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Time: Too Much Worry About The Deficit

From the erstwhile news magazine, Time:

[Chart not appearing in Time article.]

Is There Too Much Worry About the Debt?

By Zachary Karabell Monday, Mar. 15, 2010

Judging from the noises emanating from some corners of Washington these days, the federal debt has assumed pride of place as the source of national anxiety. President Obama has called for independent commissions to seek ways to reduce spending. The media are filled with talk of America’s path of financial suicide; economists warn that the debt crisis in Greece is a dry run for the cataclysm that awaits America and the world as U.S. deficits and debt balloon.

The numbers are undoubtedly big, running into many trillions of dollars. The percentages are also daunting, with projections of total gross debt reaching 100% of U.S. GDP this year or next and surging every year thereafter. There is bipartisan agreement that the deficits and overall debt are unsustainable. Douglas Holtz-Eakin, a former director of the Congressional Budget Office, has urged policymakers not just to educate the public about the dangers ahead but also "to scare them to death" about the dire prospects if the debt is allowed to continue to grow.

Almost everyone seems to think that these mounting debts are a severe threat to American prosperity. But what if the real problem isn’t too much debt but too much anxiety about debt?

Let’s take a closer look at the numbers. The amount the U.S. pays to service the national debt isn’t particularly onerous. In fact, interest payments in 2010, which so many have touted as approaching $500 billion, are not much different in inflation-adjusted terms from what servicing cost 20 years ago, especially relative to GDP. The same is true for household debt, which has shot up astronomically in sheer dollars but consumes about the same percentage of household income to service as it did in the 1990s.

The reason we can afford such large debts is that interest rates are so low. At the beginning of 2000, it cost the U.S. government more than 6.5% to borrow money. Now it costs less than 2.5%. That means we can borrow 2½ times as much today for the same cost.

What bizarre logic, even for Time magazine.

Interest rates are abnormally low, primarily due to the bad economy. They will not always remain so. And they will certainly go higher, probably much higher, before the national debt is ever paid off.

Also, the overall economy has expanded dramatically, and relative to the size of the economy, the debt isn’t particularly high by global standards.

Perhaps the author has not noticed that the US economy is not "expanding dramatically" anymore. And it is not projected to be "expanding dramatically" anytime in the foreseeable future.

Moreover, it is preposterous to claim that our debt is not high by global standards when we are by far the biggest debtor nation in the world.

And when our debt to GDP ratio is only outstripped by a few of the world’s worst economic basket cases, such as Greece and Portugal.

The concern, of course, is that one day rates will inevitably go up, which means interest payments will too. According to this school of thought, as our debt grows, lenders will be willing to take the risk of giving more money only if they can get more in return. And yet with the rise of China, India and Brazil, the world is awash in money looking for safe places. Even with the U.S. economy weak, the dollar remains one of the few truly safe havens, and that means interest rates could stay low for a very long time, which in turn means that our debts — however big — can be managed.

Never mind that China is unloading its Treasury notes. Never mind that our huge national debt is exactly what is causing other nations to consider doing the same.

Indeed, though eliminating deficits might seem wise, it could actually be fatal to future prosperity. China is spending hundreds of billions of dollars on infrastructure, while America can hardly repair its bridges. The U.S. has to invest and spend to build a future, to help re-create a workforce, and for now debt is a means to that end — provided Washington shows it can effectively channel that money.

Obviously, we are not dealing with a serious person here.

We have already spent trillions and run up the debt to unimagined heights for the very things that the author is here suggesting we should try doing.

Like home mortgages, much of the debt never has to be paid down.

This is news to us, unless it is an ‘ACORN mortgage.’

Half of the debt of trillions of dollars is owed by the federal government to itself, and a quarter more is owed to the American public. Because of the unique role of the dollar as the global reserve currency, the debt the government owes itself can simply be rolled over endlessly. Only the interest payments are a must. As long as the dollar remains central to the global system — and there is little chance of that changing in the next decade — the U.S. will have the latitude to borrow more than most other countries.

Worrying about debt is like gaining too much weight and worrying about the size of your clothing. America’s indebtedness would be sustainable and even healthy if the underlying economy were vibrant, innovative and strong and if federal and state governments could channel those moneys productively and quickly. The problem isn’t how much debt we’re carrying today; it’s whether the economy of tomorrow will be able to justify it.

You see, there is an endless supply of money, and endless supply of capital. So the fact that the federal government is sucking up ever larger amounts of available capital will have no effect whatsoever on the economy.

And that is the real nub: America isn’t investing enough in its future. We are failing to mobilize resources to improve our health care and infrastructure and stay competitive in a global economy that is more clamorous than ever. Focusing on how much we owe won’t help us meet our real challenges. America’s problem isn’t large clothing; it’s a body politic that is sliding into dangerous habits. Obsessing about the debt is a distraction we can’t afford.

Zachary Karabell is the president of River Twice Research and author of [the yet to be released] Superfusion: How China and America Became One Economy

Apparently, Zachary Karabell is a dangerous buffoon who no one in their right mind should take seriously for a minute.

As, indeed, his political contributions as listed by the FEC would indicate:

NEW YORK, NY 10023



NEW YORK, NY 10023



NEW YORK, NY 10024



While we regret wasting our readers’ time with such errant nonsense, it is instructive to now and then be reminded why nobody takes Time or Newsweek seriously anymore.

This article was posted by Steve on Tuesday, March 9th, 2010. Comments are currently closed.

8 Responses to “Time: Too Much Worry About The Deficit”

  1. proreason says:

    Silly us. Worrying about money isn’t good for our health.

    And besides, the world loves us so much now that other countries will happily pay our debts.

  2. AcornsRNutz says:

    I like the glassing over of the whole “if the underlying economy were booming we wouldn’t have to worry about the debt principle, just the interest” bit. This may be an arguable point, but it becomes a completely academic exercise when you consider these hard truths:

    1. the economy is doing absolutely everything BUT booming right now, in just about every facet of the amorphis conglomeration we call an economy.

    2. Those interest payments are going to have to go up. There is no other way to absorb the massive surplus of circulating currency, both in our own economy and in the world economy.

    3. That piddling 25% that is owed to us? That is a debt that is due, and this knothead blathers on about how the deficit doesn’t really hurt the government, but what about us?

    4. He says half is owed to the gov’t itself (?), and a further quarter is owed to us. So who gets the remaining 25%? Isn’t that a matter of about 4 trillion dollars?

  3. proreason says:

    Dennis Prager explains very clearly why the criminals don’t care about debt:


    “… unprecedented and unsustainable debt, a debt that will negatively affect most Americans’ quality of life, renders the dollar increasingly undesirable, and undermines America’s prestige and power in the world — these developments do not particularly disturb the left. They may trouble the president, the Democratic Party, and others on the left on some political level, but that pales in comparison to what the left really wants: a huge government overseeing a giant welfare state and a country with far fewer rich Americans.

    Achieving those goals is far more important than preventing a decline in the American quality of life. The further left one goes, the more contempt one has for the present quality of American life in any event. The left regularly mocks many of the symbols of that life — from the three-bedroom suburban house surrounded by a white picket fence to owning an SUV (or almost any car) because Americans should be traveling on public buses, trains and bicycles.”

    I would add that the Left’s criminal leaders have no intention of lowering their own lifestyles. You can see that clearly from AlToad and the Obamy’s PartyHearty lifestyle. Indeed, they intend to improve and perpetuate their own lifestyles, while permanently depressing 99.9% of the country. That way, they live in splendor forever, with no chance of an uprising.

    That’s what it’s really all about.

  4. JohnMG says:

    …..”The reason we can afford such large debts is that interest rates are so low. At the beginning of 2000, it cost the U.S. government more than 6.5% to borrow money. Now it costs less than 2.5%. That means we can borrow 2½ times as much today for the same cost…..”

    Isn’t this the same type of thinking that got people in trouble with the home mortgage industry? And credit card industry? And the……..pick an industry, any industry!!

    People with critical thinking skills, such as the author above, are cause enough for supporting retroactive abortion. We need to sanitize the gene pool….the sooner, the better.

  5. proreason says:

    “Isn’t this the same type of thinking that got people in trouble with the home mortgage industry? And credit card industry?”

    the same type of thinking by the same people.

    You can’t get rid of cockroaches one at a time. You have to take out the nests and the breeders, and clean the infested area thoroughly.

    Winning an election is just a tiny first step.

    • JohnMG says:

      I agree whole-heartedly. Problem is, this is going to take time, and unfortunately the voting public has an attention span about this long. – !

      None of the masses seem to be able to stay focused beyond one election cycle. The “Won” will do irreparable damage in the interim.

  6. AcornsRNutz says:

    And what is particularly scary about that is that just about anyone will seem better than this mess. I predict that a rash of RINOs is what we can expect in 2010/2012 when “middle of the road” conservatism seems downright Reagan-esque by comparison to the current government. I hope I am wrong, but the natural pessimism of recent exeperiences makes me doubt that I am.

  7. Mithrandir says:

    So…..when our generously paid public ‘servants’ do nothing but blow our cash to grease the voters, to keep themselves perpetually employed forever…..we are not to be alarmed about it?

    They control the piggy bank, and they do such a horrible job, that not only is the piggy bank bone-empty, there are billions of other piggy banks we have to fill up with interest payments and other obligations JUST TO GET TO ZERO!

    But don’t be alarmed…and certainly don’t look at the current U.S. debt clock, that will make you more worried. http://www.usdebtclock.org/

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