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| Paying off the Public Debt |
March 06, 2001 |
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Cleveland Middle School 8th Graders recently hosted a Naturalization Ceremony as part of their American Government curriculum.
The Cleveland Swing Choir sang the National Anthem for seventy-four of our country`s newest citizensDear Friends,
Two years ago we started paying off the public debt. First we balanced the budget after 30 years of deficit spending. Then we started using the surplus to pay off debt. You may not have heard about it. It hasn`t been in the news much.
They`ve unplugged that debt clock that used to be constantly going up in New York because it doesn`t run backwards. In the last two years, we have paid off $363 billion in public debt. By the end of this year, we will pay off another $200 billion. The total public debt is currently $3.4 trillion and we are on track to pay it off completely by 2013.
Why does that matter? Interest on the debt is a big piece of the budget. This year, we will pay $206 billion in interest on the debt out of the federal budget. Compare that to the $216 billion we pay for the Medicare program or $310 billion for defense. Just like paying off the principal on your home mortgage loan, if you pay off debt, you pay less in interest.
HELPING YOUR POCKETBOOK
There`s another reason it matters. Because the government isn`t out there borrowing money from the banks and pension funds, there`s more money in the economy for other things. As economists would say, the total demand for money is lower, and that translates into lower interest rates for your home, for a college loan, or for a small business. That helps everyone`s pocketbook.
Economists will also tell you that our public debt is really not very high relative to our national income (GDP). They are right. That`s like saying you have a high enough income to pay the mortgage on your home. But unlike houses, the government doesn`t own something that will grow in value. Public debt is not an investment.
There is a bit of a hitch. By about 2007 there will not be enough short term notes to pay off as much as we want to. We`ll have to decide whether we want to pay a premium to retire 30 year bonds out there. But we will have the option.
We had to borrow money in World War II to fight a war. In a time of peace and prosperity it makes sense to pay it off as a hedge against the future, to keep interest rates on home loans lower and to take the burden of interest payments off the shoulders of our children.
Wish you were here,
Heather |
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