Question: I’ve heard a lot about the national debt lately. Should I worry about the national debt, and does the debt have any affect on my investments? — Steve, California
To answer your first question, it is helpful to begin with a little background about the history of the debt. The public debt crossed the one trillion dollar mark in 1981. This was big news. Every newspaper in the country carried that story; for many, it was the headline. For some Americans, it was the first time they had ever seen the word “trillion” in print. Apparently less newsworthy was crossing the $2 trillion mark in 1986, or the $5 trillion mark in 1995.
It turns out that the Bureau of Public Debt, an agency of the Treasury Department, actually provides updated figures on the national debt every morning.
On the morning of March 28, 2006, the number looked like this:
For the numerically impaired, the above number is eight trillion, three-hundred and sixty-eight billion, three hundred and ninety-eight million, six thousand, five hundred sixty-four dollars, and twenty-four cents.
That mathematical figure conjures up a number of emotions, like confusion, fear, and memories of third grade math class — none of which are positives. Actually, even as a home-schooled student, I don’t remember working with any numbers quite that large — I’m sure I would have remembered my mom telling me, “Now make sure you carry that to the trillions column, honey”. The truth is that almost no one has ever worked with a number that large, and that presents part of the problem.
Just exactly how much money is 8 trillion dollars?
Here’s how much. If you add up all the paper money and coins in circulation, you have about $700 billion. Try not to jump ahead of me here, but that means that if you and everyone else in this country emptied out their wallets, looked through their sofas, and smashed open their kid’s piggybanks, and dumped all that money on one huge coffee table, you still wouldn’t have enough money to pay off the debt — not even close. You wouldn’t have one-tenth of it paid off, and even if you actually did put all this money toward the public debt, the same situation would present itself in a matter of months, due to the budget deficit and compounding interest.
The further the United States goes into debt, the more cautious foreign bond holders are likely to become. If they worry enough, foreign bankers and foreign governments may precipitously sell off their Treasury holdings. Currently, foreign entities own about 40% of US debt; if foreign governments decide to sell their Treasuries, they may decline in value, causing a downward spiraling effect, with no country wanting to be the last one holding US government bonds.
(John Clark is a Registered Investment Advisor and a nationally-recognized expert in the field of ethically-responsible investing. You may email him questions for this column at jclark@lasalle-st.com or call him directly at 1-888-764-2423.)
