Of course, every year that a government spends more than it takes in in taxes, it has to borrow from the markets in order to pay for the difference, and we talked about this in understanding economic policy making. It accumulates what we call public debt or fiscal debt or government debt, and obviously, if you see the United States never collecting enough taxes to pay for all its spending, you could expect that the debt would be going up year after year. Now, in this picture, you can see exactly what it looks like. So, before the global financial crisis and the recession, debt was at what we might consider reasonable levels. During the crisis, of course, the debt went way up, and part of this we would say is okay because we're trying to bring the country out of a crisis, and then you see it stabilizes a bit, but there is a slight upward trend then beginning, again, at the end. So, we might want to ask ourselves does the United States have a public debt problem? We hear a lot of things said in the public discourse about this. So, when is a public debt a problem? The first thing we ask ourselves is how big is that debt as a percent of nominal GDP, and that's what you're seeing in this chart. How big has it gotten? It's gotten to above 100 percent of GDP. That's a historic threshold for the United States in peacetime. So, it's pretty big. Second question is, in what currency is that denominated? Now, we discussed in understanding economic policy making that foreign debt is debt that's denominated in a different currency. The United States has no foreign debt. Foreigners may own its debt, but it's held in US dollars, so that's no currency risk, so that issue isn't too important. Third, how much does it cost to finance it? Here we would want to look at the cost of borrowing. Okay. We noticed in an earlier chart, it wasn't very big, but in just a minute, I'll bring up a chart where you can actually observe it. Then the next question we want to ask ourselves is why did it go up. Why did the debt go up? Did it go up because the government was trying to pull the economy out of a moment of crisis and did it correct itself when the economy moved into an inflationary gap? We've already discussed that one. We've seen that, actually, the debt did go up in a moment of deep crisis, a very long recessionary gap that lasted until 2016. But right now is the time when the debt would have to start to go down in order for it to be acceptable. Okay. So, we've had several points so far. We see the US debt is very large as a percent of GDP, but we see that it went up at the right time until recently. We see it has no foreign debt and then we can see, and we're going to look at the next chart for this, we can see that actually interest payments on the debt are not very high. This chart shows you government interest payments on its debt as a percent of US GDP. Again, we're taking as a percent of GDP because it makes sense. We want to compare how much interest it pays with how big its economy is, and this chart shows that, really, the interest payments that the United States is paying are not very high. It starts at two and a half, it goes up to about three, and actually recently it goes down pretty substantially even as the debt grows, it goes down to two and then climbs up a little bit now. So, this doesn't seem to be a factor of concern either. The United States is not paying very much for its debt. In fact, as the debt has gotten bigger, it's paying less. But if interest rates go up, this could be a problem for the United States. So, if we go through all of these factors, we see the debt rose at the right time, but now it's rising at the wrong time. Interest payments are very reasonable but they could rise. There's no foreign debt so no currency risk, and as a percent of GDP, it's pretty high. It's at the highest level as I mentioned in peace time for the United States. So, yes, there are some issues, and the main issue, as I mentioned a moment ago, is shown on this next chart. Here, we can see two things. One is that, and one's positive, one's negative. One is that the United States has very low tax rates. We're comparing to a lot of different countries here and you can see the United States is down at the bottom of these countries and it hasn't gone up very much over time, it's around 30 percent of GDP. So, we have really low tax rates. What's the positive side of that? If we raise tax rates, we could close the imbalance between spending and earning and we could eliminate our deficit. It wouldn't be a problem, and we could pay down our debt. The dark side of that, of course, is that there is not political will in the United States. It's become very politically popular to cut taxes instead of raise them. So, it's hard to contemplate a scenario in which taxes would be raised substantially, and we could actually face this growing debt and eliminate our deficits. So, here we've got the bright side and the dark side of very low tax levels in the United States.
