Long term debt

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We have not had zero national debt in this country since the Jackson administration in 1836.

The really important thing about that debt is not the numerical size of it but rather the relative debt (= the debt as a percentage of GDP). For the US to owe $14.3 trillion is a problem, but if Nebraska owed $14.3 trillion it would be a hopeless disaster. That leads us to the one encouraging thing about the national debt: you don't have to pay it off. You can reduce the importance of the debt by simply reducing it as a percentage of GDP. If the economy grows and you have zero deficits, then the relative debt will decrease to the point where it is not as significant. You can "grow the debt down". That is you can grow the economy and reduce the relative debt. That is why it is not "trillions and trillions of debt" that should worry us but rather a debt that is a high percentage of GDP.

(Government debt and personal debt are not the same but comparisons can help in understanding.) It is a bit like the first house I bought for $32,250 when I was making about $15,000 per year. With a horrendous interest rate of 12.75% my payments were about $350/month or $4200 per year. (We also borrowed the down payment so the calculation is for both which totaled the value of the house.) That debt service ate up 28% of our before tax income. It was a burden. However, as time went by, my income increased and it was about $42,000 per year by the time we moved out of that house. That same $4,200 per year in payments was then only 10% of my income.

We are now facing a relative national debt that looks to be growing well into the danger zone. So how did we get here? Well, there are two sides to every story.

First, for those who weren't there, in the old days everybody knew that "up to 250% of your family income" was the standard for "how much house you could afford." Notice that our debt in the previous example was 215% of our income (=GDP). That was well within the standard. Of course, that was before Congresscritters Barney Frank and Chris Dodd decided that connecting "how much house you can afford" to your income was discrimination against people who did not have enough income to buy as much house as they wanted (= "had a right to"). How did they implement that? They provided government drop off points, called Fannie Mae and Freddie Mac, for bad mortgages. Enter a nationwide bunch of "bankers" who abandoned their integrity and made loans that they knew were no good because they could sell them immediately to someone who would ... sell them to willing (semi-government) receivers at Fannie and Freddie.

Immediately after WWII the war had pushed our national debt to about 120% of GDP. By Ronald Reagan's presidency we had "grown it down" to about 35%. During the 12 year Reagan-Bush administration the country went on a binge of deficit spending that drove it back up to about 70%. During the Clinton administration the Democrats, who believe in more taxation, combined with the Republicans, who believe in less spending, and leveled it out. Then came the Bush 43 and Obama administrations and the bill came due for all of those "socially desirable" loans that had been made. We are currently approaching a debt level of 100% of GDP. Curiously enough, that is not the main problem. In the interest of making all of us happy the government has promised us all that we will have benefits from SS and Medicare that exceed the amount of revenues that they have provided to pay for them. How much is that shortfall? That is, how much is the debt already scheduled to increase? Nobody knows for sure. Estimates run from another 100% of GDP to another 300% of GDP making the real prospective debt somewhere between 200% and 400% of GDP. How much is safe?
Again nobody knows for sure? Remember the powerhouse that Japan was going to be about 20-25 years ago. Their debt got to around 200% of GDP. They are down and are likely to be down for quite awhile.
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