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December 07, 2009

Measuring debt

Here's a disturbing statistic. If the national debt were divided equally among every person, we would all owe about $30,000. Does this mean that someone is going to appear at our front doors one day demanding to be paid?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, it won't be the government, maybe it will be someone else, but it won't be the government. No, no one is going to come to people's doors and say, hey, you know what, we've got to pay off the national debt all at once. That's not going to happen. And indeed, taking the national debt, which is big, and dividing it by the number of people and saying that everyone owes this amount really isn't the right way to look at the relative size of the national debt. A much better way is to simply divide that national debt by income - our aggregate national income - and if you do that, nationally we own about 60 percent of our annual aggregate income to the national debt. But even here, we're never going to pay it off all in one year. We can carry that debt over into future generations, and in fact, that's likely what will happen. I think the best way to look at the relative size or the expense, if you will, of the national debt is to say, what's the carrying charge? What are we having to pay each year in service - finance service charges - to carry that national debt? And if you do that, it costs us about 3 cents out of each dollar of our collective income."

Posted by Dave at December 7, 2009 08:00 AM