Time's Latest Cover is Senseless Fearmongering

Convershaken Staff
April 15, 2016

Time Magazine's latest cover story argues the US should pay off the $13.9 trillion (£9.81trn) it has racked up in debt. Dividing that figure by the nation's population produces a figure of nearly $43,000, or the amount "every man, woman and child would need to pay" if, for some reason, they wished to 1) clear the debt and 2) shoulder the burden equally.

The Washington Post, Slate, Vox and others have all laid waste to the article's premise. Simply put, the US government doesn't have to repay its debts. If it continues to pay the interest it owes, investors will keep on lending to its $18 trillion economy.

Moreover, couching the national debt in per-person terms is meaningless. The government would undoubtedly raise more money from the wealthy than the poor. The tagline, "Make America Solvent Again", is also flawed. The US government's assets outweigh its debts and it can afford its debt payments, so it's not insolvent.

The US government has carried some debt for the past 180 years without running aground. The current situation is far from terrible: interest payments account for about 6 per cent of the federal budget. As a proportion of GDP, they're at their lowest level in more than 30 years.

The article's author, Jim Grant, argues that while the US can currently borrow money at 20-year lows - paying just 1.77% annually for a 10-year loan - rates will eventually rise. However, it makes little sense to reduce the national debt now, when that's typically done to lower interest rates.


The US debt figure has limited value without a comparable asset figure, as the government invests a good portion of the money it borrows in schools, bridges and other valuable things. It's also unhelpful to view the government as a business; its contribution to the nation's prosperity is more important than maintaining a strong balance sheet. Rather than paying its debts, the government could spend its money on hospitals and highways, fuelling long-term growth and reducing debt as a proportion of national GDP.

Paying off the national debt would give world markets a seizure, too. US Treasury bonds are viewed as some of the safest assets in the world after cash. A pile of sovereign debt can be problematic if a country looks likely to default, but the US government can print more dollars if needed. True, that could lead to hyperinflation and the devaluation of US dollars and bonds, but we're a long way from that.

It's understandable that Time's editors would want to liven up the dry subject of national debt. But they've gone about it the wrong way this time around.