Tuesday, September 8, 2009

The Grand Debt Illusion: FAQs About the National Debt

by Benjamin N. Dover III

The handwringing over the supposedly disastrous consequences of our growing national debt shows no sign of abating anytime soon. Perhaps most troubling is that the unwarranted alarmism comes not just from rabid ever-grizzlies like ZeroHedge but also from some respectable information sources.

At every turn, the Cassandras remind us that the US has total outstanding national debt of $11.8 trillion and $3 million of new national debt every minute. (They conveniently fail to mention that that's only a 100% increase in the debt since 2001.) They seem to get satisfaction from pointing out that the debt is so large, it doesn't even fit on most calculators.

And they note that even according to the conservative estimates of the Obama Administration, the federal budget deficit in 2009 will be $1.6 trillion, over 11% of the overall economy, the highest on record since the end of WWII. And that in 2019, the national debt will represent over 75% of GDP, the highest proportion since just after WWII. They claim that, in these circumstances, the international reserve status of the dollar will not survive, leading, at best, to a crippling rise in interest rates and the cost of debt service, and at worst, a collapse of the American monetary system. Either way, they claim, the US economy will "teeter on the edge of a black hole."

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