Trend of the economy; US debt: It's how fast it rises, not how high
You can figure it out for yourself, using a pocket calculator or plain old pencil and paper: It would take 31,000 years, counting out dollar bills at the rate of one per second, to total up this nation's trillion dollar national debt.
IS the United States about to founder, or go broke -- in the way a family or corporation might -- under the burden of its enormous debt?
The answer is unequivocably "no" -- and that requires some explanation.
The problem," said a high-ranking Federal Reserve Board official, "is not the level of the debt, but that it continues to rise so quickly.
"Financing of new debt [that is, the amount of money the US Treasury borrows each year]," the official said, "absorbs nearly one-half of the nation's net savings, and this at a time when we need fresh savings for economic expansion."
"The real question," says economist Charles L. Schultze, "is should we be increasing the national debt as fast as we are? That, at least, can be answered."
The US government, most experts agree, should strive toward a balanced budget , instead of adding to the debt in great gulps each year.
Interest on the national debt is approaching $100 billion a year, money which otherwise might be used for school lunches, food stamps, job training, and a hundred other purposes, now squeezed for cash.
Cutting interest payments in half would by itself reduce government spending by more billions of dollars than President Reagan has been able to slice out of the 1982 budget.
Anticipation on the part of money managers that government will continue to run deeply in the red -- i.e., that the US Treasury will shoulder aside other borrowers -- impels Wall Street to keep interest rates high.
Assuming that the rate of growth of the debt can be curbed, what about the astronomical size of existing public debt? Will it destabilize the economy?
First of all, about one-third of the trillion dollar national debt is internal, held by various government agencies, including social security trust funds and others.
Over the years the social security funds invested their surplus -- what they took in over what they paid out -- in government bonds. The US Treasury pays interest on those bonds. But this interest simply accrues to another government agency, the social security funds.
Interest paid by the government to the government is a transaction on paper, constituting no additional drain on capital markets.
Thus the "real" national debt -- held outside the government -- is about $700 billion.
It is still an awesome sum -- about 20,000 years worth of counting out dollar bills one per second.
But the US economy also has grown, in fact faster than the national debt. After World War II the debt, although smaller in dollar terms was more alarming by another measurement -- as a percentage of gross national product (GNP).
At war's end, the debt stood at 130 percent of GNP, or all the goods and services produced by the United States. Today, because of the mushrooming growth of the economy, the national debt totals only 35 percent of GNP. Relative to the size if the economy, the debt has shrunk.
Fourteen percent of the national debt is held by foreign individuals and institutions, which means that interest paid to them flows out of the country and may be lost to the US economy.
"But," says Dr. Schultze, "if foreigners were not holding Treasury bills, they might be holding other forms of US debt [corporate bonds, money market certificates, etc.]. To that extent, interest would flow out of the country anyway."
As a budget director and chief economic adviser in the Johnson and Carter administration, Dr. Schultze knows a good deal about the way the federal government -- White House and Congress -- decides to raise money.
"The reason we issue debt," he reminds a listener, "is because we did't want to take alternatives -- either raise taxes or cut spending."