Concern grows over rising U.S. debt

Marketplace Staff Nov 23, 2009

Concern grows over rising U.S. debt

Marketplace Staff Nov 23, 2009


Kai Ryssdal: The Treasury Department put hat firmly in hand today. The government went back to the marketplace looking for buyers — $118 billion worth of Treasury notes, bills and bonds will be on sale this week. Washington is trying to finance its spending habits. Or our spending habits, truth be told. As annual deficits move into the trillions of dollars, there is increasing concern about how much the government owes and about how much that debt costs. And yet, Washington keeps on borrowing. When we get stories like these, we turn to our senior business correspondent Bob Moon.

BOB MOON: Hello, Kai.

Ryssdal: One word question here, Bob: Why?

MOON: Well, two-word response: It depends. We still keep pouring a lot of money on trying to smother the financial crisis fire, if you will. OK. So a lot of this stimulus spending, a lot of it is giving money to the banks so they can lend. We’ve heard that time and time again. But there are a lot of groups who say that a big part of this spending is stuff that isn’t necessary. It’s just Washington addicted to its usual ways. And leaders of both political parties, and really on all sides of the political spectrum, say we really do need to get a handle on this.

Ryssdal: What happens, though, if we don’t?

MOON: Well, there’s concern that just servicing this debt, and that is just the interest charges on all of this debt, could amount to as much as $700 billion just in interest charges by 2019, which isn’t too far away. I spoke to J.D. Foster. He’s a budget forecasting expert at the Heritage Foundation. And he sees a real crisis looming if the government doesn’t back off it soon.

J.D. FOSTER: When financial markets realize that the federal government has no intent on changing course, then the markets will say, “whoa” just as any lender would do to a borrower, when you realize the borrower intends to be grossly irresponsible. When that happens the lender says no more. And in this case the markets will express that by a very large increase in interest rates across the board.

MOON: Let me ask you this interest rate question, though. Because we talked about this on the broadcast on Friday. Investors have so much spare cash, that they are plowing money into short-term Treasury bills, right? They were sending the yield negative on that, paying the government to hold their money on Friday. How does that play into this entire debt equation that the government has?

MOON: Yeah, so if they’re so worried about it, why would they be plowing all their money into these Treasury notes? Well, there is a school of thought that banks right now, because we’re coming to the end of the year, are trying to put their money in places where it’s a lot safer in less risky areas, also a lot more liquid that they can get to it quickly should something go wrong. And so they want liquid cash, and T-bills are the best place to do that.

Ryssdal: Back to the spending part of this for a second, Bob. You hear a lot of people saying, wait a minute, the economy is still really tender, what we need is more government spending, not worries about interest rate on government debt as a percentage of GDP and all these kinds of things. What do you say to that?

MOON: Well, as I mentioned, there are people out there who say, look, just put the brakes on this right now, that it’s not helping, it’s not helping the economy. That it’s damaging the economy. But there are others, fair enough, who say we need to at least have this stimulus money in the system, we need to keep spending in that way. And even there critics say, OK, if you need the stimulus spending at least separate that out from other things, such as health-care reform, for example. Things that they say aren’t necessary to improve the economy at this point.

Ryssdal: Yeah, the point being that we’re just commingling all this borrowing that we’re doing, and nobody really knows what’s going on.

MOON: That everybody is just spending for the sake of spending.

Ryssdal: And in the meanwhile, Treasury Department says these bond sales are going to continue.

MOON: That’s right, Treasury just served notice on the bond market earlier this month that we can expect another year of bond sales at about these levels, which would mean as much as $2 trillion sold in the coming year. The government going even $2 trillion more into debt. In the past year, we’ve sold $1.9 trillion. We are just going deeper and deeper into debt every single day.

Ryssdal: Marketplace’s senior business correspondent, Bob Moon. Thank you, Bob.

MOON: Thanks, Kai.

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