It may be the night of the Iowa caucuses, but I don’t feel like commenting on the hilarity therein: if you want to read about how Michele Bachmann thinks one of the most important issues facing the U.S. is light bulbs, how Rick Santorum wants to allow states to outlaw birth control, or how Herman Cain thinks he is qualified to be Secretary of Defense because he was on a Navy boat once, there’s plenty of places to do that. Instead, let’s talk about debt!
Paul Krugman has a very good article on government debt. Government debt is not like owing a mortgage to the bank. For most government debt, the debtor and the borrower are one and the same. As a taxpayer, I am “responsible” for a portion of the U.S. debt. But I also own a portion of that debt in my retirement account. Much of that debt is similarly owned by fellow citizens. In addition, as the blog post points out, we own a lot of foreign government debt too, and overall, we haven’t had a huge net increase in foreigners owning U.S. debt. People may complain about how China and Japan “own” the U.S. now, but that’s not really true. We own ourselves.
Miniscule bond yields mean that nobody is clamoring for us to pay the bill soon. The best analog to the U.S. debt problem is not a family that is six months late on their mortgage payment. Instead, it’s probably the credit card that thinks so highly of us that they are going to extend our 0% teaser rate a bit longer. That makes a big difference as to what course of action to take.