America’s Public Debt Explained
With the deficit projected to hit 10.6 percent of GDP this year and with long-term unfunded entitlement liabilities of some 104 trillion, the United States is indeed quickly becoming Greece on the Atlantic’s western shore. Be sure to click on ‘Debt clock’ in the menu bar above.
Vasko Kohlmayer at American Thinker
I recently wrote an essay in which I argued that the dollar will eventually collapse due to the excessive debt burden of the American federal government. My conclusion was challenged by Jon Hall who argued that I painted too dire a picture. In his article he challenged my assessment of both the national debt and unfunded entitlement liabilities.
I welcome the opportunity to answer on both points. In today’s essay I will address the objection regarding the national debt. I will try to do this in thorough fashion, because Mr. Hall’s reaction reflects a commonly held misconception.
Those who hold it believe that a substantial portion of our government’s debt does not represent genuine obligation. This is how Mr. Hall puts it:
[O]ne must understand that the “total public debt” figure cited consists of two parts: hard debt and soft debt. The hard debt is the real debt. And the soft debt consists of government “trust funds,” like the social security trust fund. The soft debt is money we “owe” ourselves, not Japan and China.
The idea that a part of the the government’s debt is somehow “soft” or less than real could not be further from the truth. To better grasp where this error comes from, let us start at the beginning and say something about how governments run their fiscal affairs.
As most people are aware, nearly all governments spend in some years more than they take in in revenues. When they do this, they incur what is called budget deficits. To cover these shortfalls, they must borrow money.
National governments usually borrow by issuing various debt instruments which are broadly referred to as sovereign bonds or government bonds. Generally speaking, a government bond is a debt investment vehicle by means of which an investor – be it a private individual, an organization or a financial institution – loans a national government an amount of money for a defined amount of time at a specified rate of interest.
The total outstanding amount of these securities makes up what is commonly referred to as a country’s national debt. There are a number of other terms that are used interchangeably – and often inaccurately and confusingly – to refer to the same thing. Some of them are “sovereign debt,” “government debt,” “public debt,” “total public debt,” “federal debt,” “gross debt” or just simply “the debt.”
Help Make A Difference By Sharing These Articles On Facebook, Twitter And Elsewhere:
