Seven Things You Should Know About the National Debt

Thursday 16 June 2011
by: Dean Baker and David Rosnick, The Center for Economic and Policy Research | Report

Washington, D.C.- As talk of the debt ceiling and deficits reaches a fever pitch in the media and on Capitol Hill, a great deal of inaccurate information has clouded the reality of the national debt and deficits. A new issue brief from the Center for Economic and Policy Research describes 7 key facts about the debt, deficits and the dollar, and shows why a clear, unfiltered understanding of them is crucial to current policy debates.

“7 Things You Need to Know about the National Debt, Deficits, and the Dollar” breaks down the basic economics of these issues in a manner unclouded by political agendas or partisan spin. It demonstrates the relationships between the national debt, budget and trade deficits, and the dollar and why these relationships matter.

The brief discusses the following points:

• The national debt is not literally a generational transfer
• The high dollar, not the budget deficit is what causes the trade deficit and foreign borrowing
• A large trade deficit requires that we have a very large budget deficit, extremely low private savings, or some combination thereof
• The stock and housing bubbles led to an enormous reduction in private savings through the wealth effect
• In times of economic weakness like the nation is experiencing now, deficit spending actually helps the economy to grow
• High and rising private sector health care costs in the United States are responsible for the bulk of the federal budget deficit
• Social Security has a dedicated stream of financing and does not directly contribute to the federal debt

(More here. Full report here.)