Closing in on $10 trillion

Kudos to the Associated Press for taking a mind-numbing topic like the national debt and turning it into a pretty good read.  That's "good" as in "compelling," not "pleasant."

Like a ticking time bomb, the national debt is an explosion waiting to happen. It's expanding by about $1.4 billion a day — or nearly $1 million a minute.

What's that mean to you?

It means almost $30,000 in debt for each man, woman, child and infant in the United States.

Even if you've escaped the recent housing and credit crunches and are coping with rising fuel prices, you may still be headed for economic misery, along with the rest of the country. That's because the government is fast straining resources needed to meet interest payments on the national debt, which stands at a mind-numbing $9.13 trillion.

And like homeowners who took out adjustable-rate mortgages, the government faces the prospect of seeing this debt — now at relatively low interest rates — rolling over to higher rates, multiplying the financial pain.

Later, we get to the eye-popping figures.

The national debt — the total accumulation of annual budget deficits — is up from $5.7 trillion when President Bush took office in January 2001 and it will top $10 trillion sometime right before or right after he leaves in January 2009.

That's $10,000,000,000,000.00, or one digit more than an odometer-style "national debt clock" near New York's Times Square can handle. When the privately owned automated clock was activated in 1989, the national debt was $2.7 trillion.

1989, huh?  The year the Berlin Wall came down.  So much for the "peace dividend."  As of this writing, the figure is $9.15 trillion.  I've said it before, but I'll say it again:  That's a 60% increase under the Bush presidency.  And he lectures a Democratic Congress about its free-spending ways?  Not that they're princes either, but jeez…

Despite vows in both parties to restrain federal spending, the national debt as a percentage of the U.S. Gross Domestic Product has grown from about 35 percent in 1975 to around 65 percent today. By historical standards, it's not proportionately as high as during World War II — when it briefly rose to 120 percent of GDP, but it's a big chunk of liability.

The article also gets into the foreign holders of U.S. Treasury debt… and how long they might keep holding on.

For now, large U.S. trade deficits with much of the rest of the world work in favor of continued foreign investment in Treasuries and dollar-denominated securities. After all, the vast sums Americans pay — in dollars — for imported goods has to go somewhere. But that dynamic could change.

"The first day the Chinese or the Japanese or the Saudis say, `we've bought enough of your paper,' then the debt — whatever level it is at that point — becomes unmanageable," said Collender.

A recent comment by a Chinese lawmaker suggesting the country should buy more euros instead of dollars helped send the Dow Jones plunging more than 300 points.

The dollar is down about 35 percent since the end of 2001 against a basket of major currencies.

Foreign governments and investors now hold some $2.23 trillion — or about 44 percent — of all publicly held U.S. debt. That's up 9.5 percent from a year earlier.

Japan is first with $586 billion, followed by China ($400 billion) and Britain ($244 billion). Saudi Arabia and other oil-exporting countries account for $123 billion, according to the Treasury.

The article gets bogged down briefly in partisan sniping over who's to blame… Suffice to say there's plenty to go around.  Then the article again reminds us of some recent history:

Texas billionaire Ross Perot made paying down the national debt a central element of his quixotic third-party presidential bid in 1992. The national debt then stood at $4 trillion and Perot displayed charts showing it would soar to $8 trillion by 2007 if left unchecked. He was about a trillion low.

Not long ago, it actually looked like the national debt could be paid off — in full. In the late 1990s, the bipartisan Congressional Budget Office projected a surplus of a $5.6 trillion over ten years — and calculated the debt would be paid off as early as 2006.

Former Fed chairman Alan Greenspan recently wrote that he was "stunned" and even troubled by such a prospect. Among other things, he worried about where the government would park its surplus if Treasury bonds went out of existence because they were no longer needed.

Not to worry. That surplus quickly evaporated.

Note to Democrats who still like to crow about this:  The surplus was bogus.  It was a surplus only by the standards of the Enron-style accounting the government uses, not generally-accepted accounting principles (GAAP).  But yes, there was ol' Bubbles Greenspan, horrified by a paid-off national debt, holding up the long and not-very-proud tradition begun by Alexander Hamilton, who thought a national debt was a "national blessing."

Again, hats off to the AP for a thorough and readable job.  Of course, it won't hold a candle to Agora's documentary premiering next month at the Sundance Film Festival.  But every little bit of consciousness-raising helps.

The Daily Reckoning