Five Reasons to Worry About US Debt

COMMENTARY Budget and Spending

Five Reasons to Worry About US Debt

Jul 2, 2013 2 min read

Former Senior Fellow and Director of the Roe Institute

Alison served as Director of the Roe Institute at Heritage and is currently a Senior Policy Fellow at Americans for Prosperity.

To read the news, you’d think America’s fiscal problems are under control. After all, following four years of $1 trillion-plus deficits, this year’s will be “only” $642 billion.

And Congress cut spending this year by letting the sequester happen. So rather than worry about the debt, some are using this “progress” as a reason to focus on jobs and the economy.

But this would be wrong.

Here are the facts: The sequester cuts affected only a part of the budget and shaved just 2.4 percent of all spending over the next decade. It left entitlements, the largest and fastest growing part of the budget, essentially untouched. So even though some programs were cut, total spending barely budged this year.

Next year it will take off again.

While deficits are smaller now, by the end of a decade they’ll be back up around the $1 trillion mark. And they will soar as Social Security, Medicare and Medicaid and Obamacare costs skyrocket. All this mounting spending will only add to the already huge levels of federal debt.

Debt held by the public will jump from $11 trillion in 2012 to $19 trillion by 2023, a 73 percent increase. We will reach the debt limit again shortly. The debt limit includes both publicly held debt and debt owed to federal trust funds such as Social Security’s. Today it is more than 100 percent of GDP — at $16.7 trillion and climbing. But it will swell to $25 trillion after a decade.

So for those who think our federal finances are improving and the job is done — think again. Debt does matter.

First, high levels of debt mean that too many of our taxpayer dollars are wasted on paying interest. This is money that could have been better spent elsewhere, by letting us all keep more of our hard-earned money or by better funding national priorities such as defense.

Second, when debt gets high enough or rises fast enough, capital markets will notice and interest rates will rise. Worse, this can happen quickly and dramatically. Interest rates on mortgages, car loans and credit cards would go through the roof.

Third, inflation could become a problem. As debt rises, the Federal Reserve could turn to an age-old, but dangerous tactic: printing money. This would reduce the value of the debt, but it would also usher in a new age of inflation.

Fourth, high levels of debt usually translate to much lower levels of economic growth. For countries with debt at 90 percent of GDP, that growth can be nearly 25 percent slower, higher levels of debt mean even slower growth. So what does this mean for you and me? Fewer jobs and lower wages.

Fifth, this is a moral issue. Running up debts and passing them on to younger generations is wrong.

Washington’s progress on spending and debt is woefully inadequate. Rather than high-fiving over the deficit, lawmakers should promise us this year’s progress will be a first step toward more substantive steps to rein in spending and reform entitlements.

-Alison Acosta Fraser is director of the Roe Institute of Economic Policy Studies at The Heritage Foundation.

First moved by McClatchy News Tribune wire