And almost all economists agree that governments are similar. Actually, I would not swim in a see of hundred dollar bills, I would hoverboard over that sea.īusinesses spend more than they bring in all the time, as well they should. In that situation, I wouldn't wait 20 years until I had sold enough DFTBA posters to build my Marty McFly hoverboard factory, I would just borrow the money and build the factory immediately, so I could start selling hoverboards and swim in a sea of hundred dollar bills. Like say that tomorrow, I invent a Marty McFly hovercraft skateboard. It should never spend more than it takes in. Secondly, you may have heard people say that government should be run like a business. I can't call after a month and be like "give me my money back." So despite what you hear from a lot of political commentators, that is not really a risk to the U.S. If I buy a $100 one-year treasury bond today, I'm going to get that $100 back, along with my 17 cents in interest, in one year. First, China can't like call in our debt on a day of its choosing. Okay, two very important things to note about the debt. Right now, the yield on a one-year treasury bond is 0.17%. I mean, Hank, in some ways, it is literally cheaper than free.
In 2012, it will be even less because our debt is incredibly cheap right now. Like in 2011, we paid about 3% total interest on our debt. So our national debt is a very large number, but at least at the moment it is not a very large problem. government debt, we mostly, indirectly or directly, owe money to ourselves. So you can't really think of government debt the same way you think about like a family owing money to a credit card company, because in that situation, the family owes money to someone else. debt that's owned by a foreign country, we own about 89 cents of foreign debt. also owns foreign debt, including about 235 billion dollars of sovereign debt in China and Hong Kong. China owns about 8% of our debt, Japan, 7%, and the UK, 1%. The plurality of that debt is actually owned by us, us being American individuals and institutions. Who owns that debt? China, you probably guessed. So if you take away that money, you're left with about 11 trillion dollars, which is still a fair bit of cash. government, which is not borrowing as we usually imagine it. government to a different part of the U.S. government debt is actually the federal government itself because trust funds like Social Security buy government bonds, and so the interest goes from the U.S. So in the United States, our current national debt is around 16 trillion dollars, which sounds like a lot of money. Deficit, or occasionally surplus, is the difference between what the government spends and what it takes in. Debt is the total amount of our outstanding liabilities. Okay, so first we have to separate the ideas of debt and deficit. And Hank, as you'll no doubt remember, I received a bronze medal in economics at the 1994 Alabama state academic decathlon, meaning that in 1994 I was the third-best seventeen year old economist among all C students in the state of Alabama, so not to brag or anything, but I'm pretty qualified to explain this stuff. So one of the biggest issues in global politics these days is government debts and deficits, which is a particularly big deal in the United States because of the presidential campaign and also because of the the looming fiscal cliff. HERE ARE A LOT OF LINKS TO NERDFIGHTASTIC THINGS: Far from inspiring investor confidence, its implementation would crush it: The gold standard limits a government's ability to respond to changes in the market, which can (and has) led to unescapable deflationary spirals. This creates a lot of volatility in the money supply for no reason. By restricting money supply to the supply of gold, you risk shrinking the money supply just because of a shock leading to a disruption in supply from mining. Here's why I think the gold standard is a bad idea: 1. (Friendly reminder: Educational videos, by extensive precedent, are allowed to be longer than 4:00.) Along the way, I hope you'll understand why the United States' sovereign debt hasn't led us to an economic crisis, but also why budget deficits need to shrink in order to ensure that credit remains inexpensive and the US continues to enjoy the trust of the world economy. In which John discusses the US national debt, the federal budget deficit, plans for shrinking or eliminating the deficit, and tries to provide some context to the political rhetoric and statistics that are constantly thrown around in an election season.
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