U.S. Debt $10 Trillion and Counting - Frontline

by: Paul Kedrosky

Tuesday night's Frontline episode was on the ever-spiraling U.S. debt. It was generally well done and lucid, although it did gloss somewhat some important points (like the high percentage of U.S. debt in U.S. dollars, the reserve currency, etc.) and felt mildly more partisan than usual.

Here is a snippet from ex- Treasury Secretary Paul O'Neill (whose whole interview is worth reading in its entirety):

This financial crisis in retrospect will look like a child's game compared to what we're headed into when we have to begin raising enormous amounts of money through floating debt, or reneging on the obligations we made to people that they thought were good and clear from Social Security benefits and Medicare benefits...

And a quote from economist James Galbraith:

Because [the deficit is] not the problem that we should be focusing on right now. Why don't we have a clock there that tells you how many jobs are being created and how many jobs are being destroyed? Why don't we have a clock that tells you how many states and cities are cutting their budgets and how many are able to go forward with the services that they have presently been running? Those are the priorities that we have to face.

Q. The national debt clock doesn't tell us anything?

No, it doesn't, and in particular this $11 trillion number, when many trillions of that actually are held by the government itself, which is basically just an accounting offset.

The total share of debt, [as a share of] U.S. GDP, our national output, held by the public before this crisis was on the order of 40 percent. It is not a big number either by the historical standards of the United States, nor compared to our major industrial democratic partners in Europe and elsewhere, where debt-to-GDP is 60 percent to 100 percent and higher. And those countries are as solid as we are. So we are not in a situation where this number tells you anything meaningful about the economy.

Watch the full program online here.