Rolling Up Our Sleeves

After a long hiatus relating to business travel, vacation, and a long overhaul of the site—which had been damaged by a WordPress “upgrade”—we’re back to work.  There will be new contributors, new links to the Congressional Budget Office and other sources, and a new comment section that all of our visitors will be able to find. So let’s begin at the beginning.

The federal debt is the amount that we as taxpayers owe to foreigners and other Americans.  It is quite unlikely that you’ll ever have to pay off any of that debt in your lifetime, but you will have to pay your share of interest every year.  The debt gets a lot bigger every year, and the amount of that increase is the deficit.

“The federal public debt, which was $6.3 trillion ($56,000 per household) when Mr. Obama entered office amid an economic crisis, totals $8.2 trillion ($72,000 per household) today, and it’s headed toward $20.3 trillion (more than $170,000 per household) in 2020, according to CBO’s deficit estimates.”

Why does this $8.2 trillion figure look so much smaller than the $12.8 trillion figure you see on the national debt clock?  The difference is the “money” held in the Social Security and Medicare trust funds (as well as trust funds for federal employees).  7.65% of your salary is deducted from each of your paychecks and contributed to these funds, and your employer puts in another 7.65% (Self-employed people pay the whole 15.3%).  This money is used to pay benefits to the elderly, and if there is anything left over (this year for the first time Social Security will spend more than it takes in) the excess goes into the trust funds. The bad news is that the trust funds then buy U.S. Treasury bonds, lending the money to the Congress—and the Congress goes right out and spends it.  In effect there is nothing but “IOUs” in the trust funds . . . . .

Nevertheless, when we talk about the federal debt we often talk in terms of the “net debt”—the total debt less the money that is effectively owed to ourselves—instead of the $12.8 trillion figure.  The “net debt” has grown from $6.3 trillion to $8.2 trillion in little more than a year, and it’s going to grow by a trillion dollars—$7,143 for each of the nation’s 140 million taxpayers—every year for the foreseeable future.

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  1. College Prof says:

    Few of my colleagues understand that we live at a time when the American dream has been lost, and my students have not even started to think about these issues. Many of them seem dumbfounded by the reality of the world into which they are being released for lives of personal and public debt servitude. It’s a bit too much to ask them to grasp that they have degrees with which you cannot get a job and 50 to 100k of personal debt (student loans), plus their share of the government’s debt. The only kid I have met who gets it is one whose parents have made tremendous sacrifices to help him avoid personal debt. But he still does not get the part about the government debt.

  2. I found your blog on Google and read a few of your other posts. I just added you to my Google News Reader. Keep up the good work. Look forward to reading more from you in the future.

  3. Thank you for another great article. Where else could anyone get that kind of information? I’ll use it in a presentation next week.

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