Our Debt Addiction (take two)
My take on the problem about two years later, from Crain's Cleveland Business on Apr. 1, 2018. (link to article) The problem is becoming worse, but are we concerned enough about this problem to change our spending ways?
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We need to talk about nation's debt addiction
That nasty four-letter word.
No, not that word. I have in mind another one that carries consequences for all of us: debt.
Now is the perfect time for a conversation about our debt— on the 10th anniversary of the financial meltdown and the Great Recession, as Congress just negotiated a $1.3 trillion spending bill, just after new Federal Reserve chairman Jerome Powell's first news conference, as winter thaws.
Let's add a couple of other benchmarks to our list. Earlier this month, our national debt surpassed $21 trillion. Here is what that really looked like on March 20: $21,050,409,012,718.72. That's the number you get when you sum the federal debt held by the public and so-called intragovernmental debt, or debt owed by government agencies to other governmental agencies. That total is growing at roughly $3.3 billion a day. Our debt now exceeds our country's gross domestic product. Debt to GDP stands at 106%. Economists point to this kind of number when explaining why economies fail.
Here are a couple more sobering benchmarks. Just as we private citizens pay interest on money we borrow, so too must our nation. When you owe over $21 trillion, the interest gets pricey. Like to the tune of more than $203 billion for just the first five months of the current fiscal year. Last fiscal year, interest on our national debt totaled almost one-half of a trillion dollars. The very first paragraph of the Congressional Budget Office's news release on March 7 announced that our federal budget deficit was $392 billion for the first five months of the government's current fiscal year (October through February), a shortfall of $42 billion more than for the same period last year. Although revenues were higher by 2%, spending was higher by 4%. Our nation's addiction to debt is getting worse.
The CBO identified three areas where the largest spending increases occurred: the Department of Homeland Security, Social Security benefits, and — the largest one of all — outlays for net interest on the public debt. The interest payment on our debt increased by $15 billion, a 13% increase over last year. The Fed's recent announcement to increase interest rates by a quarter of 1% will find its way into a new increase in interest payments down the road. Remember that interest rates for all of us, including our government, have been at historic lows for the last decade. That is changing as interest rates increase. The U.S. Treasury estimated a 2.347% average interest rate on total interest-bearing debt held by the government as of the end of February. Last year, that estimated average interest rate was 2.249%. The higher rate means billions of additional dollars we the public pay in interest alone. That's the cost of addiction.
Our private debt should also worry us. Total consumer credit has continued to climb since the late 1950s, except during the Great Recession. According to data gathered by the Federal Reserve, the average amount financed for new car loans at finance companies at the end of 2017 was $30,295. The average maturity on those loans was 67.35 months. Car loans are part of our addiction. Student loan debt recently surpassed the $1.5 trillion mark, increasing last year alone by 5.2%. We might not be addicted to learning, but we certainly are addicted to student loans.
As for the increasingly expensive government debt, are we better for it? As for the ballooning credit card debt, are we happier for it? As for the skyrocketing student loan debt, are we smarter for it? Let our conversation continue.