As everyone in the federal government–and most citizens–know, the government has been recording the largest budget deficits, as a share of gross domestic product (GDP), since the end of World War II. As a result of those deficits, the amount of federal debt held by the public has soared-surpassing $9 trillion at the end of fiscal year 2010 to a level equal to 62% of GDP.
The interest the government pays on that debt is currently low by historical standards as a percentage of GDP but it is expected to grow rapidly over the next several years as interest rates rise. (A summary of key facts about the Federal debt are available on my Wiki site.)
There will be many news stories about the debt limit in the days and weeks ahead, but the relevant issues are not about the limit itself, but the size of the debt, and the interest expense burden it represents, as a percentage of gross domestic product.
The following charts, presented in a Congressional Budget Office report, make that clear:
The charts show the amount of federal debt–and the interest expense to pay that debt– as a percentage of Gross Domestic Product from 1970-2010 and projected for 2010-2020. Federal Debt and Interest Costs, Congressional Budget Office, December 2010.
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. It is often considered an indicator of a country’s standard of living.
The relevant issue is the level of government spending, which creates a future need for increasing the debt limit. The requirement for an inevitable increase allows political parties to bring up other issues for discussion and compromise. More details here.
The CBO’s clear and simple graphic design and well-documented report provides reason for immediate action by our political leaders.