As of right now the total Federal debt is over $13.6 trillion ($44,000 per person).  However, about $4.4 trillion of this is owed to the Federal government.  You may have heard that there is a Social Security Trust Fund.  Right now, according to the wonderful Social Security website, there is $2.6 trillion in the fund.  Feel better about your Social Security checks now?  Sorry, it’s all invested in US Treasuries and Bonds.  There is also about $1.7 trillion in other trust funds also invested in government debt, for Medicare and Federal pensions.  If you net out these so called trust funds, the remainder is called the publicly held debt, and its total now is about $9.3 trillion.  The Federal Government is obligated to pay back the borrowings from the trust funds, but how is it going to do that?  Only by raising taxes, borrowing money, or cutting other outlays, just like it has to do for all other spending.

 

Debt generally serves a useful purpose.  Debt can help a company grow and become more profitable. Debt allows investors in private or publicly held companies to finance equipment, property, and other long term assets which can be repaid over time.  Home mortgages (when done right) have greatly benefitted our society.  When you are young, you might use your credit card to buy a car or household items once you get your fist job.  These types of debt are of course based on an ability to repay.       

 

Does government debt serve a useful purpose? If the debt was for investments in long term assets that  would financially benefit the citizens for many years, then it might be good.  However, the Federal debt is really just financing normal day to day costs of bureaucracy and entitlements.  Once that money is spent, what does the government have to show for it?  Nothing but cries for more spending and more borrowing.

 

The best way to describe Federal government spending is to compare it to a family that pays for its cable, cell phone, and internet bills every month by credit card, but never pays down the balance.  It doesn’t look for ways to earn more money or cut costs elsewhere.  This family would best be described as living beyond its means. And so, too, the Federal government is borrowing money primarily to live beyond its means.  It has been borrowing money consistently over the past 40 years to cover ongoing costs with really no plan to ever pay off or reduce the debt.

 

Our representatives may have been betting that the population of workers and taxpayers would grow significantly over the coming century.  In that case, the country might be able to eventually pay down the debt.  However, demographic trends are not suggesting this, so it looks like another losing bet.  Instead they have only exceeded in allowing us to live beyond our means now at the expense of future generations.

 

Another gamble our representatives are taking is that there will always be investors willing to lend our government money.  Investors are already becoming leery of investing in some European Common member countries, noticeably Greece, Spain and Ireland.  As the debt grows higher, investors will likely require a higher interest rate.  Right now, the publicly held debt is equal to 62% of Gross Domestic Product (GDP). Projections by the Congressional Budget Office show the Federal publicly held debt going up by 78% over the next 10 years while GDP is expected to rise only by 63%. And this is the rosy scenario. This just proves the new adage that nothing is sure in life but debt and taxes, and our future generations will enjoy a lot of both.