For about 20 years now the national debt has been a major political conversation point so long as nothing else major is going on. If we’re in the middle of a crisis it doesn’t seem to matter. But if the economy is okay we get more concerned about our government spending. Though even this opinion varies based on the the political climate, and party.
Today the prevailing political winds have put less focus on national debt, and more on generic “spending and taxes”. Republicans want to cut spending and taxes, Democrats just some spending and raise taxes.
However traditional national debt alarmists haven’t changed their tune much. The message is simple: you can’t continue to grow the debt because at some point people will stop lending to you.
Americans can understand and gravitate to this message, but most end up confusing a company or individual’s borrowing with a government’s. We’ve covered many such topics before so will not today, so allow me to just paint a picture for you.
- The year is 1990, you have a $60,000 in debt between your house and other obligations. The average interest rate is 10% and you have a credit score of 800. You make $100,000 a year.
- Now you’re in 2012, you make $150k a year but your debt has increased to $150k as well. Your credit score has fallen to 700.
What kind of interest rate can you expect if you want to go out and borrow even more money? If you’re lucky you’ll get lower rates, but you’re likely to pay higher rates and my be lucky just to get approved for loans.
The US has the opposite problem (see chart). They have tons more debt, their credit rating was cut, national income relative to the debt is worse, and yet they’re paying record low rates. Investors practically throw their money at the US. It’s inhuman. The reason why isn’t the focus of this discussion. It’s merely enough to understand how different the situation is.
This wouldn’t happen for any company, for any person. This just isn’t a possibility. And yet any deficit alarmist will speak of the United States as if it was a company or individual or even another country. We can’t have a conversation about the problem of spending without first admitting that the US is not a normal situation.
Is the situation sustainable? Of course not. But it’s the reality of today. Treat the US like the special situation it is and start talking from there.