Debt and Deficits

Some of you who know me and endured my classes may remember (if you stayed awake) that I liked to show you the National Debt Clock . (This is a different one, but I think it's pretty cool.) And in class I would generally answer concerns about the size of the debt and deficits to our real GDP, in loose terms the income of the country. My favorite analogy was to compare the country's debt load to that of a homeowner, where higher income people had significantly higher debt loads, particularly on home mortgages, and it was okay because their higher incomes allowed them to adequately service the debt -in other words, they could afford the payments on the debt.

I'm becoming concerned that the National Debt is approaching an unaffordable point. We are now borrowing so much money and running such massive deficits that we may be putting the United States in the same position as the credit card abuser who runs up huge debts and has nno way to erver pay the debts off. And while this trend became somewhat troubling during the Bush Presidency, the acceleration of the spending and piling up of debt which has occurred so far in the Obama Presidency is frightening. Take a close look at this chart:

In today's news, a prominent economist is predicting that the United States will have to default on Treasury Bonds - not pay the debts when they are due. After that, who would lend to us ever again? What about the effect on interest rates? The rate you pay is based in significant part on risk premium, whether the lender believes you'll pay them back. Default, and rates go up. Or do we say this is the US government, let's just print the money? I don't want to become the next Zimbabwe.

I don't have a good feeling about this. The answer seems to me that government spending needs to be controlled, and ways of increasing revenue need to be found. And as I've said before, I don't think the revenue increase is going to come from simply raising taxes on the rich.

Disturbed?