Thursday, March 29, 2012

"An American Debt Disaster"

Caroline Baum of Bloomberg counts among the best columnists on questions relating to debt.

In her most recent column, she ran the numbers about the national debt. The news isn’t good.

Considering that some economists are telling us that the national debt, and thus increased deficit spending, is no big deal… because austerity is so much worse… Baum suggests that our excessive spending is leading to austerity, like it or not.

I make no claim to expertise on these subjects, so let’s read Baum’s analysis:

Consider the following numbers: 2.2, 62.8, 454, 5.9. Drawing a blank? Not to worry. They don’t mean much on their own.

Now consider them in context:

1) 2.2 percent is the average interest rate on the U.S. Treasury’s marketable and non-marketable debt (February data).

2) 62.8 months is the average maturity of the Treasury’s marketable debt (fourth quarter 2011).

3) $454 billion is the interest expense on publicly held debt in fiscal 2011, which ended Sept. 30.

4) $5.9 trillion is the amount of debt coming due in the next five years.

For the moment, Nos. 1 and 2 are helping No. 3 and creating a big problem for No. 4. Unless Treasury does something about No. 2, Nos. 1 and 3 will become liabilities while No. 4 has the potential to provoke a crisis.

In plain English, the Treasury’s reliance on short-term financing serves a dual purpose, neither of which is beneficial in the long run. First, it helps conceal the depth of the nation’s structural imbalances: the difference between what it spends and what it collects in taxes. Second, it puts the U.S. in the precarious position of having to roll over 71 percent of its privately held marketable debt in the next five years -- probably at higher interest rates.

The column is well worth a read.


The Ghost said...

article link ...

Stuart Schneiderman said...

Thanks for correcting my oversight. I have added a link in the body of the post.