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Raising the debt ceiling: What's the big deal?

Majority Leader Steny Hoyer (D-Md.) didn't get what he wanted -- a permanent hike in the national debt ceiling, from $12.1 trillion to $13.6 trillion -- because the more fiscally prudent members of his own party objected. But Hoyer probably will get a two-month $300 billion lift, which is still enough to drive deficit hawks crazy, The Post's Paul Kane wrote today.

What does it matter that the yearly budget deficit and the national debt (which is the sum of all yearly deficits/surpluses since the founding of the republic) spiral heavenward? As a country, we've been around for 233 years, we've had debts, we've had surpluses, we've funded wars and massive social programs and we're still here, right?

Well, yes. We're fine as long as debt remains a small percentage of the nation's economy, as measured by GDP. In short bursts, the country can handle debt way over GDP, such as when it was funding World War II and debt was more than 120 percent of GDP. But it must quickly be paid down before it becomes a drag on the entire economy.

That's where we are now.

Thanks to falling tax receipts and massive government spending this year (specifically, the $787 billion stimulus), this year's budget deficit will spike to 9.9 percent of the U.S. GDP, up from 3.1 percent last year, according to the Congressional Budget Office.

The national debt stands at $12.07 trillion. In real-dollar terms, the third-quarter GDP rose to an annual rate of $14.26 trillion. That means debt stands at 85 percent of GDP. If you just look at debt held by the public, it stands at 54 percent of GDP.

Either way, the numbers are getting increasingly frightening for a number of reasons laid out in this paper from the conservative Heritage Foundation, released Monday.

Heritage writes:

  • "Debt Is Earning Interest That Taxpayers Must Pay: Public debt holders are paid annual interest from the federal budget, which must be paid with taxpayer dollars. In 2009 interest payments amounted to $209 billion."

  • "Only Getting Worse: The recession and excessive spending have caused the debt held by the public to grow sharply to 56% of the economy, topping the historical average of 36%. To make matters worse, entitlement programs will double in size over the next few decades and cause the national debt to reach 320% of the economy." The figure in this last sentence is argued among economists and politicians, as it includes unfunded liabilities, such as Medicare, Medicaid and Social Security. These all are subject to political reform -- i.e., trimming of benefits -- but if left alone, they will continue to escalate.

    As I wrote here, Americans are finally starting to get worried about deficits and the debt. I'm guessing it's going to be a factor in next year's midterm elections and I'm guessing it's going to favor Republican candidates.

    -- Frank Ahrens
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  • By Frank Ahrens  |  December 15, 2009; 4:14 PM ET
    Categories:  The Ticker  | Tags: Heritage Foundation, Medicaid, Medicare, Social Security, debt, deficit  
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    I am not a friend to a very energetic government. It is always oppressive.
    Vote for old people. They never want to spend more money than they have to spend.

    Posted by: Dermitt | December 16, 2009 12:17 PM | Report abuse

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