Released March 18, 2010
RALEIGH, N.C. – The national debt has increased rapidly, and it looks like it will increase even more this decade. Besides the dollar and cents cost of the debt, do economists see any issues with this borrowing?
Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:
"We do. ... In fact, a recent economic study looked at all of the episodes of rising national debt over all countries, not just the U.S., going actually back hundreds of years. And the rule of thumb that economists have come up with is that when your national debt gets to be larger than 90 percent of your economy -- or what we call gross domestic product -- then the main cost that you see is that that results in slower economic growth. And I think the reason is several-fold:
"One, that the government is spending more money on servicing the debt. So that money cannot be spent on education or transportation or helping out with social programs.
"Also given the fact that we now borrow much of our money from outside of our country a lot of the servicing on that debt goes to other countries -- doesn't stay here in the U.S.
"And then, finally, with the government borrowing so much money, that tends to put upward pressure on interest rates and that will crowd out private investment.
"The concern we have right now is that based on the Congressional Budget Office forecast, if nothing is done over the next decade we will see our national debt as a percent of the economy rise to 105 percent by 2020, clearly above that 90 percent threshold."
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http://www.ncsu.edu/project/calscommblogs/news/archives/2010/03/economic_perspe_573.html
