According to Republicans, on Aug. 1, 2011, America faced a potential Armageddon resulting from years of fiscal irresponsibility. The United States was just one day away from defaulting on its debt because those same Republicans refused to raise the debt ceiling, which stood at almost $14.294 trillion. Luckily for Americans everywhere, Republicans strapped on their shiny armor and saved the day at the last second, passing a bill that raised the debt ceiling by $900 billion, to $15.194 trillion.
Everybody knows the debt of our country is huge, but whether or not it matters is widely debated. How can owing $15 trillion dollars not be a big deal? Let’s find out by looking at what exactly the debt is and where it comes from.
A lot of people don’t know where our country’s debt comes from, but it’s actually rather simple. No, the president of the U.S. doesn’t give Hu Jintao (the President of China) a call and ask for a couple billion. The United States simply offers bonds with different maturity dates, and sells them to whomever has the money to buy them. When those bonds mature and need to be paid back, we simply get more money by selling new bonds and use it to pay off our old ones. It’s a never-ending cycle of using other people’s money to pay off other people who also gave us money — fiscal responsibility at its finest.
The United States debt is as old as our country. It was born out of debts incurred during the Revolutionary War and has been with us since, 236 years in the making. Despite the founding fathers’ warning against the accumulation of debt, it has steadily been increasing by a couple percent every year.
That was until the second George Bush came into office. Our fearless Texan inherited a debt of almost $6 trillion and in his two terms managed to come just short of doubling it, leaving Obama with a debt of over $10 trillion — an increase of over 185 percent. With multiple wars and a struggling economy Obama hasn’t done any better, producing about a 145 percent debt increase in his term.
So what’s going on here? Why are the men we elect to lead our country dragging us deeper and deeper into debt? The answer is that the U.S. debt doesn’t really matter.
Imagine a guy who keeps taking out loans and maxing out credit cards to pay for debts he already has. Theoretically this could go on forever as his debt just gets transferred from one lender to another. With an individual, however, all the fun comes to an end when the line of credit runs out and he is stuck holding the bill.
The reason our country’s debt isn’t really an issue is that our line of credit isn’t likely to ever run out. With our status as the world’s only superpower, we are always going to be able to borrow money. Countries that have money to invest know that, even with our debt, putting money into the U.S. is still an incredibly safe bet, arguably safer than putting it anywhere else in the world.
A more legitimate concern is the fact that if our debt continues to pile up, it may become more expensive for us to borrow money. This is actually a serious concern as when you owe upwards of $15 trillion, a 1% increase in interest rate equates to $150 billion. Yes, that’s right: Even the government has to pay interest when it borrows money.
This could prove to be a problem, despite experts’ warnings that this has not been the case yet. The United States has been able to borrow at a consistent interest rate even with increasing debt. This is due in large part to the fact that even with an increasing debt, the United States is still an incredibly secure and safe place for investors.
This security comes from a combination of factors, the two most important being our over $15 trillion Gross Domestic Product (GDP) — our country’s national income — and our military might, without a doubt the strongest and most advanced military in the world.
In other words, the United States isn’t going anywhere and we are always going to be able to pay back our debt. That isn’t going to change anytime soon, and as long as that remains the case we will always be able to borrow money.
If you want to lend DANNY BRAWER billions of dollars trusting him at his word to pay you back, let him know at dabrawer@ucdavis.edu.
