JOPLIN, Mo. —
What does a trillion look like?
Gaze up at the sky on a clear night. A trillion is more stars than there are in the entire Milky Way galaxy.
Twelve zeroes. That’s a trillion.
Multiply that trillion with its 12 zeroes by 14. That’s the U.S. debt load.
And it’s a number Joshua Gordon and Steve Winn watch closely. So does Brian Riedl.
Gordon is policy director for the bipartisan Concord Coalition; Winn is the group’s spokesman; Riedl is a research fellow in federal budget policy for the conservative Heritage Foundation.
“We are on course to have the national debt quadruple between 2012 and 2020,” said Riedl. “At that point the interest on the national debt is so huge you have choked off everything else government could do.”
In a decade, the nation’s debt also will exceed its gross domestic product, which is the value of all goods and services the country produces. In other words, the nation’s debt will be larger than the entire U.S. economy.
Gordon and Riedl spend a lot of time trying to educate Americans about the debt, what it means, what needs to be done and what happens if the country doesn’t change course.
Deficit vs. debt
The first lesson they give when educating Americans about financial overload is the terminology. Specifically, two terms: “debt” and “deficit.”
“The debt is the total amount we owe as a result of the annual deficit we run every year,” Winn said.
This year, the country is expected to take in $2.2 to $2.3 trillion in revenue of all kinds, but U.S. spending is projected at $3.6 to $3.7 trillion per year.
Alden Buerge, chairman and CEO of First State Bank in Joplin, said people who show up with those kinds of numbers at his bank are not “bankable.”
Regulators — federal regulators included — would take to the woodshed any banker who made a loan based on those levels of income and debt. Bankers want $1.20 or $1.30 in income for every dollar in expenses before lending them money, he said.
According to Riedl, the annual deficit went over $1 trillion in 2009 for the first time and has continued at that level every year since.
“By my calculations, if we stay on current policy trends the deficit will never fall below $1 trillion again,” he added.
Winn said that right now, interest on that borrowed money is low. But, he warned, it will rise. When it does, the cost to the United States government of borrowing that money will go up, too.
“A lot of the federal debt is financed over the short term,” he explained.
This year, payment of interest on that debt is estimated at $225 billion, Gordon said. He and Riedl point to Congressional Budget Office projections indicating that without any change in spending, interest on the national debt will hit $1.1 trillion a year by 2021.
At that point, it will exceed what the country will be spending on national defense.
“By 2025, revenue will be able to finance only interest payments, Medicare, Medicaid and Social Security. Every other federal government activity — from national defense and homeland security to transportation and energy — will have to be paid for with borrowed money.”
That’s from The National Commission on Fiscal Responsibility and Reform, which was appointed by President Barack Obama and co-chaired by Erskine Bowels, chief of staff for former President Bill Clinton, and Alan Simpson, a conservative former U.S. senator from Wyoming. They released their report this spring.
“The escalation was driven in large part by two wars and a slew of fiscally irresponsible policies, along with a deep economic downturn. We have arrived at the moment of truth, and neither political party is without blame.”
Claim on Social Security
Riedl and Gordon both said there are two pieces of that $14 trillion national debt.
The first is debt held by the public, meaning money borrowed from financial markets. That’s around $10 trillion, they say. The rest, more than $4 trillion, is money owed to the Social Security Trust Fund that was supposed to be set aside to fund the retirement of baby boomers — money that Congress went ahead and spent, leaving behind IOUs.
But the money will be needed soon.
In fact, Social Security expenditures exceeded tax receipts last year for the first time since 1983, when Social Security was last reformed, the trustees for Social Security noted in their annual report last year.
If the economy improves, Social Security may be back in the black, but not for long.
By 2014, Social Security deficits are expected to “grow rapidly,” the trustees reported, as baby boomers retire in large numbers and the number of Social Security beneficiaries outpaces the number of workers.
Buerge notes that the baby boom began in 1946, and the first of those boomers turn 65 this year. Which means the claim on Social Security is due.
“It has already started,” Riedl said.
Working both sides
How does one pay off a $14 trillion deficit?
“Realistically, we’re not going to,” Riedl said.
The alternative, he said, is to hold that debt in check — to “stabilize” it — until the economy grows and interest and the debt become a smaller piece of an expanding pie.
“As the national income grows, the interest becomes affordable,” Riedl said.
Gordon said Americans need to do two things simultaneously: They need to control annual deficits at the same time they need to get the U.S. economy cooking again.
“We clearly have to have both of those things working for us.”
But the problem occurs when the medicine for one actually makes the other worse.
Raising taxes, for example, increases revenue, but Gordon notes that some economists and many conservatives would argue that raising taxes too high or raising the wrong taxes can choke off economic growth.
‘Are we prepared?’
Riedl said: “The question is: Will we wait for a crisis to occur? We didn’t take on terrorism until 9/11. We didn’t take on levees until Katrina.”
Gordon thinks the public gets it. He’s not sure politicians do.
“Politicians think in two-year increments. They don’t think in the long term,” he said. “It will require politicians of both parties to come off long-held assumptions. The public really understands the need to move off their long-held beliefs.
“Historically there has not been the political will to take this on,” said George O’Connor, professor and head of the department of political science at Missouri State University in Springfield. That may be changing.
“We are bringing a serious conversation about debt reduction into Washington and into Joplin for the first time.”
Both the president and House Republicans are laying out plans to cut spending, but the best scenarios only reduce the deficit years from now.
Having a conversation is the easy part. The tough part comes when the cuts made in Washington cause bleeding in Missouri, for example.
“You really have to get into entitlements. We are going to have to get into the big-ticket items,” O’Connor said. “When those details come out, that is when the American people will have to make choices. Are we prepared to give up the things the deficit has brought us?”
United States arrives at ‘moment of truth’
JOPLIN, Mo. —
What does a trillion look like?
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