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Hey, What's News listeners. It's Sunday, July 28th. I'm Charlotte Gartenberg. And I'm Luke Vargas for The Wall Street Journal. And this is What's News Sunday, the show where we tackle the big questions about the biggest stories in the news by reaching out to our colleagues across the newsroom to help explain what's happening in our world. This week, we're talking about U.S. national debt. According to the Treasury Department, the national debt is approaching $35 trillion. That's
What does that mean for the country, its citizens, and the future? You've got questions. Let's get to it.
The federal government has run a deficit every year since 2001. Two years ago, the U.S. hit a landmark $30 trillion in debt, and for the last several years, debt has been higher than the GDP. A Congressional Budget Office estimate from earlier this year found that the U.S. government is expected to pay an additional $1.1 trillion in interest over the coming decade. Interest costs now surpass defense spending. Only Social Security and Medicare are forecast to be bigger burdens in the coming years.
The increase is reviving long-standing worries on Wall Street that the acceleration in government borrowing could eventually weigh on economic growth and asset prices. But so far, markets have shown few signs of distress.
Meanwhile, even as the presidential race heats up, neither former President Trump nor President Biden have said much about it. As of yet, likely Democratic nominee Kamala Harris has said little on the matter. So what does all this debt mean for the country, for the election, for the future? We got a lot of questions from you about this. Here to help us answer some of those is WSJ's former executive Washington editor, Jerry Seib.
Okay, Jerry, so before we get into detail on the good, the bad, and the ugly of accumulating national debt here in the U.S., Kevin Dowling of Arlington, Virginia, called in with this question. What's the relationship in plain English between the deficit, Congress enacts the deficit, which then drives the debt, and then Treasury has to sell bonds, and somehow the Federal Reserve's involved buying the bonds, printing the money, etc.?
The first thing to remember is that the deficit is the amount of money that the federal government is spending this year that exceeds the revenues it receives. The deficit is an annual thing. It's how much you're in the hole, you're in the red for this year.
The debt is the accumulated debt of the government over time. And on a monthly basis, the Treasury finances that deficit by issuing bonds, which are long-term debt, and Treasury bills, which are short-term debt, to basically bring in the money to the government to pay the bills at the end of the month, the same way people would in their households. And then at the end of the year, the accumulated debt, whatever the difference has been, that's what is added to the accumulated debt. You're
I recently wrote an essay titled, Will Debt Sink the American Empire? And that includes an almost historical point of view. Why is national debt a problem from that sort of zoomed out view? There's always been debt. Why do we care now? For starters, it's just bigger now than it's ever been. Why does that matter? Well, there are several reasons. The first one and the most immediate one is that government debt crowds out other investments that might be used
to make more useful contributions to the economy. Investments by the government, if the government is spending money to pay interest on the accumulated debt, which it is, then it's not using that money to do something more useful, to build infrastructure, for example, or to help people with their health care costs.
It's also sucking out money out of the private sector that stops investments being made there because money that goes to pay interest on the debt often goes overseas to China or Japan or India. It's not being used to invest in the U.S. economy. So there's a cumulative damaging effect to that.
That's the first reason to worry. Second reason to worry about the debt is that it pushes up interest rates for all of us, because if the government is in the financial marketplace seeking money to finance its debt, it's taking money and driving up interest rates because of the law of supply and demand, which suppresses economic growth. There is an estimate that the Congressional Budget Office has put forward that over the next decade or so, the debt
as a problem in the economy will suppress economic growth by 12 or 13 percentage points. In the long run, the reason to worry about debt is that it does raise questions about a potential catastrophe down the line. If the U.S. can't repay its debt, if the government can't make the interest payments, it has a crisis of confidence. The dollar becomes weaker and maybe is no longer seen as the strong currency you can rely on.
That's a problem down the road. We're not near that point now, and some people think that point is never likely to come, but that's a catastrophic scenario that you have to worry about. Okay. Who owns U.S. debt, and what does that mean for the United States?
Well, that's an interesting question. About a third of it is owed to foreign countries. Net-net, you have about 30 different countries that own some piece of America's foreign debt, the biggest ones being China and Japan and the United Kingdom. The larger part of the debt, though, and a growing part of it, is held by people in the U.S. It's held by individuals. It's held by mutual funds or banks or pension funds.
or state and local governments, people in the U.S. who are investors in the U.S. economy, who use some of their investment money to simply buy up U.S. government debt because it's safe. What happens if the U.S. doesn't pay its debt, both to its foreign debtors, but then also to our own citizens?
Well, so the first thing to say is there is a theory now. Well, it's been a while, but now it has a name. It's called modern monetary theory, which says don't worry about that because the U.S. government can print money. It will always be able to finance its deficit and its debt.
And so therefore, it will never have a crisis because if it lacks dollars to pay for its interest payments, it just prints more dollars. So therefore, don't worry about it. That doesn't weaken our currency? It does weaken our currency and it adds to inflation. Printing more money has its own damaging effects on the economy. So what are the more immediate worries that you should have? Well, one is that more and more borrowing, as I said, simply drives up interest rates and that hurts the economy in other ways.
The other crisis could come if foreign debt holders simply decide they're not going to buy anymore and they want their money back. And you think principally about the Chinese here who have a lot of treasury debt that they hold that's
served them very well. They're making money. But if they decide they want to damage the U.S. economy, stop buying debt, pull their money out of treasury bills and bonds, that would have a very damaging effect. And the U.S. would have a hard time finding other people to buy those bills and bonds because the Chinese would be seen as a leading indicator of something bad.
and you then could have a crisis. That's right now not likely because the Chinese would hurt the world economy if they did that. Hurting the world economy hurts the Chinese economy. They would shoot themselves in the foot. But it is not implausible over time to think things could head in that direction. And sometime down the road, that would be the nightmare scenario. So our conversation so far has kind of tended towards the negative. Debt is bad. We have a lot of debt. But
national debt might not be a problem for certain reasons. Yes. Think about COVID. There was an agreement in the political system that spending a lot of money that wasn't covered by revenue was worth doing to help the country cope with COVID, to help the health care system get up to speed, to give people income support payments because they had lost their jobs, to keep the economy afloat. It was worth doing.
The system decided, running a bigger deficit, to make sure the country got through the COVID crisis smoothly. And you could make an argument, I think it's a perfectly good argument, that that was good deficit spending. It accomplished a greater good, which is it got the economy and the country through the COVID crisis, and it saved many thousands of lives. The federal deficit has long been a political football. More on that after the break.
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Okay, so in some cases, it probably behooves the country to pay off its debt. But can we pay it off? We've had at least two listeners call in with that question. This is Josh Moussa of Crown Point, Indiana, and he asks... What is the U.S. doing to help reduce the national debt? Could this debt ever be eliminated?
Well, Jerry, can it be done? Can you get your crystal ball? Let me know. No, but really, can it be done? Does it need to be done? Not in your lifetime or mine. There was a period of several years in the late 1990s in which the people forget this. The U.S. government was running a surplus of
Bill Clinton, a Democrat, and Newt Gingrich, a Republican, got together. And for a brief happy period, they produced budgets that were not in the red, but in the black. Right now, the accumulated debt is so large that nobody realistically thinks it can be paid off. How did we do that in the 90s? It was a sort of happy scenario, a combination of large economic growth...
not as much defense spending, and an actual bipartisan agreement to raise some taxes and cut some spending in a way that actually made these numbers come together. So you had a kind of a happy convergence of multiple forces.
Those forces don't seem to be at play now. You have a Republican Party that wants to cut taxes more. You have a Democratic Party that says under the Biden administration, we won't raise taxes on anybody with an income below $400,000. So to the extent you think tax increases are part of the solution here, a lot of those potential tax increases are basically off the table.
And you have growth that's okay but not great, which doesn't produce as much revenue for the government. It means more borrowing is necessary. So this is not a scenario in which the federal government accumulates budget surpluses and can start paying down the debt.
So we don't seem to currently be moving in the direction of paying off our debt. I'm glad we have moved towards politics because I think that's the big question right now. Our listener Russ Porter of Ridgefield, Connecticut asks, Is anyone in a decision-making role really interested in this topic? Neither party seems to consider this a problem when defining their tax or their spending plans. What incentive does anybody in Congress have to take action on this issue?
given that it's a long-term problem. We've talked a lot about how it has in the past taken bipartisan muscle to bring down the debt. Is there any political incentive to address this now? The answer is basically no. When Donald Trump was elected in 2016, he sort of said in Trumpian fashion, I will pay...
off the debt in eight years. Well, he added $7 trillion to the debt in four years. So that's kind of the direction the political system is taking things. And by the way, Joe Biden's administration has added about the same amount of money in three and a half years.
There's just no impetus in the political system right now to take it seriously and to do much about it. It's not a big subject in the presidential campaign. It's not a subject of much debate in Congress. People will occasionally rise up and say, we have to do something about this, and then they will go away and things...
remain on the path that they're on right now. So it was different, for example, in the 1980s, the last time there was a big push to do something to reduce deficits and debt in a meaningful way because Republicans and Democrats both thought it was getting out of hand then.
happened again in the 1990s, there was a bipartisan push to do something about it. There have been some smaller efforts in the 2000s to come up with bipartisan packages to deal with this. But right now, there's just no conversation along those lines. And I think the reason is the key word I used in describing those earlier efforts was really bipartisan. The only way this happens is if both parties decide to do the tough things, the unpopular things that are necessary, and jump off the bridge, you know, arm in arm.
That's just not the way Washington works right now. All right, Jerry, what do you see happening now that's already being done to perhaps curb our debt? And how well is it working? Well, so a couple of things that you can look at as signs of hope. The first is that we've been through a very rough period here, particularly because of COVID, in which the debt has risen faster than it would have normally. So maybe if we can just get back on the path we were on, that would slow things down. That's the first reason to have some hope. The
The second is there are some voices out there who are raising concerns about this. When you get to the point where you're spending as much on interest payments on the accumulated debt as you are on defense, that's the sort of thing that people can understand and it makes their eyes open. And maybe down the road, that will create some movement for action. And I think the third thing is that if the U.S. gets in a position in which people are confident there's going to be economic growth,
that will be big enough to sustain more government spending, then perhaps there'll be less concern, less worry about the economic path the U.S. is on and maybe more of a willingness to have a look at this. And I guess the last reason for hope is there's still time.
There's still plenty of time to deal with this before we get into crisis mode, but it has to start somewhere. If you end up after 2024 with, and you will, with a new president and a new Congress, that's a fresh start scenario. And maybe that's when this starts to become less hypothetical and more real in terms of the way Washington's going to deal with it. Hopefully we can check in with you when that happens.
I've been speaking with The Wall Street Journal's former executive Washington editor, Jerry Seib. Jerry Seib, thank you so much for coming to talk to me. Thanks. My pleasure. And that's it for What's News Sunday for July 28th. Today's show was produced by me, Charlotte Gartenberg, and Anthony Bansi, with supervising producer Michael Kosmedes. Our deputy editors are Scott Salloway and Chris Inslee. I'm Charlotte Gartenberg. We'll be back on Monday morning with a new show. Thanks for listening.
We could all use more time. Amazon Business offers smart business buying solutions so you can spend more time growing your business and less time doing the admin. I can see why they call it smart. Learn more at amazonbusiness.com.