Is the Debt a Problem?

The US federal debt recently crossed $17T, just under $55,000 per American.  This is obviously a gigantic number and a lot of people are really terrified of it.  Like monsters under the bed and mysterious thumps in the dark, once you understand what it really is, it's not really a boogieman at all.

Debt is a commitment to pay creditors. These commitments are contracts, promises, signed to repay borrowed money and some interest on some specified schedule.    If an entity has more than enough money to pay all its commitments, this is called a surplus (and it can be used to pay off some debts early).  If it doesn't, this is called a deficit, and it must find more revenue or borrow more.   The accumulated debt, the $17T in the case of the US federal government, is the sum total of all of these individual debts.  In the case of the federal debt many of these individual debts were borrowed at very low interest.  The total 2013 interest payment commitment of the US government is about $225B.  This is about 6% of the total budget, but represents an average interest rate of about 1.6%.  This is roughly the same as the rate of inflation--and remember that a lot of this debt was accumulated when long term T-Bills were paying rates over 6%.  New, short term federal debt is well under 0.2% and hasn't been over 1% since the crash in 2008.

Potential creditors study potential debtors before allowing them to borrow.  In the case of individuals or businesses, a large debt is a signal that a creditor might not get paid, and the creditor is justified in raising interest rates for the debtor or refusing to lend to them.  But for the federal government, it is almost meaningless.  It's just a big number that is aggregated from a whole bunch of other numbers.  The individual debts have the full backing of the US Treasury and are factored into the deficit.  The only circumstance under which they will not be paid is if the congress blocks them somehow.  The fight over the debt ceiling is one way this might happen.  But apart from worries about congressional republicans intentionally destroying the economy, creditors have consistently indicated that the US Treasury is the most reliable debtor in the world.

Unless the Tea Party or someone like them forces default, the debt we have accumulated will be paid on schedule, no matter what happens.  These payments are factored into the budget, and as long as there's a shortfall, they will be part of the annual deficit calculation.  As long as we keep paying, the accumulated debt will gradually go away.  But for the past decade, we have run gigantic deficits, to pay for gigantic tax cuts for rich people, costly, unnecessary wars, and huge subsidies for banks, oil companies, health care companies and more.  Many of these have ended, but not all, so the deficits continue...but it's been halved from the Bush administrations last, $1.413T deficit to 2013's $680B and is on track to continue to diminish.   The only part of these past debts that will continue to bite us in the future is the continued need to borrow enough to cover the deficit.  Although any borrowing we do today comes at essentially no cost, interest rates in the future might be higher.  Had the surplus left by the Clinton administration been continued, we wouldn't have needed to do this borrowing at all.