Bush's budget expects the debt to grow to $9.4 trillion in four years, not even counting the cost of the Iraq war.
All about the national debt; it's about to be raised
By MARY DEIBEL
Scripps Howard News Service
May 06, 2003
WASHINGTON - President Bush and Congress are playing fiscal chicken over raising the $6.4 trillion limit on the national debt.
Although the debt ceiling was breached on Feb. 20, the United States has avoided default by tapping into money that was supposed to be invested for federal workers' pensions and using other tactics. But the game ends after May 15 when the Treasury Department runs out of financial tricks.
Those who say the federal government should default for the first time ever to make Washington live within its means miss the point: The debt is money that has already been spent. America's creditors wouldn't take kindly to the United States reneging any more than your creditors would forgive you if you quit paying the mortgage and credit-card bills.
Plans call for raising the debt limit to $7.38 trillion, but Bush's budget expects the debt to grow to $9.4 trillion in four years, not even counting the cost of the Iraq war.
Q: What is the national debt?
A: The U.S. government has consistently spent more money than it collects in taxes, fees and other revenues. The shortfall is the national debt, which the Treasury Department covers by selling $40 billion a week in Treasury bonds, notes and bills as older federal securities come due.
Even from 1998 through 2001, when the federal government ran a surplus and started paying off the debt, it had debt from past years.
Q: Why should I care how big the debt gets?
A: Because big federal borrowing saps national savings and helps push up interest rates, making it more costly to buy a house, save for college tuition, feather a retirement nest egg or get companies to create jobs by building new plants and buying equipment.
Q: How did the debt get so big?
A: Because presidents and Congresses of both parties haven't wanted to collect the taxes required to pay for the goods and services they think the public wants.
After World War II, the national debt stood at almost $260 billion, or more than the annual output of the U.S. economy, mostly to pay for the war effort.
By 1981, the national debt hit $1 trillion, prompting President Ronald Reagan to complain of its "incomprehensible" size: "If you had a stack of $1,000 bills in your hand only 4 inches high, you'd be a millionaire. A trillion dollars would be a stack of $1,000 bills 67 miles high."
Today it's 429 miles high and climbing.
Q: What does the United States have to show for the debt?
A: The debt financed all kinds of government goods and services that helped turn the United States into the world's only superpower and $10 trillion economy.
Money goes to military bases, weapons systems and troops to wage war in Afghanistan and Iraq; homeland security and disaster relief; federal anti-terror and crime fighting; courthouses and prisons; college loans and grants; feeding programs for everyone from pregnant women to elderly shut-ins; farm subsidies; small-business and home loan guarantees; health programs; national parks, medical and scientific research.
State and local governments use debt to pay for roads, schools, sewerage, airports and other capital projects, but the federal government lumps everything into one "unified" budget, financed partly by debt.
Q: Who owns the debt?
A: More than $3.7 trillion of the debt is held by the public, whether it's savings bonds you buy for the new baby, the Treasury bills held by your money market account or federal securities owned by your pension fund, bank or other institutional investor. Foreigners hold $1 trillion worth because debt backed by the "full faith and credit of the United States government" is considered the safest investment around.
Another $2.7 trillion is owned by government entities themselves, including the Social Security and Medicare trust funds, which invest excess payroll taxes that the retirement programs don't pay current beneficiaries. In return, both programs collect interest on the securities.
Q: How much is each American's share of the debt?
A: Every man, woman and child has a $22,256 piece of the debt today, according to the National Debt Clock in Manhattan's Times Square.
The clock was unplugged when the United States expected to enjoy $5.6 trillion in surpluses over the decade on Sept. 11, 2000. But terrorist strikes a year later delayed an economic rebound and stepped up anti-terror and defense spending just as the $1.35 trillion, 2001 tax cut kicked in. With government back in deficit, the debt clock was restarted and ticks off the seconds as the national debt increases $1.13 billion a day.
Q: What happens if the United States defaults?
A: "One must presume it must be adverse," Federal Reserve Chairman Alan Greenspan said, but "how adverse it would be difficult to say."
Other experts say a default would seriously disrupt the world's economies as well as raise interest rates and make it harder for the U.S. government to borrow money.
That's why Congress and Bush can't let default occur.
On the Net: www.ustreas.gov
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