US National Debt
However, the fact that politicians cannot print money does not mean, that the bond market rules the world in the sense that James Carville meant. Indeed, the kind of discipline he associated with the bond market in the 1990s has been conspicuous by its absence under President Clinton’s successor, George W. Bush. Just months before President Bush’s election, on 7 September 2000, the National Debt Clock in New York’s Times Square was shut down. On that day it read as follows: ‘Our national debt: $5,676,989,904,887. Your family share: $73,733.’ After three years of budget surpluses, both candidates for the presidency were talking as if paying off the national debt was a viable project.
According to CNN: Democratic presidential nominee Al Gore has outlined a plan that he says would eliminate the debt by 2012. Senior economic advisers to Texas Governor and Republican presidential candidate George W. Bush agree with the principle of paying down the debt but have not committed to a specific date for eliminating it."
That lack of commitment on the latter candidate’s part was by way of being a hint. Since Bush entered the White House, his administration has run a budget deficit in seven out of eight years. The federal debt has increased from $5 trillion to more than $9 trillion. The Congressional Budget Office forecasts a continued rise to more than $12 trillion by 2017. Yet, far from punishing this profligacy, the bond market has positively re- warded it. Between December 2000 and June 2003, the yield on ten-year Treasury bonds declined from 5.24 per cent to 3.33 per cent, and remains just above 4 per cent at the time of writing.
It is, however, impossible to make sense of this ‘conundrum’- as Alan Greenspan called this failure of bond yields to respond to short-term interest rate rises - by studying the bond market in isolation. Therefore, we have to turn from the market for government debt to its younger and in many ways more dynamic sibling: the market for shares in corporate equity, known colloquially as the stock market.
TODO
- What is the U.S. National Debt, and How Is It Paid? https://www.investopedia.com/u-s-national-debt-and-how-is-it-paid-11738946