Economics "Ask the Instructor" Clip 34 Transcript
How big is the national debt and is the dept something you should be worried
June 11, 2001 the national debt was 5.6 trillion dollars- a pretty big number.
The national debt is really not what the name implies. It has nothing to do with the debt of
households, business, or even of state and local governments. It just means that the debt of the federal
government totals some amount.
Why do we have this debt? Because Congress (remember, we elect them) chose to spend more in
the past than it raised in tax collections. The U.S. Treasury finances these deficits by issuing IOU’s—U.S.
government securities. The shortest maturity on these is called Treasury bills, the intermediate maturity is
called Treasury notes, and the longest maturity is called Treasury bonds.
Should you be worried about the national debt? Well, there are differing views on this question.
But most economists do not view the national debt as a major problem.
First, consider its size relative to the size of the U.S. economy. U.S. GDP now exceeds $10
trillion annually. So the debt, as a percentage of GDP, is much lower today—about 56 percent of GDP--
than it has been in the past. Second, consider to whom the debt is owed. Over 85 percent of the debt is
owed to either U.S. citizens or to U.S. institutions, such as banks or the FED. This is sort of like borrowing
money from another family member. As long as these two people remain in the family, the debt does not
mean that the family is poorer. In fact, one family member pays interest to the other family member and
there is no reduction in family income.
However, there is some concern that something called crowding out may occur as a result of the
debt. This term refers to the possibility that government borrowing associated with large government debt
might harm the economy in the longrun by keeping interest rates high which could in turn reduce private
In summary, the national debt is lower today than it has been in decades when expressed as a
percent of GDP. Moreover, U.S. citizens and institutions, as compared to many other nations, hold a much
higher percentage of our national debt. For both these reasons, most economists do not believe the national
debt is a major cause for concern. However, there remains some concern about the effect that deficits and
the debt may have on private sector investment.