Eco-nomics

The Trillion-Dollar Question


How big is the national debt? At the end of 1994, it was $4.6 trillion. How did it get that big? In a word - Reagan. When he entered office in 1981, the debt was just under $1 trillion. When he left office in 1989, it was almost $3 trillion, having been piled up my Mr. Reagan, who cut the taxes of the richest and increased military outlays, backed by a coalition of Republicans and conservative Democrats in Congress.

How heavy a debt can the country carry? That depends on the size of the Gross National Product. In 1945, when the debt was about $250 billion, the debt was 127% of the GNP. Although the debt grew to nearly $1 trillion when Mr. Reagan took office in 1981, the debt had shrunk to only 33% of GNP. the economy grew faster than the debt. In the following years, as the economy slowed its growth, the debt rose to its current level of 70% of the GNP.

How much does it cost Uncle Sam to pay the interest on this debt? In 1994, it was $234 billion. Isn't that a big drain on the American economy? No. About 90% of the interest on national debt goes to Americans residing in this country who can then recirculate the money by their purchases or their investments. Who are these Americans? One of the biggest creditors is the Social Security Trust Fund, which, in 1994, had about $500 billion invested in federal securities. The Federal Reserve Board held even more. Private pension funds are also big holders, as are folks who buy savings bonds.

How does America stack up alongside comparable countries? Uncle Sam does middling well. In France the debt is 52.6% of the GNP and in Germany it is 58%. On the high side are Italy, where the debt is 124% of the GNP and Belgium, where it is 132%. In the Grand Duchy of Luxembourg, however - a country the size of Rhode Island with less than half a million inhabitants and a national budget of $3.5 billion - the debt is under 8% of the GNP and the budget shows a surplus of 1.5% of the GNP.

Does this mean we should stop worrying about the budget? No. We should worry if the economy begins to shrink, as it is. Uncle Sam won't be able to service the debt without rushing to the printing presses and flooding the country with worthless paper. So what's the answer? Growth. Elect people who will get rid of a Federal Reserve that devotes itself to checking growth and get rid of policies that encourage American corporations to produce over-seas and get rid of budget policies that take from those who have the least to give to those who have the most.

Copyright © 1996. The Light Party.

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