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Stephen SquibbBack to OpinionStephen Squibb

On the origins of the debt-ceiling crisis

Senate Majority Leader Sen. Harry Reid of Nev. speaks during a news conference on Capitol Hill in Washington, Monday, Aug. 1, 2011, to talk about debt ceiling legislation. Photo: AP/Jacquelyn Martin

Letting one dollar equal a trillion, the total debt of the U.S. Government is roughly $14.27. This divides into $8.32 of public debt, which is held by other nations, individuals and institutions, and $5.95 of intragovernmental debt, which is owed to programs like Social Security and Medicare, and to the Federal Reserve.

Of the $8.32 of public debt, $4.47 is owed to other countries: $1.15 to China, $0.91 to Japan, $0.36 to the U.K., roughly $0.20 each to oil exporters and Brazil, and $1.70 to the rest of the world. $0.63 is due to mutual funds, $0.61 to private pension plans, and $0.31 to depositors like commercial banks, credit institutions and credit unions. Insurance companies hold $0.25 and savings bonds and state pensions $.018 each, while individuals, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses and other investors are due $1.21.

Intra-governmental debt is something of a misnomer: $4.53 of it is really money owed by the government to the American people. The biggest single number in sight, $2.40, represents what Americans have collectively set aside for retirement, or Social Security. This $2.40 is a surplus, collected over decades, as the total revenues from Social Security payroll taxes have exceeded the total amount being paid to beneficiaries. This surplus has been invested in the government, where it counts towards the total debt. The psychological impact of this language game should be clear. What ought to be celebrated as sound financial planning appears instead as further evidence of reckless profligacy. The more money we save, the poorer we are told we are. There is also $1.68 in savings for health care and $0.40 dedicated to needs such as highways, housing, the disposal of nuclear waste and unemployment insurance.

The remaining $1.42, the second-largest amount, is owed to the Federal Reserve, a public-private institution born of a compromise a century ago between a familiar set of bankers and a less familiar set of populists. The Fed has bought government debt over the last three years in increasing quantity as part of its quantitative easing programs. Unlike other money owed by the government, this debt has no destination, and in many ways is fictitious. If the money were to be repaid, it would simply cease to exist.


The three primary causes for the rapid expansion of the federal debt from $5.77 in 2000 to over $14.00 today are well known. The first is the Bush tax cuts, which with interest cost $2.39 ($1.30 went to the top 20 percent of earners); the second is $1.47 the wars in Iraq and Afghanistan; and the third is about $1.20 in lost tax revenues due to the recession and a dollar for TARP and other stimulus programs. The Medicare prescription drug benefit cost $0.22 and the health care bill $0.15. Because the federal budget was balanced at the turn of the century, these added costs really do correspond to the size of the current problem, an expansion financed almost entirely by issuing new public debt.

In spurning this market, or threatening to, Congress has appeared unable to reconcile the national reality with the role the dollar plays in the international economy.

In 2000 total debt was at about  $5.77, split evenly between public and intragovernmental lenders. While intragovernmental debt has slightly more than doubled, helped by the Fed’s holding an additional $1.02 since 2006, public debt has nearly tripled. Here we arrive at the riddle of the center of the debt-ceiling crisis: given the government’s tendency to spend like a drunken sailor on wars of volition and tax breaks for 200,000 of its closest friends, why did its creditors continue to lend to it at such historically low interest rates? And given that such rates show no sign of increasing, why would Congress, its Republicans in particular, potentially elect default rather than continue to borrow? And finally, why does this default threaten to be so costly, not just for Americans, but also for the world system as a whole?


The legislative standoff that has gripped Congress is not, strictly speaking, a debt crisis. The question was not whether the U.S. could pay its debts but whether it would choose to do so. If the country were truly in a debt crisis, its creditors long ago would have ceased to be so numerous and so willing. The fact that interest rates on U.S. debt have remained lodged at historic lows indicates the opposite, that the market for U.S. notes, bills, and securities has never been stronger. In spurning this market, or threatening to, Congress has appeared unable to reconcile the national reality with the role the dollar plays in the international economy. While the situation in Greece is simply the sort of good old-fashioned sovereign debt crisis that the developed world regularly inflicts on its periphery for fun and profit, what is emerging in the U.S. is a much more serious question of hegemony.

Since capitalism is always both parent and child of crisis, there is a vast gulf between describing the circumstances that led to the aggravation of this or that contradiction and prescribing a solution to that contradiction. What makes for a historically or conceptually satisfying description of the economy rarely makes for politically optimal prescriptions, which must be corrected for relative rigidity, narrowness and simplicity if they are to be implemented on any scale. So the great economic descriptions of Marxism and neoclassicism eventually give way to the insurgent prescriptions of Leninism and neoliberalism, which having secured power degraded into Stalinism and the neoconservative oligarchy we toil under today. To fully understand Congress’ flirtation with maintaining the debt ceiling, we must reckon with the contradiction between insurgent doctrine and governing ideology.