The nation’s debt has reached a symbolic milestone. With gross domestic product of roughly $15 trillion and total debt of $15.23 trillion, our total debt is now bigger than our economy, as USA Today noted Monday.
What’s more, the Obama administration’s projections put our debt at more than $23 trillion by 2020, well in excess of the projected $22.5 trillion GDP. Analysts agree that the rising debt ratio is not good, but they can’t agree on just how bad it is, and while there’s at least some agreement among economists about how to fix the problem, lawmakers have no such common ground — which is one of the biggest hurdles to actually doing something about the debt dilemma.
First of all, take a deep breath. That $15 trillion doesn’t have to be paid back all at once. Think of it in terms of a household budget: The average household income is a little under $50,000, while the average sales price for single-family homes is about $169,500. Many homeowners owe more than they make in a year, and that’s not cause for alarm in and of itself.
That $15 trillion figure is also a little misleading, said Bill Gale, a senior fellow at Brookings Institution and co-director of the Urban-Brookings Tax Policy Center, because it includes money owed by one government agency to another. A more important figure is net debt, which is the amount the U.S. owes investors and now hovers at around 70 percent of GDP, Gale said.
The other silver lining is that the interest on the country’s debt currently is not a huge burden, said Eileen Appelbaum, senior economist at the Center for Economic and Policy Research, a liberal think tank. But the flip side is that if policymakers can’t agree on solutions to rein in debt, servicing that debt will become more burdensome, especially if interest rates rise from their current rock-bottom levels.
“A higher debt burden means a higher chance we will get downgraded again, which eventually means higher interest rates,” said Francisco Torralba, chief economist for Morningstar’s Investment Management division. Standard & Poor’s decision to downgrade the United States in August has not led to substantially higher interest rates, although weak eurozone economies like Italy have to pay 7 percent or more to convince investors to buy their debt.
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