I hand it to Mary Anne so she can feel it. “I can’t believe how much you have,” she says.
from: In Business with Mallory
written by Laurie Friedman
illustrated by Barbara Pollak
Carolrhoda Books, 2006
In high school I worked as a sales clerk for The May Company, a national department store chain with a local outlet. The store was close to home and I usually walked there and back. I had my driver’s license, but I didn’t have a car. Not too many of my friends (and none of the girls) had one, and that was okay.
I earned $1.60/hour. When I started working, most people paid with cash. Some used a Charge-a-Plate to buy on credit. I think their bank issued it. I approached my mom with the idea for my own credit card, but she didn’t think much of it. I’m not sure how I convinced her I would buy something only when I already had enough money in the bank to pay for it. That seemed counter-intuitive to me, but I played by Mom’s rules. I opened up a checking account so I could pay off my new Charge-a-Plate as soon as I received my bill.
The card was a small silver-colored rectangle, embossed with my name and a number. It was about half the size of the Visa Card and the Discover Card I have in my wallet today. I wish I could remember what my first purchase was.
People spoke about a cashless society and I wondered what that would look like. Well, it looks like now. I know people who buy their morning coffee on credit, and charge restaurant meals and groceries, too.
Here’s the thing about buying groceries on credit. Before they’re paid for, I’d have cooked, eaten, and eliminated (or more likely, stored as fat!!) most of what I bought. That feels strange to me.
I understand the necessity for credit. Not everyone can save up for a car, or a home remodel, or even a washer or dryer or new fridge. I expect to pay interest to the bank for the convenience of having what I want (or need) immediately. Sometimes, it’s an emergency.
When I asked them, my parents explained the National Debt in familiar terms. People pay taxes to the government, then the government pays the senators, congressmen, and judges. The government pays to run the national parks and federal agents to solve crimes and the CIA to keep us safe. And the government funds Social Security and Medicare. Aid goes to people who don’t make enough money or who don’t make any money for whatever reasons, some good, some bad. And the government buys electricity to keep their buildings open.
When the government spends more money than it has and needs to borrow, it is called deficit spending. It’s what my mom cautioned me not to do.
If the government’s bills are not paid in full each month, the bank or other lending institution applies interest that is added to the total. The National Debt increases, but without the benefit of getting more goods.
Besides receiving money from the tax-paying population, the government can issue bonds. Private citizens and corporations can buy them. The government can borrow money from other programs (or really our kids) by tapping into Social Security and Medicare. And they can borrow on the world market. Our government borrows from other countries, too.
About 66% of the National Debt is money the government owes the public, businesses, and foreign governments that bought investments is the US. The rest is what the Federal government owes itself for loans it took from Social Security and Medicare and other trusts.
The US debt is over 22 trillion dollars. That’s a 22 with 12 zeros (22,000,000,000,000). (2021: over 28 trillion) Only four trillion one-dollar bills laid end to end will reach all the way from Earth to the moon.
As of May, 2019, the United States government owes China $1.11 trillion (one trillion, eleven billion). That’s 27% of the debt held by foreign countries.
2021 update: According to a paper called Foreign Holdings of Federal Debt (Updated July 9, 2021) and published by the Congressional Research Service:
Based on their estimates, Japan holds approximately 17.7% of all foreign investment in U.S. publicly held federal debt, China holds approximately 15.2%, and the United Kingdom holds approximately 6.2%. The other (approximately 60% is domestically held, what the government owes itself and its citizens.) https://sgp.fas.org/crs/misc/RS22331.pdf
And, since the government can only use reconciliation a limited number of times, if they raise the debt ceiling before December, 2021, they will not be able to use it to pass any or all of the Infrastructure Bill.
Meanwhile the Freedom to Vote Act languishes, at the peril of our free and fair elections.
Why does all this even matter? If the US keeps borrowing and increasing the amount of the debt, world markets could lose confidence in our government. Obligating ourselves to other countries is a risky business.
Raising taxes and reducing spending is one way to borrow less. That’s pretty uncomfortable, too.
I don’t know the answer to this very complicated problem, but I’ll keep reading and listening. Stay tuned.
2021:The Deficit Myth by Stephanie Kelton (PublicAffairs, 2020) is an interesting book (well the introduction is, anyway). In it she discusses Modern Monetary Theory and claims governments should not be run like households. That is, tax revenues do not fund the government since the Treasury is controlled by the government and can provide printed money in an endless supply. Now if someone could just explain that to Mitch McConnell and the rest of his Republicans…
Maybe I’ll look for a class in Chinese.
-—stay curious! (and take a deep breath, or two)