Lots of people like to concentrate on the deficit when looking at public finances. In 2013, he federal government of the United States ran a budget deficit of $614 billion, which is quite a bit, but seemingly small relative to the $17 trillion economy. (Though as I recently showed, if you want to understand how precarious public finances are you should assess them relative to tax receipts and not a country´s total income.) David Stockman´s recent article raises a whole new reason to be scared. The actual amount of borrowing that the federal government did in 2013 was over $8 trillion! Because so much of Uncle Sam´s debt is of a short-term nature, it is necessary for the federal government to continue seeking the kindness of strangers to keep its debt rolled over. Since total federal tax receipts amount to just shy of $2 trillion last year, the government needed to borrow four times more than its annual “income” just to stay afloat. The problem is not just that the total amount of public debt outstanding is high, or that the yearly deficit adding to this debt is significant. It´s that so much debt is of a short-term nature, which necessitates the Treasury to continually seek out new borrowers. The risk is that one day borrowers will demand more than the paltry interest rates T-Bills are currently yielding, a situation that would result in either a terrible auction at low rates or significantly higher interest charges. I can´t really see Uncle Sam liking either of these options.
(Cross posted at Mises Canada.)
