Last month and yet again, the U.S. Congress sank into crisis regarding government borrowing, spending and its debt limit. Once more at the midnight hour compromise was reached and the crisis passed, temporarily. Hanging heavily over the entire controversy lay the national debt. As of December 23, 2024 it stood at $36.19 trillion. It continues rising.
All agree that is a staggering amount of money. Most thoughtful citizens further agree the nation must pay its debts, that a default is unacceptable. It would be damaging and disruptive for people across the country, for the financial markets and for the economy. Otherwise, opinion varies widely.
Some see the debt as a great peril. If it isn’t liquidated or radically reduced, they say, it guarantees America’s future collapse. Others, in this darkening age, aver the nation faces far greater problems: international warfare, a growing nuclear threat, a new batch of strongmen, the Russian threat in Europe, the rise of Red China and climate change, to name but a few.
From every viewpoint, however, when assessing the national debt the following factors bear weight.
First of all, the federal government is not a business, nor is it a corporation, a partnership or a joint venture. The indebtedness of businesses and individuals cannot — with any degree of validity — be compared to those of the government. Differences of kind and degree separate them. The laws of accounting separate them.
A business obtains its income by selling its goods and services. Government has the distinct legal power of taxation. That is, the levying of a compulsory charge on incomes, purchases and property.
The government’s power of raising revenue, say economists and financiers, explains why the U.S. government’s credit rating remains among the best in the world economy. For example, it is why a U.S. government bond — a debt security issued by the U.S. Treasury — represents a loan to the government and amounts to a valuable capital asset with no risk. Secondly, an often-overlooked fact is the federal government owns properties that support and guarantee the public debt. It owns 600 million acres of land. The estimated value of its land and energy resources alone, according to Energy Resource, are around $200 trillion. Other assets worth trillions include cash, loans receivable, buildings, military bases and equipment, highways, schools, ports and warehouses. The government of the United States is not about to go broke. Moreover, no business of any size can begin to compare with it.
Third, who are the government’s creditors? They are we, the people. American citizens own and hold the greatest percentage of bonds, T-bills, treasuries and other forms of public debt. Thus, in private hands the debt becomes an element of wealth. Bond holders are part of the same contingent from whom the government extracts taxes, and to whom in return it pays interest on the debt.
In sum, as Heilbroner and Bersnstein point out in their Primer on Government Spending, the government debt is an internal debt, a debt largely, though not totally, members of the community owe to one another. The two economists also maintain it is not a political necessity for the government to instantly repay its internally-held debts. For instance, disappearance of the debt for those holding interest-bearing bonds could mean a serious financial loss.
Finally, a word about government spending. When, how and where the government should borrow and expend its revenue are political questions most intensely-contested. However, the 20th century taught the civilized world one unassailable lesson, to wit: both government and business spending —and not their retraction —stimulate demand for goods and services. Demand in turn encourages investment in factories, plants and new equipment. Jobs are created, unemployment declines and prosperity advances. Inherently, prosperity and full employment are in the national interest.
