the National Debt…

Posted on Sunday 22 November 2009

A gray, rainy, windy day here in North Georgia – a great day for looking at the National Debt. I’ll never claim to understand all of its ins and outs [in fact, it seems deliberately obscure to me]. The National Debt is like our weather here today – driving rain, overcast, blowing dead limbs from the trees.

It’s generally broken down into three components – a small piece held by the Federal Reserve [red], a growing intergovernmental piece held by the Federal Government [blue], and the piece held by the Public [yellow] primarily in the form of Treasury Securities.

 

The debts held by the Federal Government [blue] are the entitlement programs [eg Social Security] which are a problem unto themselves. It’s what people mean when they frown and say, "We’ve got to do something about Social Security and Medicare." The GAO projects that with the accumulating interest, this portion will exceed all government revenue in 25 years]. It’s imponderable so I’ll move on [redrawing the graph so that part won’t show so much].

 

There is a chronic short-sightedness in the National Debt History that’s painful. – solutions to contemporary problems turning in to the next problem. I’ve alread mentioned one – entitlement programs that were under-financed and are now eating up our usable revenues. In the 1980s, we had something now called Reaganomics – another example of a solution that turned out to be a really big problem. I didn’t understand it then [and I still don’t]. I can only say what Reagan did. First, he slashed taxes, feeling that the wealthy were overburdened. That remarkably diminished the Federal Revenue. Then he escalated Military Spending. The net result was a dramatic accumulation of debt with record deficits [did I mention that he also deregulated our financial markets?]. Something was supposed to trickle down from all of this, but everything actually trickled up [including wealth inequity]. The rich got richer and the Financial Industry blossomed. But then it all crashed and now we’re living with the consequences of his short-sightedness.

If there’s a hero in this story, it’s President Bill Clinton [though he floundered on the personal character front]. With a mild tax increase, welfare reform, and cuts in Military Spending , he dramatically decreased the Public Debt, though the Federal Debt continued unabated [upper graph]. And then came President George W. Bush and Vice President Dick Cheney. Their constituents were the same ones President Reagan had courted [the wealthy]. So they cut taxes taxes [several times]. And then they marched us off to war in Afghanistan, and followed that with an unprovoked invasion of Iraq for good measure. Expensive enterprises, War. While it appears they were gentler on the National Debt until the recent financial crash than their mentor, President Reagan, they did their own damage in another way that’s less apparent.

This data in this next graph was really hard to come by [1][2]. It partitions the Public Debt between the debt held by Americans and the debt held in foreign countries [the majority of this overseas debt is in the form of U.S. Treasury Securities held by foreign governments]. I could only find data back as far as 1986, but it’s enough to make the point.


[This is a conservative estimate. There’s another more disturbing estimate here]

Under President Clinton, the foreign ownership of our National Debt changed very little between his inauguration and leaving office. With President Bush, it was another matter. He financed his misadventures by selling off America to foreign governments in the form of U.S. Treasury Securities. There’s really not much to say about this graph – it’s meaning is self evident. Who owns all of these Treasury Notes? Just about everyone on the planet except us [3][4].

So the National Debt is a Treasure Treasury Trove of problems. First there is the sheer magnitude of the debt itself. Second is the growing problem of our social entitlement programs. Adding to that, President Bush sold America on the International Market – so now instead of being a financially independent country, we are an interest bearing Commodity in the world’s marketplace [our interest payments feed foreign economies rather than our own]. Oh yeah, did I mention that we are in the middle of the biggest downturn in the economy since the Great Depression

The rain has stopped outside and the wind has died down some, but it’s still overcast. The Falcons are playing the Giants today. How about Ole Miss pulling off that win over L.S.U. yesterday? It was a real nail biter!

All graphs above are expressed as percent of the Gross Domestic Product to correct for Inflation.

UPDATE:

And we’re still at it!

  1.  
    November 23, 2009 | 11:42 PM
     

    […] Maybe all of you knew that, but I didn’t. Then I started trying to figure out how much of our National Debt was foreign owned. That turned out to be a more difficult task than I imagined because of the […]

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