The Debt Crisis

Key things to know What is the national debt?

the sum of all federal bills, notes and bonds that have been issued by the Treasury and not yet redeemed-what we owe

What is the difference between the debt and deficit? Debt is the cumulative total owed, deficit is

the difference between revenues collected (taxes) and expenditures

What is intra-governmental debt? Debt that the government owes to itself-

mainly the Social Security trust fund

Key things to know continued What is the total amount owed?

$14.6 trillion or $14,600,000,000,000 Who do we owe it to?

Social Security trust fund $4.7 trillion Other countries, individuals, retirement

funds, businesses When do we have to pay it back?

We pay it off over time and pay interest often borrowing and paying at the same time

So what’s the problem?

The debt is currently about equal to our annual GDP of $15 trillion, but it is rising faster than economic growth. As the debt rises, more of our revenue goes to pay interest on the debt.

Current rate of spending, especially because of entitlement programs is not sustainable.

Cyclical debt: due to the downturn in the business cycle Lower tax revenues Increased spending to stimulate the

economy Structural debt

Rising costs of Medicare and Medicaid due to increased health care costs and aging population

Rising cost of Social Security as baby boomers retire

Chart below does not include intra-governmental debt

How do we compare to other countries?

What do we spend money on?

http://www.whitehouse.gov/omb/budget

Ratio of Current Budget

How did we get here? Bigger government

New programs, new priorities, Homeland Security

Afghanistan and Iraq Wars fought on credit

Tax Cuts during Bush years extended by Obama

Demographic time-bomb Medicare and Social Security

Great Recession

What are the options?

Reduce spending Increase revenues (taxes) Grow the economy Some combination of the above