American Sauce: Why does the deficit matter?
March 7th, 2011
02:44 PM ET
12 years ago

American Sauce: Why does the deficit matter?

Capitol Hill (CNN) – In the past two years, the deficit has risen to become the near center of the political universe. It lies underneath every congressional debate and has soared up public opinion polls. (In a December CNN poll, 93 percent of those surveyed said the deficit is a concern, 68 percent saying it worries them "a lot".)

But why, exactly, does the deficit matter? We lay it out in this week's American Sauce podcast.
And this Mardi Gras week, we take listeners to an old mansion in New Orleans, to hear how the city's recovery is unfolding for residents of Big Easy.

Listen here Or continue reading.

Why the deficit matters right now:

1. Size

This year the deficit is on track to hit $1.48 trillion, or 9.8 percent of Gross Domestic Product, according to the Congressional Budget Office. Only during World War Two has the U.S. had higher levels of red ink than in the past three years – FY2009 had a deficit of 9.9 percent of GDP, FY2010 was 8.9 percent (source, again: CBO).
(The all-time high was 1943, when the deficit hit 30.3 percent of GDP, but by 1947 it had fallen to 1.7 percent. Source on that: Office of Management and Budget.)

2. There's no plan in place to fix it

Unlike in World War Two, under current policies there is no expected means of lowering the national debt any time in the future.
The vaguely good news: the CBO predicts the deficit will drop to $1.1 trillion/7 percent of GDP next year, then to roughly 3 percent of GDP in the following years.
The bad news (and the problem): years of deficits have added up to a massive pile of debt, about $14.2 trillion. (Click here for the exact total today.)

3. The interest costs are unbelievable

Last year (FY 2010), the United States paid $413 billion dollars total in interest payments on the national debt (Source: Bureau of Public Debt). That's a $1.1 billion a day that the government spent, with nothing but a continued I.O.U to show for it.
And this is set to double fast. By 2020, the U.S. is on track to throw $1 trillion dollars out the door a year in interest payments. (Source: National Commission on Fiscal Responsibility and Reform.)

4. The effect on interest rates and jobs

A national debt this high (caused by continued deficits) could push interest rates up in general, by sucking money out of private investment. That could mean fewer jobs, a squeeze on innovation and tougher times for small business in particular.

The bipartisan debt commission pointed to one figure: the debt is on track to slash 15 percent out of the economy (GDP per capita) by the year 2035. (Source: National Commission on Fiscal Responsibility and Reform.)

5. Your reward/punishment for reading this far

Some quick figures:

– It would take nearly $4,800 from every man, woman and child in the United States to balance the budget this year (and erase the projected $1.48 trillion deficit).

– Every person in America would need to pay over $45,000 to erase the national debt.

– But keep in mind, the U.S. has always had a national debt, except for a few months under President Andrew Jackson when it was briefly paid down.

– Back to the problem today. One more piece of perspective. The interest paid on the debt last year ($413 billion) would nearly cover all of the outlays from Medicare in FY 2010. (Source: Dept. of Health and Human Service.)
– Want to hear more? Listen to this week's American Sauce podcast here.

You can also listen to American Sauce on iTunes or subscribe to the podcast via RSS.

Follow Lisa on Twitter: @LisaDCNN

Filed under: American Sauce • Capitol Hill • Deficit
soundoff (11 Responses)
  1. Rick McDaniel

    Same reason credit card debt matters. Sooner or later, you will get shut down by your creditors.

    In the case of the US, that means getting taken over, by financial default, by China.

    March 7, 2011 02:50 pm at 2:50 pm |
  2. ConservaFascists/F.U.B.A.R.

    Well according to Dick Cheney, "Deficits Don't Matter." Apparently that is true since the Bush Administration is who ran up the debt so high.

    March 7, 2011 02:54 pm at 2:54 pm |
  3. Anonymous

    When are the wealthy gonna make some sacrifices?

    March 7, 2011 03:09 pm at 3:09 pm |
  4. DAVE

    so what! the party in charge is the same party that borrowed almost all of the social sucerity surpluses to pay for raegans arms race with the USSR and george w. bush borrowed all of the supluses for his eight years in office to pay for his nation building. the I.O.U.s in the fund are a total of $2.5 trillion. social sucerity was not broke for many years to come until the republicans made it go broke. we have many republican congressman so hooked on the drug of minding the worlds business that they are pushing for us to start a no fly zone in libya which is going to war. it will cost us billions to do so. muslims are killing muslims in libya and the republicans care much more about the people who for the most part pay 3 times a day asking for god to distroy us. the party that wants to cut the heck out of the budget say they have better judgement to do so than the democrats. the fact that is missing in this news piece is which party borrowed the most money including the social sucerity money! we have had balanced budgets under john kennedy and bill clinton what have the republican presidents had besides massive borrowing and hiding a lot of their spending by robbing the social sucerity system.

    March 7, 2011 03:12 pm at 3:12 pm |
  5. Sebastian

    It matters only because a Democrat is in the Whitehouse and the GOP now wants to have a holier than thou image on fiscal responsibility.

    Republican Presidents have added far more to the national debt than Democrats and the guy that really accelerated the trend was Ronald Reagan – you know the guy that conservatives tout as a "great president".

    Funny, I didn't hear all this deficit talk when Bush was blowing $1 Trillion on wars we didn't need and couldn't afford. What we need now is tax hikes on the rich, reduced DOD spending (try killing an entire weapons program), means testing so that wealthy seniors don't get social security and Medicare.

    March 7, 2011 03:20 pm at 3:20 pm |
  6. sonny chapman

    The deficit only matters when a Democrat is President. Repubs. always need a wedge issue to drive their agenda. Repeal of the Bush tax cuts to pay for the Wars was "not an option". When Repubs. hold the office, Cheney said,"Reagan proved that deficits don't matter."

    March 7, 2011 03:24 pm at 3:24 pm |
  7. Gene

    She gives us lots of numbers but doesn't answer her own question: Why does it matter?? Is it like personal finances and it must be paid to banks etc... OR To who does it have to be paid?? All of it?? Part of it?? When?? Is it all due and payable now??

    March 7, 2011 03:31 pm at 3:31 pm |
  8. cregis

    How much for the war in Iraq and Afghanistan? Seems to me a lot of this bill belongs to George W Bush. Think we can get it from him and his cronies?

    March 7, 2011 03:49 pm at 3:49 pm |
  9. Patrick Lewis

    I'd easily fork over twelve grand if it would get the Tea party idiots to shut the hell up.

    March 7, 2011 04:11 pm at 4:11 pm |
  10. Four and The Door

    How can anyone say that this level of national debt is acceptable? It is not. But even more disgraceful than that is to see the people who are running our Federal Government continuing to add to it by spending more than the government collects in revenue. The answer is not to raise taxes beyond their already outrageous high level. The answer is to get a handle on spending. That's what we sent so many Republicans to Washington to do and they are on it. We can do this and we will.

    March 7, 2011 04:14 pm at 4:14 pm |
  11. Havildar

    If the deficit was that important Why has the Republican Congress NOT cut the 53 BILLION that is gifted to the Oil Companies? It is only now that the "deficit became important"? Where was the "media" ? Asleep!! when Bush was running up the deficits we did not hear a peep out of CNN or any other so called free press. 2 Unfunded on going wars costing Billions of Dollars per day. Why should the common person/Unions be the only ones to bear the cost of lowering the deficits? Why does the 2 % who benefited from the Trillions of Dollars wasted on them not have to sacrifice? Why have this republican congress not cuts its own Salaries and benefits? Where is their Sacrifice?

    March 7, 2011 04:21 pm at 4:21 pm |