The soaring national debt has reached a symbolic tipping point: It’s now as big as the entire U.S. economy. The amount of money the federal government owes to its creditors, combined with IOUs to government retirement and other programs, now tops $15.23 trillion.
That’s roughly equal to the value of all goods and services the U.S. economy produces in one year: $15.17 trillion as of September, the latest estimate. Private projections show the economy likely grew to about $15.3 trillion by December — a level the debt is likely to surpass this month.
“The 100% mark means that your entire debt is as big as everything you’re producing in your country,” says Steve Bell of the Bipartisan Policy Center, which has proposed cutting nearly $6 trillion in red ink over 10 years. “Clearly, that can’t continue.”
Long-term projections suggest the debt will continue to grow faster than the economy, which would have to expand by at least 6% a year to keep pace. President Obama’s 2012 budget shows the debt soaring past $26 trillion a decade from now. Last summer’s deficit reduction deal could reduce that to $24 trillion.
Many economists, such as the Brookings Institution’s William Gale, say a better measure of the nation’s debt is how much the government owes creditors, not counting $4.7 trillion owed to future Social Security recipients and other government beneficiaries. By that measure, the debt is roughly a third less: $10.5 trillion, or nearly 70% the size of the economy.
That is still high by historic standards. The total national debt topped the size of the economy for three years during and after World War II. It dropped to 32.5% of the economy by 1981, then began a steady climb under President Reagan, doubling over the next 12 years. The combination of recession and stimulus spending caused it to soar again under Obama.
Among advanced economies, only Greece, Iceland, Ireland, Italy, Japan and Portugal have debts larger than their economies. Greece, Ireland, Portugal and Italy are at the root of the European debt crisis. The first three needed bailouts from European central banks; Italy’s books are monitored by the International Monetary Fund.
The White House and Congress agreed in August to cut about $1 trillion from federal agencies over 10 years. An additional $1.2 trillion in automatic spending cuts looms beginning next year if lawmakers can’t agree on a better way to do it.
Economist Mark Zandi of Moody’s Analytics says reaching the 100% mark shows “the grave need to address our long-term fiscal problems.”
This story first appeared in USA Today.
Published: Monday, 9 Jan 2012 | 11:23 AM ET