These days we hear a lot of back-and-forth fighting on the “fiscal cliff” created by Congress, but not as much focus on the reason Congress came up with the idea in the first place.
They wanted to make sure that something was done to address the nation’s growing debt. In the event Congress couldn’t craft a tactful compromise, they “sequestered” a series of automatic spending cuts for next year and would allow the Bush-era tax cuts to expire.
Tactful compromise, it turns out, hasn’t been a defining quality of the folks in the nation’s capital lately.
But economists would be pleased to see something done about the national debt, which amounts to:
The actual number is closer to $16.3 trillion, but University of Denver economist Mac Clouse likes to draw it out with all the zeroes.
You can think of that as the balance on Uncle Sam’s credit card.
Look above and find the digit where one million (a pretty big sum) would be and you can start to get a sense of how hard this is to solve.
“If you did something to save us $1 million, oh well that’s nice, but you haven’t put much of a dent into this number,” Crouse said.
Why does $16 trillion matter? Why isn’t the nation crumbling under that huge debt today?
Clouse pointed to the answer– a much smaller number in the corner of the screen on CNBC.
That was the yield on the 10-year Treasury Note as of Wednesday.
If $16 trillion is the balance, this is this interest rate on the nation’s credit card-and it’s a darn good rate at that.
That means we can keep a high balance but it doesn’t cost us much.
That’s relative, of course-we’re paying about $300 billion in interest this year.
Believe it or not, that’s relatively manageable for the federal government.
SO WHEN DOES THE DEBT START CAUSING BIG PROBLEMS?
It’s not a matter of hitting a certain number of trillions, though economists have lots of opinions on what constitutes a healthy level of debt.
In fact, some debt can be useful in the economy.
Clouse says the reason to focus on the interest rate is because it can go up. The government has used most of the tools it has to keep the rates down, but it can only influence rates, not control them.
“That’s going to be the day of reckoning,” said Clouse. “When we start to see the interest rates go up.”