The emphasis on America’s total federal debt deflects our attention from a more pressing matter. Rather than the aggregate number, what the media should focus on more intensely is the yearly number: the deficit.
Federal finance is rather different than that done by the individual. The debt payments an individual makes on his house ultimately result in retirement of his debt. The individual then owns his house outright; he’s paid off his debt. That’s because his monthly payments went to both interest and principal, or debt service.
But the line item in the federal budget for the national debt isn’t for debt service; it’s just for interest. When a treasury bond matures, all that’s been paid is interest.
And where does the money come from to pay back the principal? Much of it comes from refinancing: In what we’ll call “rollover,” the feds sell new treasuries to raise the money to pay back the principal on old treasuries. That’s why an exactly balanced budget, where income equals outgo, will never pay down the debt. Were Congress to exactly balance the budget from now on, the national debt would freeze at $13.6 trillion and we’d never get out of debt. We’d be paying interest for eternity on the same loans. (“Rollovers” of national debt are probably the most successful of chain letters.)
The federal government has depended on an unending supply of willing buyers of their financial instruments. But if we wanted to retire debt so that the feds wouldn’t have to “roll over” treasuries for the rest of history, Congress could run a budget surplus dedicated to paying down the debt. How fast we retired debt would depend on the size of that surplus. A surplus of $100B a year retires $1 trillion in a decade. Retiring the entire national debt at that pace would take 136 years. For the “debt held by the public” it would take about 90 years.