The Size of the US Public Debt: Are the rating agencies fools or knaves?
John Weeks
It is quite possible that you believe that the US public debt is quite large. You may even think that it is dangerously large, as in "unsettling financial markets". If you harbor these beliefs it may come as a surprise that the public debt is not very large, and by any rational calculation the "burden" it imposes is tiny. ...
To summarize, when we take out what the federal government owes itself, the US public debt is a smaller proportion of GDP than the same debt measure for any other major developed country. Indeed, it is so low that it is no problem. When other obvious calculations are made, net instead of gross, public bonds held by local and state governments, you have to think, where is the problem? ...
Ah, but the problem is not the size of the debt, say the neo-Scroogians. The problem is servicing it, paying the interest. Not much a problem for the United States, I fear, as the table below shows clearly. Of the five largest developed countries, payments on the gross debt as a percentage of GDP was higher only than for Japan. By contrast, putatively frugal German government paid out considerably more than the United States Treasury, and France and the United Kingdom were far above. Even more, the interest on the net debt was just one percent of US GDP in 2010. ...
The US government is not and never has failed to meet its financial debt obligations. The obligations it has flagrantly failed to meet are providing for the education and health of its population, repairing the country's public infrastructure, and preventing state and local governments from going bankrupt, thus reducing or eliminating their ability to do their social duty. The false claims of federal default are the mechanism by which the rich and powerful, aided by the rating agencies, will further enforce the real default on social and economic justice for people in the United States of America. That is the "message" of the downgrade.