $19,254,900,340, 380.12. Divide that sum among the citizenry and it represents a personal obligation of $59,578.16 for each man, woman and child in the country. (Click) The amount of debt is so staggering, that if foreign governments stopped buying U.S. Bonds, we would look upon the economy of Bangladesh with envy.
Courtesy of www.thewhitedsepulchre.blogspot.com
Given that we are a debtor nation, some economists wonder why, in this climate of low interest rates, our government doesn’t choose to sell longer debt. France, Canada, Belgium, Mexico, Spain, Switzerland, the U.K. sold bonds maturing between 40-100 years in 2014. (Ibid pg 51.) With so much cash looking for a safe haven, (Blog 6/16/16), U. S. Treasuries with a guaranteed 2.6% interest rate, like our 30 year bond, would seem to have a market. As Virginia Democrat, Mark Warner, ranking member of the Banking, House and Urban Affairs Subcommittee, explains: “Issuing longer term bonds doesn’t reduce the debt burden, but it does remove some of the risk from interest rate spikes.” (Ibid pg. 51.)
A counter view is that long bonds are unpopular and are hard to sell. Pension funds and insurers who might be attracted to a long term investments tend to buy corporate bonds because they pay higher interest. Wall Street brokers, who act as bond dealers aren’t thrilled with longer term issues either, because if interest rates spike, holders of long bonds sell, forcing the brokers to buy back the paper. For the purpose of keeping the bond market liquid, the government prefers shorter issues which they can offer with greater frequency. So far the strategy has worked. We continue to have enough buyers to service our humongous obligation. But the slightest whiff of insolvency or weakness in the dollar as a world currency (Blog 6/14/16,) and you and I, as debtors, will be looking for jobs Syria to pay our share of the total deficit.
