Word: debt
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...take a closer look at the numbers. The amount the U.S. pays to service the national debt isn't particularly onerous. In fact, interest payments in 2010, which so many have touted as approaching $500 billion, are not much different in inflation-adjusted terms from what servicing cost 20 years ago, especially relative to GDP. The same is true for household debt, which has shot up astronomically in sheer dollars but consumes about the same percentage of household income to service as it did in the 1990s...
...reason we can afford such large debts is that interest rates are so low. At the beginning of 2000, it cost the U.S. government more than 6.5% to borrow money. Now it costs less than 2.5%. That means we can borrow 2½ times as much today for the same cost. Also, the overall economy has expanded dramatically, and relative to the size of the economy, the debt isn't particularly high by global standards. (See pictures of the global financial crisis...
...concern, of course, is that one day rates will inevitably go up, which means interest payments will too. According to this school of thought, as our debt grows, lenders will be willing to take the risk of giving more money only if they can get more in return. And yet with the rise of China, India and Brazil, the world is awash in money looking for safe places. Even with the U.S. economy weak, the dollar remains one of the few truly safe havens, and that means interest rates could stay low for a very long time, which in turn...
...deficits might seem wise, it could actually be fatal to future prosperity. China is spending hundreds of billions of dollars on infrastructure, while America can hardly repair its bridges. The U.S. has to invest and spend to build a future, to help re-create a workforce, and for now debt is a means to that end - provided Washington shows it can effectively channel that money. (See the best business deals...
Like home mortgages, much of the debt never has to be paid down. Half of the debt of trillions of dollars is owed by the federal government to itself, and a quarter more is owed to the American public. Because of the unique role of the dollar as the global reserve currency, the debt the government owes itself can simply be rolled over endlessly. Only the interest payments are a must. As long as the dollar remains central to the global system - and there is little chance of that changing in the next decade - the U.S. will have the latitude...