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How big a deal is the US national debt, really?

All my life, I have liked curious facts.

During the pandemic, I have been pondering the concept of a billion and a trillion dollars, which is comprised of a thousand billions.

If we consider that the U.S. dollar bill is 6.14 inches long, 2.61 inches wide, and .0043 inches thick, we can come up with some astonishing statistics. If you stacked a billion dollar bills on top of each other, the stack would reach 67.9 miles. If you stacked a trillion dollar bills in the same manner, the column would reach 67,866 miles or comfortably into space.

A billion dollar bills laid end-to-end would stretch 96,900 miles, winding around the Earth nearly four times. A trillion dollars laid in the same manner would stretch for 96,906,656 miles, a distance farther than the sun. If you laid one billion dollars side-by-side like tile, they would cover about four square miles. A trillion dollars laid out the same way would cover approximately 3,992 miles, or 1,000 square miles larger than the states of Rhode Island and Delaware combined.

Stacks of dollar bills move through a machine at the Bureau of Engraving and Printing in Washington, D.C., in 2017. (Andrew Harrer/Bloomberg)

Finally, how long would it take to spend each amount? If you spent $40 per second, around the clock, it would take you 289 days to exhaust a billion dollars. If you did the same thing with a trillion dollars, it would take you 792.5 years to go broke.

I am fixated so much on the concept of a trillion dollars because during the current pandemic and economic meltdown, the word “trillion” is bandied about lightly and effortlessly, almost as if in passing. Trillions of dollars already have been allocated as stimulus monies to shepherd the U.S. economy out of its deep recession.

Not surprisingly, for the first time in history, U.S. debt is predicted to exceed the nation’s Gross Domestic Product by the end of 2020. Consider that U.S. GDP in 2019 was $21.4 trillion, which is expected to shrink in 2020. As of last month, U.S. debt was $26.5 trillion. It certainly isn’t pretty, but it might not be as bad as it looks at face value.

First, let’s dispel the notion many people have that countries such as China and Japan hold most of the U.S. debt, thus making our country susceptible to manipulation by foreign powers. More than three-fourths of the debt is held by the public, the rest is debt that is owed by federal government agencies to each other.

The government agency that holds the most interagency debt with $2.93 trillion is the Social Security Trust Fund and Federal Disability Insurance Trust Fund. Of the publicly held debt, foreign governments hold only about a third. Private financial institutions, the Federal Reserve, private investors, pension/mutual funds, and state and local governments hold the rest.

And with such high debt levels, why is the U.S. government still being lent money?

First, the dollar is still the preferred currency to store wealth in the world. Secondly, interest rates are very low, so the federal government can borrow money cheaply. Despite the debt, it has been relatively easy for the U.S. government to borrow money to fight the recession during the current pandemic.

The debt will still have to eventually be paid off, right? Maybe, maybe not. Many people purchase a house on 30-year mortgage. When analyzed in terms of personal equity, most of these people are technically in debt, as their assets don’t exceed their debt, especially when they first purchase a home. During the 30 years, the owner of the home might refinance the house, take out a second mortgage, or home equity loan, thus extending the debt. Some might move from a smaller, more economical house to a more expensive abode, simply taking their debt with them.

In much the same manner, the public debt owed by the government could be looked at as having a perpetual mortgage. Or, imagine having a large balance on your credit card, and rather than working to pay off this balance, more debt is added onto the existing debt. However, rather than having exorbitant double-digit interest rates that most credit cards apply to your balance, imagine that the interest rate is only 2%, thus making it easier to keep piling on the debt.

So, should we be concerned?

Having the public debt exceed GDP in the short run can be justified, especially during such extraordinary times. However, this cannot continue indefinitely, because the federal government will be competing with the private sector to borrow the money that exists in the market. This will cause interest rates to rise, which will make it more expensive for the government to borrow, thus exacerbating the debt problem.

We should also be concerned that as more Americans age and access their Medicare and Social Security benefits, this will put more pressure for U.S. debt to rise.

Finally, there is the threat, albeit relatively small, that if the U.S. economy falls into a prolonged economic malaise, or a more attractive haven to store wealth than the U.S. dollar becomes available, that the lending stream to the U.S. government could be slow, and the time to pay the piper could arrive.

In other words, we can’t perpetually keep kicking the can down the road without a strategic plan for managing the debt. But, as we are faced with these economic complexities, can we come to appreciate that $26.5 trillion dollars would stretch 1,798,499 miles, the equivalent of going to the moon and back 3.76 times? I’m sure NASA can.

Jerry Pacheco is the executive director of the International Business Accelerator, a nonprofit trade counseling program of the New Mexico Small Business Development Centers Network. He can be reached at 575-589-2200 or at jerry@nmiba.com.

 



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