In the 2000's, the country couldn't think straight about mortgage, consumer and public debt. We went crazy, borrowed on silly terms, traded financial instruments based on sliced and diced mortgages, used our houses as ATMS, and borrowed lots of public money at the state and federal levels without putting it on the books.
Not very rational.
But we're not more rational about debt now in the 2010's. Congress and the Tea Partiers are obsessed with our public debt. And many of the rest of us are anxious about it. But where's the evidence that we're in a debt crisis? Today, borrowing is cheap by any historical measure. That will change someday, and change rapidly. But that won't affect the debt we've piled up, any more than rising interest rates will affect your fixed 30-year mortgage payments. It may mean that we'd fairly suddenly have to cut public spending someday. But where's the logic in cutting today? Is it our plan to drastically and painfully cut services and public spending today so that someday when borrowing costs rise we don't have to drastically and painfully cut services and public spending?
Rand Paul said this week
"Our whole economy is equal to our debt now." But that statement doesn't mean anything. If you have a $200,000 mortgage on your house and you make $200,000 a year, is there a debt crisis? Is your "whole income equal to your debt?" It makes more sense to compare your debt service to your income. And, with a 14 trillion dollar debt and 14 trillion dollar GDP, our debt service is maybe 5% of our GDP. That's what matters, and by any standards of finance, paying 5% interest on income or revenue is good. How much of your income goes to debt service? I'll bet it's more than 5%. Why should the nation be judged differently?
Part of what is going on is that we're just scared in a rapidly changing world. Another part is that humans don't understand numbers very well. Witness the endless journalistic mix-up between the words billions, millions and trillions. Not a week goes by that I don't hear the numbers 1,000,000 and 1,000,000,000 or 1,000,000,000 and 1,000,000,000,000 mistakenly interchanged. That's like mixing up 1 and 1000.
Breathe deep, work on your math skills, don't get scared by big numbers, be on guard for fear-mongering rhetoric and read my earlier
post on the national debt.
