People like to worry about the United States federal deficit — when the Republicans are in power the Democrats accuse them of expanding the debt to fund war, and when the Democrats are in power the Republicans accuse them of expanding the debt to fund social programs, and both sides accuse the other of “mortgaging our childrens’ future.” Google has 659,000 hits for that exact phrase. Since the debt passed $10,000,000,000,000 (ten trillion dollars) in 2008, the total debt per person in the United States is about $30,000 — that includes newborn infants and retirees, all saddled with significant debt.
But looking at debt as an absolute number is wrong, as is simply comparing to population. A more relevant number is comparing debt to GDP, to give a sense of how easily the debt could be repaid. In those terms, U.S. public debt doesn’t look all that bad at present. As this list of public debt as a percent of GDP shows, the U.S. isn’t currently that far out of line at 60.8% of GDP — Canada France and Germany all have (slightly) more debt as a percent of their GDP, and many other countries aren’t far behind.
Going forward, however, the outlook is more serious. U.S. debt is projected to hit 101% of GDP by 2011. That’s still lower than it was in 1946, when spending on WWII raised the debt to 109% of GDP, but it’s close, and the debt ratio is projected to be as high as 148% by 2019.
One way out of this is the printing press. The U.S. could simply create a few extra trillion dollars and throw them at the problem. This would roughly double the current money supply, causing the value of the dollar to decrease substantially. Foreign holders of U.S. debt — mainly China and Japan — would be extremely unhappy, but they’re not the main holders of U.S. debt: the Federal Reserve is. How that snake-eating-its-own-tail situation gets solved is a definite puzzle.