Is it possible to repay the national debt

That is not to say the national debt is imaginary — it is very real. In many respects it is the basis of the global financial system. And away from the political arena, economists and wonks are deeply conflicted about what the national debt really is, and how afraid we need to be of it.

The United States has had an up-and-down relationship with debt. Alexander Hamilton saw collective debt as a way to build the nation — and its international credit — and bind the several states together in common cause.

President Andrew Jackson differed considerably in his opinion. He campaigned on the promise of eliminating the national debt, which he regarded as a tool empowering the federal government and thus centralizing power.

Jackson followed through on his promise, vetoing virtually every spending bill and using federal funds to pay down the debt until it was fully paid off in — right before a six-year economic depression that pumped it back up again. Debt is usually measured as a percentage of GDP to make it comparable across different periods of time. The debt went back down in the postwar years, then up again starting with Ronald Reagan, only to taper off in the early s.

Starting in , however, the national debt skyrocketed and never looked back. The financial crisis and ensuing bailouts added to the debt, as did tax cuts in Almost half of government spending today is allocated to Social Security, Medicare and Medicaid, and that is only expected to increase as the population ages.

All told, the Committee for a Responsible Federal Budget estimates that in a slow economic recovery from the pandemic, U.

That fact would worry any deficit hawk, but the exigency of the pandemic has led many of them to conclude that more federal spending is a preferable alternative to too little. Do you put them on a diet? Or do you fix the appendix? While there is a diversity of opinion on how to think about the national debt, there is broad agreement that comparing it to household debt — credit cards, mortgages or student loans, for example — is the wrong way to think about it.

The important difference is that if you or I run out of dollars, we lack the ability to generate new ones. The government has no such encumbrance, and when it makes new dollars, people all over the world respect their value.

The government acquires more debt by issuing Treasury securities — which come in the form of bills, notes or bonds — which have different maturities and have a seemingly infinite market for buyers because they are regarded as the safest of assets. Because Treasuries are stable, retain value and are eminently marketable, banks are now required to hold some quantity of them at all times as a provision against the kind of market collapse that the banking system experienced in Treasuries are no less popular abroad.

Foreign investors own about half of publicly held U. The bad news is there may be — should be — a point when the world changes its mind about the dollar and the value it represents. But if or when the dollar stops being the global reserve currency, the United States will have a harder time covering the interest it already owes, much less borrowing more. In fact, we look pretty good. The problem is the moment the U. There is also the problem of accountability.

The bond rating agencies, at the very least, will want to know. The low-interest environment is not a panacea for fiscal policy, and the resulting budget savings are small. It simply means that the emergency measures are not leading to an unsustainable increase in the debt. And that fact might help Canadians of all political stripes to sleep at night. Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening.

Sign up today. Follow us on Twitter: globebusiness Opens in a new window. Report an error. Editorial code of conduct. Skip to main content. Michael Smart. Contributed to The Globe and Mail. Other advanced economies will similarly exit the current global recession with sharply higher public debts.

Will it be important for the United States to reduce its high debt burden rapidly through sharp cuts to government spending or big tax increases? The prospect of even a big increase in the ratio of debt to GDP does not imply that the U. Moreover, policymakers should recognize the danger that too little support could leave the economy on a lower GDP growth path and facing stronger deflationary pressures.

Norfolk Southern NSC, Imagine, buying century bonds from a railroad. And Coca-Cola KO, Notwithstanding the fact that many institutions of learning have been compromised by the pandemic, the University of Pennsylvania, Ohio State University, and Yale University also have issued year bonds. To be sure, a longer duration will not be enough to solve the debt problem; the U. But that is a discussion for another day. Should we try to launch prices into the stratosphere in order to shrink the debt?

I advise against that. Investors are no longer the captive audience that they were in the s. Any effort to inflate away the debt would result in a boom for holders and hoarders of gold and cryptocurrencies. Rather, the image we should bear in mind is of a ticking time bomb of debt. We can defuse it, but only if we can win the battle against policy inertia and stupidity.

Todd G.