National
Debt
Most
conversations revolving around the United States’ national debt and any plan to
pay off the national debt are influenced too heavily by political
considerations and do not take into effect enough economic or long-term
thinking. While this is understandable,
it is not productive for the United States reducing its debt burdening in an
effective, responsible way. Too often
conservatives boldly speak of paying down the national debt within a ten year
time span, only made possible with truly draconian spending cuts, while
liberals fail to give any significant attention to the United States’
ballooning national debt. I will make
several general proposals that will constitute the basic framework for a plan
to responsibility pay off the national debt of the United States within a
reasonable time frame[1].
The
United States should set a 30 to 40, possibly even 50, year timeline for paying
off our national debt. By taking 30 or
more years the United States will be able to pay off our national debt in
regular manageable installments that still give us the financial flexibility to
invest in key areas of concern; education and infrastructure for example. If we were to set a 10 year time span, the
payments the United States would have to make would be very large and require
truly draconian cuts to public spending that would make any investment in
education and infrastructure unfeasible[2]. Liken a payment time frame to a home mortgage
an individual may take out in order to purchase a house. That individual could pay off their house, a
rather large sum of money for the vast majority of American citizens, in a ten
year time span, but the monthly payments would be oppressive for that
individual. They would not be able to
afford to pay for virtually any recreational activity, take a limited vacation,
utilize furniture, or have any creature comforts. The bulk of their income would be dedicated
towards making payments for their house.
Comically that individual might be limited to living on inflatable
furniture, eating hot dogs, and drinking tang, all that they could afford. By spreading their mortgage out to 30 years,
they are able to make payments on their house and to live a more comfortable
life; taking vacations, going to the cinema, attending sporting events, eating
a wider range of food, and so on. By
creating a 30 or 40 year plan to pay off our national debt, the United States
can make the payments necessary to pay off our national debt and still have the
financial flexibility to pay for spending on education and infrastructure.
Adopting
a logical, credible plan to pay down our national debt is all that is needed to
restore what investor confidence the United States lost in the recent political
debt ceiling standoff. The United States
was downgraded from its AAA bond rating not for any financial inability to pay
off our existing debt, but because of a perceived lack of political will to
pass a workable solution to pay off our debt.
While I have my concerns with the rational for the downgrade; mainly
that rating agencies are taking an inherently objective problem, does the
United States have the ability to pay its debt obligations, and applying a
subjective lens, will the United States pay its debt obligation, it is
undeniable that the United States has suffered a loss of credibility in the
international world. Simple enacting a
credible debt reduction plan will increase the credit rating of the United
States. The United States has the
ability to pay off our national debt; the only question is will the United
States pay off our national debt. With
the passage of a credible plan, the question is answered. The United States is not Argentina, who
seemingly every decade defaults on their debt obligations and forces investors
to take a haircut on their bonds.
Argentina is a country that is not perceived to always honor their debt
obligations. The United States is one of
only four countries to never miss a debt payment, along with France, Canada,
and Australia. The United States is well
respected in the international community and the international community has
full confidence the United States will meet its debt obligations. Again, the United States is not
Argentina. If we submit a plan to reduce
our national debt to reasonable levels, the international community will be
satisfied.
I
believe a concrete, rational 30 to 40 year plan to reduce the national debt of
the United States will be a responsible way for the United States to reduce its
national debt that still gives the United States the financial flexibility to
invest in education and infrastructure.
It will restore any lost confidence in the United States from an
international financial market perspective.
The United States would do well to adopt a logical plan under the
general framework proposed in the this essay to reduce its national debt.
[1] An
interesting point to consider would be in a hypothetical scenario where the
United States has paid off its national debt, how would the United States
conduct monetary policy? Is there
another market that is as deep and as liquid as the current US treasuries
market? Conducting monetary policy may
become a much more complicated and tricky business.
[2]
Given the fiscal challenges confronting the United States currently and in the
future, it seems imperative for the United States to invest its resources as
efficiently as possible.
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