The Fake Debt Crisis

The latest clamor over the evils of public debt have me puzzled. According to certain members of GOP, Inc., public debt is the grandest scam ever perpetuated on the American people. According to recent polls, over 60% of the people agree with that and note that getting rid of the debt is absolutely necessary, even in these times of economic stress.


To help me understand all the noise, I have set up a simple model for myself. First, a couple of figures:

1. 2010 USA Gross National Product (GDP) was approximately $13.2 Trillion Dollars.

2. 2010 National Debt Limit is approximately $14.4 Trillion Dollars

3. The Ratio of 2010 Debt/2010 GDP is, therefore, 1.09 to 1.

The question is, is this ratio dangerous? Well, here is my simple model, based upon the GOP, Inc. statement that “I have to pay all my bills. The Federal government should have to do the same.”

Let’s create a hypothetical simple nation, named “You.” The nation of "You" has a population of four, one producer, one supporter, and two welfare cases, ranging in age from 6 to 9. "You" doesn’t do manufacturing or agriculture or mining. It is a nation that provides services to other nations in the form of labor. The GDP of "You" is, for purposes of discussion, $60,000. From that amount the nation conducts its business, buying groceries, insurance, communications, fuel, etc. It also pays the welfare recipients $3.00 and $5.00 per week for miscellaneous chores.

Now what about debt? If the GOP, Inc. people are correct, "You" shouldn’t have any since “the bills are paid each month and year.” But is that really true? Experience shows that it is not. Consider the following debts of "You":

1. Borrowed from foreigners (banks) to pay other foreigners (Sellers) for land and building purchases = $180,000 (approx)

2. Borrowed from foreigners (banks) to pay other foreigners (Car financing firms) for transportation equipment = $40,000 (approx)

3. Borrowed from foreigners (banks) to pay other foreigners (appliance stores) for Infrastructure needs = $10,000 (approx)

4. Borrowed from foreigners (banks) to pay other foreigners (contractors) for construction labor (to put a add-on into the main government and legislation building) = $40,000 (approx)

5. So total debt to foreigners is $270,000, giving "You" a debt to income ratio of 4.5 to 1

This is the same as if our federal government had a debt of $59.4 Trillion Dollars!

There are those who will say that the Federal Government is a different situation because it doesn’t make or sell anything, but they would be incorrect. The Federal government buys security, control, assistance, transportation infrastructure, scientific services, and all sorts of other things, like medical care for retired people (ALL retired people, not just the poor), and the security needed to help with the vicissitudes of old age by assisting in the social security of elder citizens.

Does the national debt need to be taken in hand? Undoubtedly. But the problem is nowhere near as disastrous as GOP, Inc. would have us believe. Doing this rationally and effectively if one party to the conversation insists that it can only be done by punishing the poor and middle classes while enhancing the wealth of the richest one percent of the population is a recipe for disaster and, in the end, an invitation to social revolution.  Doing it together cooperatively might even work and make us a better nation.  Well, one can hope, can't one?