No that's not a typo: that's the statistic according to USA Today. The folks over there have done some really great work this week with another interesting interactive chart attached to an article about the nation's debt. If they keep this up, I'll have to stop considering it a useless free newspaper I step over when leaving a hotel room. The numbers it reports are staggering.
Again, I wish I could include the interactive chart it shows, but it breaks down the $668,621 by various components of federal government debt ($546,668) and personal debt ($121,953). Presumably that means this astronomical figure does not even include state and local government debt. I thought it might be fun to put this number into perspective.
Because it's pretty hard to identify what the weighted-average interest rate is for this debt, I show a few different scenarios. That way you can decide for yourself which scenario you find most plausible. The interest rate is shown, along with two different time horizons for each scenario. I then provide the amount of money that would be needed to pay off the debt per household, per year.
Scenario #1: 5%
30 years: $43,469
50 years: $36,603
Scenario #2: 3%
30 years: $34,092
50 years: $25,971
Scenario #3: 0%
30 years: $22,274
50 years: $13,364
So in the hopelessly optimistic best case scenario, each American household would have to pay $13,364 per year for 50 years. That is, of course, assuming that the federal government closes the deficit (fat chance), and each household does not incur additional debt (doubtful). And recall: it does not include state and local debt. According to U.S. Census Bureau data, the 2007 median household income was $50,233 -- before taxes. So you can kind of imagine how impossible even the best case scenario of $13,364 per household, per year would be anyway.
I admit this is a gross oversimplification. It does not consider inflation, which is sure to happen, and which will help a bit. But if you assume the above interest rates are real interest rates (nominal interest rate minus inflation), then this might make the 0% scenario a little more likely -- but probably not for 30 or 50 years, I hope. My scenarios also do not consider U.S. population growth, which there undoubtedly will be.
Despite its simplicity, I think this analysis shows just how dire a situation the nation's debt poses. I know there's a popular argument that we've always been in debt, so it's nothing to worry about. As these numbers continue to grow, however, I think the plausibility of that argument wanes.
The USA Today report lumps anticipated obligations with actual debt; in fact "government promises" for Social Security and Medicare account for more than 80 percent of the frightening total.
But these promises are not binding and are not debt; various political, technological and other changes could sharply reduce this amount. If anything, what the report really suggests is how badly we'll need to change our entitlement system. We could decide to cut or means-test Social Security benefits, for example.
We sure are piling up debt (and as you say, this report ignores lots of other debts, including state and local), but because it blithely conflates promises we can change with those we cannot, I think the graphic as presented is somewhat misleading.
This is not debt. The current external debt of the Federal government is just about $7 trillion dollars. Divided by a population of 300 million, this is $23,000 per person.
The number they are using is the present value of expected future obligations. In other words, what the government has promised to pay, not what it actually has borrowed. Even that assumes a continuation of the 6% plus growth in Medicare spending per year. Currently, they claim it's $11,000 dollars per year per person. At 6% growth for 30 years, that would be $63,000 per year per person for Medicare alone.
We have to stop that growth in medical costs per person. If you do that, the picture looks very different.
In any case, please don't call this debt. It's just promises, and promises can (and will) be broken.
I think you can miss the point if you squabble over whether entitlements should be conisdered debt. One way or another, the "debt" and unfunded entitlement promises are so large that the ultimate result will be a lower standard of living for the US as the debt gets paid off and inflated away and entitlements are reduced.
I agree that our nations debt is a problem and a problem that's getting worse very quickly. Unfortunately, your article fails to mention that a lot of that $668,621 of obligations per household are obligations we owe ourselves. The more problematic number (from a macro perspective) is the portion that we owe the rest of the world. It would probably be more helpful if you provided figures on external obligations. Even better would be an article on net external obligations (what we owe the rest of the world less what they owe us). Any way you cut it, however, it's hard to argue with your overall point: We borrow a lot of money, probably way too much, and it's getting worse.
What the above commenters are missing when they say that future entitlement commitments don't matter is that keeping commitments does matter. We can also repudiate our actual debt but we don't because there are consequences. There are consequences to changing our commitments and the consequences get worse the longer we wait. The average American's total individual retirement savings are likely to generate about $1000 a month in income. Without Social Security and Medicare, a huge chunk of our population will plunge into poverty and that will shift the household burden of actual debt onto a much smaller number of households.
Actually I think the above commenter is correct that it is ridiculous to call future entitlements debt.
At a minimum "debt" is liabilities assumed today in exchange for assets or consumption received today. Though the vast majority of the public would use the term "investment" for liabilities assumed in exchange for assets. "Debt" is generally understood to mean liabilities assumed in exchange for consumption today.
Future entitlements are not even really liabilities as the claimants have no legal right to them and they are for consumption that hasn't even occurred yet. It is just consumption which we think might occur sometime in the future.
Devo-Bmore might have a point about declining standard of living in regards to Social Security but the Medicare projection assume a vast INCREASE in the standard of care. The reason Medicare is projected to cost so much is that medical technology spending is projected grow much much faster than the overall technology.
To call the theoretical promise to deliver medical technology that doesn't even exist, sometime in the future, to people who have no legal claim to such services debt is beyond ridiculous.
It would be like saying that I "owe" my wife 50K because I told her that one day I will take her on a summer long cruise in the South Pacific. Actually it would be more ridiculous than that since at least summer long cruises in the South Pacific actually exist.
Furthermore, even when it comes to items like Social Security there are also many other expenditures that we would have to take on to maintain our standard of living. Is all future science funding debt? Is all future college tuition debt? Is all future infrastructure spending debt? Because we will have to buy that stuff if we want to maintain the US standard of living.
I know there's a popular argument that we've always been in debt...
If there is, it's wrong. President Andrew Jackson paid off the debt.
St. Peter don't you call me, because I can't go. I owe my soul to the company store.
People who think entitlements are like debt are missing the point - it's actually MUCH HARDER to cut entitlements than default on Treasuries. Old people vote. Young people do not vote. Old people whose alternative is eating dog food REALLY vote.
Do you think there's one congresscritter who puts the national interest ahead of re-election? Do you think there are 51 Senators and 216 Congressmen?
Compare the number of people who receive farm subsidies vs. the number of taxpayers and food purchasers and ask yourself why farm subsidies exist. Ask yourself if there are more old people than farmers.
Although the Supreme Court has decided that SocSec is not a right, because it is elected officials who would make the cuts, it's actually easier to repudiate external debt than throw old people out onto the street.
But, John, as your namesake demonstrated, the young have a solution to the problem of addressing unreasonable expectations of the dependent old that the young can exercise without voting or consulting with politicians.