PrintSeptember 28, 2010
Money Is Still Money, Isn't It?
The emphasis on America's national debt doesn't tell the entire story. Federal finance is rather different from 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. By the time 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...(Read Full Article)
