The US owes $22 Trillion and the deficit seems to be getting larger every year. Should we be worried?
No! Here’s how I learned to stop worrying.
Stop right there, the $22 Trillion number is totally wrong. As a percentage of GDP, it isn’t really a problem at all. No, 16!
Pssssh! Why are they reporting it like that? The debt held by the public is $16.1 Trillion. That’s a big number, but we’re a big country. The other $6 Trillion is money the government -owes itself-. So it doesn’t count! Basically, it’s the social security trust fund. That’s what we’re talking about. The trust fund isn’t a problem.. and Social security is still in surplus right now.
What? No! No, why are you saying that?
Apparently before I can even start talking about the debt, I have to talk about social security.
Let’s start at the beginning. Social security is a retirement program. Money from our paychecks goes into the trust fund… and it’s held there until we retire, and then we get it back. You may have heard that Congress took all the money from the trust fund and left nothing but IOUs, but that’s wrong. I mean… it happened but… it doesn’t matter. Look, if you had trillions of dollars lying around, what would -you- do with it? You wouldn’t just leave it under your mattress I hope.
You should invest it, right? But definitely in something safe… let’s see…an investment that’s going to be there for the long-haul. Something like… US BONDS. US bonds are the safest investment in the world. I can’t even imagine what would cause them not to be paid.
These bonds shouldn’t count as part of the national debt in anything but a technical way, because they’re as much of an asset as they are a liability. It’s “debt” we owe ourselves. It’s like your left pocket owing your right pocket $20.
I wish there was someone conservatives respect who could explain social security. Hmm…. If only…
Thank you, Ronald Reagan. Do Paul Ryan and Mitch McConnell have no shame? These guys have the nerve to hand trillions in public money to the rich, and then turn around and say with a straight face that something completely unrelated – social security – is what’s causing the deficit. It’s your tax cuts that did it, and that’s terrible – but you know, not really because of the deficit. It’s terrible because we could have spent that money on fighting climate change or for jobs programs, or on fixing our infrastructure, or education or any other investment that could pay dividends for the future.
We have real problems in this country that we need money to solve, but the deficit… it’s not one of them. It’s just a number. Why do we react so strongly to this number, and not to something like.. I don’t know, another number like the 33 million people without health insurance in the US? Why is the national debt seen as a problem, at all..? Maybe this Cill-eeza guy can explain it to me.
Imagine if it was the other way around, and the government was hording $16 trillion in cash in a giant vault and never spent any of it. That would be a disaster. So, why should we worry about this? Why is the debt a problem right now?
I don’t understand why presumably intelligent people on TV frame things like this, except if they’re trying make us scared. The debt is -not- the largest it has ever been. As a percentage of GDP, it was actually larger after World War II than it is now, and the sky wasn’t falling then. Our economy was fine. If you care about the debt… for some reason, not sure why… well, slap a 90% marginal tax rate on the wealthy like we had in the 40s and 50s, that will solve the deficit. Oh, you don’t want to do that? Well…Sigh… look… do me a favor and kindly shut up about the deficit then. People like Mitch McConnell just want to whine about a “problem” they created but they don’t actually want to solve it. urrrruh … okay, let’s keep going!
We’re NOT the most indebted country, not by a long shot. Our net public debt is 82% of our GDP. Compared to other countries, that unremarkable and totally fine. Spain, France, Belgium, Egypt, Portugal and Italy all have higher net public debts as a percentage of GDP, with the UK not far behind. But the prize goes to Japan, which owes a whopping 153% of their GDP. Even with all that debt, Japan is the world’s 3rd largest economy, and while they definitely have some problems, they’re not about to collapse anytime soon, even though they owe twice what we do.
Paying off the debt, is not responsible. It’s a nonsense idea. Andrew Jackson was dumb as a rock. He’s been compared a lot to Trump, and I think that’s accurate. He’s like Trump, only dumber. He paid off the national debt in 1835, yes, and he vetoed the charter of the 2nd bank of the US, causing it to expire in 1836, and both of these things led straight to the Panic of 1837. Congratulations, dumbass.
And while being a much smarter guy, Clinton’s budget surpluses, deregulation and free trade policies of the 90s helped cause the recession of the early 2000s and the great recession of 2008. We’re still dealing with the fallout from Clintonomics today.
The problem with both trade deficits and budget surpluses is that they take money away from the economy. You can’t keep draining the economy of money forever and expect it to be able to keep functioning. We made up for it only by going deeper and deeper into personal debt throughout the 90s. Unlike federal debt, personal debt is unstable, and if we take on too much, we can go into default and bankruptcy. The same is true for state and local governments. Only the federal government can borrow money in a safe and stable way.
An influential paper published in 2010 by highly-respected economists Carmen Reinhart and Kenneth Rogoff showed that as government debt reached 90% of GDP, economic growth was cut in half! In the wake of the 2008 crisis, governments around the world used this research as a reason to support austerity as a way of avoiding that 90% threshold. But there was a small problem with their data… Rogoff and Reinhart admitted the error, but stubbornly stuck to the conclusions of their paper anyway.
Their research was eventually replicated, and… oh boy.
Economists Herndon, Ash and Pollin found that “the average GDP growth rate of countries with debt over 90% is actually 2.2%, not negative 0.1% as Reinhart and Rogoff claim!”
So stick a fork in that idea!
We don’t have to guess how much inflation we’ll get during a downturn. All we have to do is look back at the last time this happened in 2008. Here’s a graph of inflation from before the financial crisis. It was humming along a little above the Fed’s target of 2%. At this point, the crisis hit, they started printing money like no tomorrow and wow, I guess I’m going to have to adjust the scale here, right? Yeah, downward. Inflation was negative 0.6% in 2009. But it went up from there, and with the stimulus and bank bailout, I’m sure hyper-inflation was juuust around the corner… no, it wasn’t. Inflation today is 1.6%, a tiny bit lower than the Fed’s target rate of 2% actually.
I can’t tell you that hyperinflation is impossible. It happens sometimes. It’s happening right now in Venezuela. But it seems like for the US, our worst-case scenario is probably something along the lines of what happened to Japan, not Venezuela. The Japanese have been suffering through a painful period of low inflation, with The Bank of Japan having to keep interest rates nearly at zero for over a decade. Their situation is similar to what happened here after the Great Recession, and completely different to what happened in Venezuela.
This is the one argument against a large debt we’ve heard in this video that even makes a lick of sense. But remember, interest rates aren’t something that are out of our control. They’re set by the Federal Reserve. If our economy improves – that’s good right? Why would we be afraid of that? And anyway it’s going pretty well right now and neither interest rates nor inflation are shooting up really much at all. If, hypothetically, inflation did start to perk up and the Fed raised rates – first off, that’s a good thing. And second, there’s an easy solution for how to pay the interest without cutting spending. We can raise taxes on the wealthy. Now, Congress can refuse to do this. They can cause us to suffer because of their bad policies as much as they want. But don’t tell me there isn’t a simple and straightforward solution for this with basically no down-side, because there is.
What the National Debt boils down to is just a record of the amount of money the federal government has put into the economy over the years. That’s all it really is. At times, the yearly deficit might be too high, causing inflation, but the deficit can also be too low, and that can cause a recession. Even in a worst case scenario, all a large national debt can really do, beyond inflation, is cause us to spend more than we’d like paying the interest. Some economists believe that even this is not really a problem, and that no matter how high interest payments get, they really can’t stop us from spending on the important things we need to be productive as a country. That’s called Modern Monetary Theory (MMT).
Even if you don’t subscribe to MMT, it seems pretty clear to me that we have much bigger problems in our country than the national debt. Let’s listen to Warren Buffet, billionaire investor in a clip from 2016, and then Larry Summers, one of Clinton and Obama’s top economists, talk about our current deficit under Trump.
To be clear, I’m no fan of Larry Summers, at ALL. But when he says that even something like potholes are a bigger problem than our national debt, he’s right. That’s how small a problem it is really is. If we let our FEAR of what MIGHT HAPPEN cause us to fail to take action against climate change or make needed investments in infrastructure, that could lead to far larger problems than the national debt. If we’re too afraid to take action because of something as unlikely as hyperinflation in this low-inflation environment, well that just might increase the chances of us getting into real economic trouble. Don’t believe the hype – the debt is not a problem for us right now!
Well that’s my opinion on the topic. Feel free to tell me how wrong I am in the comments! And please consider becoming a patron of this channel. I’m thinking of purchasing a video camera, and I’ve got other expenses as well so I could really use your support. The link to my Patreon is in the description. Thanks for watching!
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Thumbnail photo credit: $100 Bills from Above – Lots of Banknotes by Hloom via Flickr / CC BY-SA, 401(K) 2013