“Suppose you were an idiot, and suppose you were a member of Congress; but I repeat myself.”  ~Mark Twain

As we approach another Debt Ceiling debate, there are some basic myths regarding our sovereign debt that need to die, and die quickly.  Oh by the way, we are still in a government shutdown, which makes the situation of defaulting on our debt obligations even more onerous.

Myth 1:  It is time for the United States to get rid of all of our debt.

While I won’t get into the economics of such an idea, it is worthy to point out that the United States has never been debt free.  It does not matter how one looks at, it simply has never happened.  Ever since George Washington became President, the U.S. has carried debt obligations.  The closest we ever became debt free was in 1836, during Andrew Jackson’s administration.  It is worth noting, that the Panic of 1837 soon followed.  Just a thought.Debt Free America

Myth 2:  We now have the highest debt levels in history.

That depends.  If one looks a nominal dollars, it is true.  Even if one looks at inflation adjusted dollars based on per capita, it is still true.  However, if one looks at our debt obligations as a percent of our GDP, we are not there yet.  The highest debt levels, as a percent of GDP, we have ever seen occurred in 1946, where it reached a level of 120%.  One would have to assume that was due to the expenses to fight World War II.

Myth 3:  The Chinese are the largest holders of U.S. debt.

Not true, and not even close.  The largest holder of U.S. is the U.S. citizen at 43%.  If one considers the Social Security Trust Fund, Military Retirement, and Civil Service Retirement, then two-thirds of our sovereign debt is held within our borders.  Therefore, defaulting on this debt would have immediate impact on just about everyone in this country.US Bondholders

Some basic facts about U.S. debt

Fact 1:  The last time we saw a nominal decrease in U.S. debt was in 1957.  This was during the Eisenhower administration.

Fact 2:  The two largest real per capita percent increases in debt occurred in 1983 and 2009.  These occurred during the Reagan and Obama administrations respectively.

Fact 3:  If one looks at the data, there is usually a rapid accumulation of debt during and immediately after major military efforts.  1862 saw a 400% increase in debt at the onset of the Civil War, for example.  Perhaps we are still in debt recovery from two wars during the Bush administration.  Something to think about.

Opinions without facts are just guesses.  One should think about these facts as we listen to the powers that be determine our fates.


2 thoughts on “Debt Myths That Need To Die

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