The American Debt Made Simple

As the Democratic Party opens its convention in Charlotte, the national debt is passing the $16 trillion mark. Can you comprehend that number? It is beyond me how any responsible government official believes that is okay. The figure is equal to the total GDP of the United States. That makes us Greece.

On its face, the national debt is a complicated issue and may or may not be as awful as it seems. Let’s start with the upside. We are not Greece. The main problem facing the debt ridden southern Mediterranean paradise is that the money it is spending isn’t its own…literally. Greece uses the Euro as its currency and therefore is spending the European Union currency rather than its own. It has no control over monetary policy, or how much money is circulated. The United States prints its own currency and has the option of going down to the basement to the printing presses and print a whole bunch of money to pay the debt off.

Upside #2 is that most of our debt is owed to our selves. Yes, China owns a lot of American debt…approximately $1.6 trillion or about 10%. Total debt owed by foreign countries is about $5 trillion. The largest single holder of American debt is the Social Security Trust Fund. The government raided the social security lock box years ago and owes it over $3 trillion that is coming due fast as the baby boomers retire. The next biggest holder is the Federal Reserve, about $2 trillion, as a result of bonds it purchased during its quantitative easing. The balance, approximately $10 trillion, is owed to individuals and corporations and people like you and me in the form of Savings Bonds, Treasury Bonds and Notes purchased as investments and a place to “safely” place one’s money.

That’s the good news. The bad news is that although it looks like a bookkeeping problem, the debt is real. The way out has no good consequence to the American people. The obvious thing is to go and print money. But that would devalue the currency resulting in massive inflation that would destroy the economy. And there is no good way NOT to pay back the Social Security Trust Fund without the proverbial “throwing Granny over the cliff”. Any whiff of default to any of the debt, notwithstanding to whom it is owed, would result in a credit downgrade to the country causing borrowing costs to go through the roof and all of its attendant consequences.

What we can’t afford to do is add more debt, and that is probably the single biggest argument against Obamacare. President Obama who fools the public more than any president I have seen in my lifetime is trying to fool the American public again saying it can be paid for by “taxing the rich.” Not the case….you could take every penny the “rich” make above $250,000.00 and you wouldn’t scratch the surface of the debt. That is a ideological promo, not a solution. He should be ashamed.

Paul Ryan said it best. We can do this. We can fix this. It can be done by reforming the tax code, tweaking social security just a tad, giving choices to future Medicare recipients, accelerating energy development INCLUDING carbon fuels, enforcing currency manipulation rules against countries, and taking a more realistic approach to environmental regulations. THAT is how one fixes the American debt.

I know Barack Obama won’t do it. He really doesn’t care. He is a social justice guy and to hell with whoever ends up picking up the bill. Mitt Romney and Paul Ryan say they can fix it. I have read Ryan’s plan, and it makes sense to me. Whether they can deliver is another story. We can always hope for the best.