A few days ago, the national debt hit $22 trillion for the first time, and the above-linked article appeared on CNBC, essentially downplaying the seriousness of the situation.
- What matters is the debt-to-GDP level, which is not in the danger zone now but threatens to get there before long.
Baloney. When the people holding that debt – China, Japan, Germany and all the others who use our trade deficit money to buy U.S. debt decide to cash out and demand their money back, are they going to say “Hey, U.S. GDP, we want our money?” Of course not. U.S. GDP is an economic measure, not a holder of money. They’re going to come to you.
Take another look at the picture in the article of the man looking up at the national debt clock. Not mentioned in the article are the words just below the national debt figure: “YOUR family share 086858.” That’s right, the average American family now owes $86, 858. Measured in terms of debt-to-average household net worth, the national debt has skyrocketed far beyond the average household’s net worth and ability to pay. The reason that expressing the national debt as a percentage of GDP is so bogus is that, although the GDP has been growing steadily, the average net worth of American households has been stuck at about the same level for decades.
The source of all this debt? The article provides a half-truth:
The main culprit of public debt is budget deficits, …
Well, yeah, but that’s like saying you owe money on your mortgage because you borrowed it. The real question is “why do we have to keep running such huge budget deficits? Why don’t we just stop doing that?” Think about it. What would happen to the economy if the federal government suddenly stopped putting a trillion dollars per year into it? Instant recession – probably one that would quickly spiral into a depression. Without the federal government putting that money into the economy – and it’s no coincidence that it’s almost exactly the same as the amount that the trade deficit takes out – the economy would collapse. There are those who would tell you that balancing the budget, without addressing the trade deficit, would somehow prove to be an economic stimulus. Don’t listen to them; they’re idiots. The only way to deal with the budget deficit and the national debt is to eliminate the trade deficit. Period. Plain and simple. There are no other options. Let the trade deficit continue to grow and we’re soon headed for a real disaster.
It’s astonishing to me and scary how few people in the media, and even economists, understand this basic truth.