The United States passed a startling threshold in recent weeks with relatively little discussion. Reports Monday cited official estimates that the national debt now is roughly equal to the value of all goods and services the nation produces in a year.
Both figures are roughly $15.2 trillion, give or take a few hundred million. Most families would understand the gravity of the situation if their unsecured household debts equaled everything they were expected to earn in a year, especially if the unmistakable trend was for the debt to grow much faster than their income. Bankruptcy court would be a destination not too far in the future.
With the United States, that future is not quite as easily calculated. While the list of other nations in a similar situation — Greece, Ireland, Italy, Portugal, Japan — is a who's who of places with economies that range from sluggish to crisis-mode, the United States is the world's largest economy, with the world's reserve currency. That alone will give investors some confidence, but it is not a guarantee against collapse. Irresponsible behavior cannot continue without consequences, even if no one knows exactly where the tipping point lies.
Last year, Standard & Poor's downgraded the U.S. credit rating. Other ratings agencies have threatened to do likewise if the United States cannot find a way to reduce its long-term debt. And yet Congress and the White House have been unable to agree on any meaningful ways to do so.
Recent calculations by the Treasury Department put interest payments on the nation debt at 12 percent of the average person's federal tax bill. This means 12 cents out of every dollar you pay in taxes goes toward interest, without producing any tangible government service.
Some economists debate the notion that the nation's debt now equals 100 percent of its economic output. It would be more correct, they argue, to not count the $4.7 trillion owed to future recipients of Social Security and other government benefits. For years, the government has been using a surplus of Social Security funds to pay for other government functions, leaving what essentially are government IOU's to replace those funds when needed.
Granted, this debt does not rise to the same level of urgency as debt held by China and other foreign investors. It is an obligation, however, that, barring entitlement reform, must be met with a cost to the economy. And even if those obligations are removed, the nation's debt still totals about 70 percent of economic output, which remains disturbingly high.
The two major political parties remain at odds over how to solve this looming crisis. Republicans want to cut government and reduce entitlements. Democrats would prefer to raise revenue through taxes. The answer is likely much more radical than either of these. It involves reforming and restructuring both entitlements and the tax structure. Credible proposals already have been made, only to be quickly demagogued by one side or the other.
A national emergency tends to be the mother of political will. Americans should demand real action before the national debt gets to that point.