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Economics: A Post Mortem Necessary
Paper VIII: Who drove up the US National Debt? by Sophia Barkat
Some of these bonds were issued as early back as 30yrs ago (the longest bond maturity until 2001). Hence whatever we are looking at is from 1973 onwards with an average interest rate of 8%-12% (See US Dept. of Treasury) Paying for your Predecessors All Presidents inherit the National Debt -- Principal plus Interest -- from past Presidents. Some aggrevate it by issuing new debt. Some address the problem they inherit by trying to reduce it by paying off interest on debt and by not issuing large amounts. Reagan inherits debt from Baby Boomers & Vietnam Total debt when he took Office as President was $1.5 Trillion. Information on actual maturity of debt terms is not known. However, the US Dept of Treasury doesn't hold information earlier than 1980. So, to make one estimate, if he had to pay 10-15% on this principal and have the whole amount due, it would come to around $1.7 trillion. In reality, much of the Baby Boomer period bonds and notes matured in his time. The 30yr bonds maturing in his time (1950-1958), 20yr (1960-1968) and 15yr (1965-1973) may have been quite high, as governments wanted to shift the interest burden on to future generations. Also maturing were Treasury Notes 2yr (1978-1979) to 10yr (1970-1978), that may have financed the Vietnam Wars. And yet, National Debt had remained a low value of around $1.5 trillion between 1950-1980, which implies that perhaps indeed a lot of debt from the Baby Boomer and Vietnam era was maturing in the '80s. Clinton escapes bulk of Reagan's Maturing Debt but pays Interest. Clinton for eg. was faced with only $6 billion of Reagan's 14yr, 15yr bonds coming to a maturity in 1995. That meant Interest of roughly 10-12% on this $6 billion, plus, of course, $6 billion. Clinton's term ended in 2000 when there was a chance of 20yr Bonds from Reagan years becoming current, but there were none issued in 1980. Reagan issued large volumes of 20yr and 30yr bonds with interests around 10-12%. On this Clinton paid interest for eight years on Reagan's $1.5 trillion ($ 150-200 billion/year) at at 10-15%. They reach maturity between 2001-2018. Reagan issued large volumes of 10yr (1983-1988), 7yr (1986-1988), 6yr (1987-1988), 5yr (1988) Notes on which Clinton paid Interest and also Principal upon Maturity. While Reagan had the habit of issuing large sums of long-term debt (30yr maturity) he also issued large sums of short term debt, too. Clinton sees $02-0.3 Trillion in Pre-Reagan Debt Maturing and pays Interest. Clinton did have to pay Interest and Principal on the 20yr and 30yr Treasury Bonds that reached maturity from pre-Reagan Eras, the total value of which could not have been more than $200-300 billion (See Ed Hall). Actual interest rates were about around 8-12% (See US Dept. of Treasury). Clinton sees Bush Sr.'s Notes Mature and Pays Interest There was some 2yr (1990-1992), 3yr (1989-1992), and 4yr (1989-1992), 5yr (1989-1992), 6yr (1989-1992), 7yr (1989-1992) Treasury Notes that became mature from Bush Sr.'s Era that reached maturity in Clinton's Era, and these accounted for What about Bush Sr.? Bush inherited payment on the Maturity of Reagan's Treasury Notes with terms 2yr (19867-1988), 3yr (1986-1988), 5yr (1984-1988) and 10yr (1980-1982). The total amount he had to pay in 1989-1992 was $59 billion maturing 10yr (issued 1980-1982 alone) notes at 10-15% Interest alone. The picture is a lot worse as one looks at total 10yr issues by Reagan, let alone for the other maturity term notes. Actual Interest Payments on National Debt: Quoting findings in Paper V (using Bureau of Economic Analysis data) we see that: Interest Payments on Government Debts to Individuals and Businesses in the US went from $10 billion to $314 billion in 2002 -- average of 10% of Current Expenditure, and ranging from 7.5% in 1968 to 14% in 2002. In comparison, Interest Payment to Foreigners also started at $0.3 billion in 1960, rose sharply in the '80s to $12.7 billion, and is now $73 billion. Prior to 1960, interest paid to persons and business (line 13) and interest received by government (line 15) are not shown separately, but are included in net interest paid (line 11). The interest paid was 10% of Current Expenditure in 1946 and gradually reduced to around 5% in 1970. This negligence in the part of administrations prior to Reagan also added to the current National Debt problem by allowing the interest to accumulate. A Darker future thanks to Reaganomics? Reagan may have inherited the Baby Boomer and Vietnam debts, but he also did not try to help the situation. Reagan and Bush Sr.'s years are part of the Cold War Expenditure years. Instead of trying to reduce the debt they had each inherited they went on trying to pass it on to the next guy. Clinton did reduce some of what he inherited and he also cut Defense Spending. And back in Bush Jr.'s term, we are seeing a "pass on the debt" to the next guy. So, whoever becomes President in years to come will be faced with this irresponsibility of the Republican Administrations. Take a look how. Bush Jr. is carrying first shock of Reagan's 20yr Bonds Reagan issued large volumes of 20yr and 30yr Bonds with interests around 10-15%. They reach maturity between 2001-2016. (See US Dept of Treasury Historical Treasury Bond Search ). On this Clinton and Bush Sr. paid interest, though none matured. Of this about $11 billion matured in 2001-2002 at 14-16% interest. Between 2003-2004 an additional $39 billion is maturing at 10-11% interest, and between 2005-2006 the rest of the 20yr Reagan Era bonds worth $36 billion will mature at 10-11%. Whoever wins in the US Presidential Election of 2004 will be facing a maturing debt of $36 billion from 20yr bonds of the Reagan Era alone and interest of 10-15% on his 30yr bonds, that are valued at about $250 billion. Whoever wins in 2008 will be free of Reagan's 20yr bonds, but will have to pay interest on his 30yr Bonds that start maturing in 2010 and end in 2016. Reagan's 30yr Bonds to affect the 2008-2012 President will be $47 billion at 10-15%. Reagan's burden on the 2013-2016 President will be an astounding $200 billion matured debt at 7.5-10% interest. So, anyone running after 2016 is free of Reagan's ridiculous borrowing, at least. This does not even include Bush Sr.'s debt nor Clinton's and certainly not Bush Jr.'s, who in just 2yrs raised the National Debt by $1 trillion, even at the face of this enormous gift he recieved from his predecessors. For more info on author, email him/her or see under Contributors |
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