President Obama’s deficit-reduction commission is trying to dramatically trim federal deficits in the coming decade. But how does U.S. debt compare with other nations? The U.S. public debt is north of $9 trillion dollars.
On its own, it doesn’t say much. But that number does mean a lot when it’s put in context. Economists like to measure what they call the “net debt to GDP ratio.” That’s basically the amount of money we, the taxpayers, owe compared to the size of the economy. That figure is about 60 percent.
“At the end of World War II, America’s net debt to GDP ratio was 113 percent, and the equivalent ratio for Great Britain at the end of World War II was more than 250 percent,” said Economist Lee Branstetter from Carnegie Mellon University in Pittsburgh. “Even if you compare our current net debt to GDP ratio to other advanced industrial economies that are not fighting major wars like Belgium or Japan, it’s still not particularly large.”
Today, the United States is somewhere in the middle of the pack when it comes to debt ratios.
But at the simplest level: What does this figure really tell us? And is running up a big debt such a bad thing?
“Debt in it of itself is not a bad thing,” said economist Michael Ryan at Western Michigan University. “In many cases you need to borrow to pay costs now that are going to reap benefits in the future.” But Ryan said debt turns bad when you can’t actually repay the debt, and lenders start to get wary about loaning you more money.
That’s not happening here in the United States. The U.S. can borrow money for 10-year bonds at close to 2 percent. That’s because investors still see the dollar as a very safe investment. By contrast, Ireland and Greece have to pay interest rates closer to 10 percent. That’s why they don’t want to run up more debt: It’s expensive.
Branstetter said, as an economist he’s not concerned about running up short-term deficits in the United States, and in fact, it’s necessary for the government to keep spending to stimulate the economy. “America is doing pretty well, and there is absolutely no reason to believe that we’re going to be confronting a Greece-like crisis or an Ireland-like crisis anytime soon,” said Branstetter. But Branstetter does have debt concerns for the long run. Bond interest rates won’t stay low forever. And as the baby boomers retire, American taxpayers are going to have to come up with more money to pay for their social security and Medicare. Or cut their benefits. Download MP3
Lee Branstetter, associate professor of public policy and economics at Carnegie Mellon University in Pittsburgh answers some questions on the debt issue:
What is the best way to measure debt?
Is it bad for the US if other countries – namely, China – hold our debt?
Could a debt crisis like we’ve seen in European countries such as Ireland or Greece happen in the US?