The legacy of the American National Debt

MOUNTAIN OF DEBT: Legacy of debt from Founding Fathers not celebrated on Independence Day

* By Tom Raum, Associated Press Writer

* On Friday July 3, 2009, 11:20 am EDT

* Print WASHINGTON (AP) — The Founding Fathers left one legacy not celebrated on Independence Day but which affects us all. It’s the national debt. The country first got into debt to help pay for the Revolutionary War. Growing ever since, the debt stands today at a staggering $11.5 trillion — equivalent to over $37,000 for each and every American. And it’s expanding by over $1 trillion a year. The mountain of debt easily could become the next full-fledged economic crisis without firm action from Washington, economists of all stripes warn. “Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,” Federal Reserve Chairman Ben Bernanke recently told Congress.

Higher taxes, or reduced federal benefits and services — or a combination of both — may be the inevitable consequences. The debt is complicating efforts by President Barack Obama and Congress to cope with the worst recession in decades as stimulus and bailout spending combine with lower tax revenues to widen the gap. Interest payments on the debt alone cost $452 billion last year — the largest federal spending category after Medicare-Medicaid, Social Security and defense. It’s quickly crowding out all other government spending. And the Treasury is finding it harder to find new lenders.

The United States went into the red the first time in 1790 when it assumed $75 million in the war debts of the Continental Congress. Alexander Hamilton, the first treasury secretary, said, “A national debt, if not excessive, will be to us a national blessing.” Some blessing. Since then, the nation has only been free of debt once, in 1834-1835. The national debt has expanded during times of war and usually contracted in times of peace, while staying on a generally upward trajectory. Over the past several decades, it has climbed sharply — except for a respite from 1998 to 2000, when there were annual budget surpluses, reflecting in large part what turned out to be an overheated economy.

The debt soared with the wars in Iraq and Afghanistan and economic stimulus spending under President George W. Bush and now Obama. The odometer-style “debt clock” near Times Square — put in place in 1989 when the debt was a mere $2.7 trillion — ran out of numbers and had to be shut down when the debt surged past $10 trillion in 2008. The clock has since been refurbished so higher numbers fit. There are several debt clocks on Web sites maintained by public interest groups that let you watch hundreds, thousands, millions zip by in a matter of seconds.

The debt gap is “something that keeps me awake at night,” Obama says. He pledged to cut the budget “deficit” roughly in half by the end of his first term. But “deficit” just means the difference between government receipts and spending in a single budget year. This year’s deficit is now estimated at about $1.85 trillion. Deficits don’t reflect holdover indebtedness from previous years. Some spending items — such as emergency appropriations bills and receipts in the Social Security program — aren’t included, either, although they are part of the national debt. The national debt is a broader, and more telling, way to look at the government’s balance sheets than glancing at deficits. According to the Treasury Department, which updates the number “to the penny” every few days, the national debt was $11,518,472,742,288 on Wednesday.

The overall debt is now slightly over 80 percent of the annual output of the entire U.S. economy, as measured by the gross domestic product. By historical standards, it’s not proportionately as high as during World War II, when it briefly rose to 120 percent of GDP. But it’s still a huge liability. Also, the United States is not the only nation struggling under a huge national debt. Among major countries, Japan, Italy, India, France, Germany and Canada have comparable debts as percentages of their GDPs.

Where does the government borrow all this money from? The debt is largely financed by the sale of Treasury bonds and bills. Even today, amid global economic turmoil, those still are seen as one of the world’s safest investments. That’s one of the rare upsides of U.S. government borrowing. Treasury securities are suitable for individual investors and popular with other countries, especially China, Japan and the Persian Gulf oil exporters, the three top foreign holders of U.S. debt. But as the U.S. spends trillions to stabilize the recession-wracked economy, helping to force down the value of the dollar, the securities become less attractive as investments. Some major foreign lenders are already paring back on their purchases of U.S. bonds and other securities. And if major holders of U.S. debt were to flee, it would send shock waves through the global economy — and sharply force up U.S. interest rates.

As time goes by, demographics suggest things will get worse before they get better, even after the recession ends, as more baby boomers retire and begin collecting Social Security and Medicare benefits. While the president remains personally popular, polls show there is rising public concern over his handling of the economy and the government’s mushrooming debt — and what it might mean for future generations. If things can’t be turned around, including establishing a more efficient health care system, “We are on an utterly unsustainable fiscal course,” said the White House budget director, Peter Orszag.

Some budget-restraint activists claim even the debt understates the nation’s true liabilities. The Peter G. Peterson Foundation, established by a former commerce secretary and investment banker, argues that the $11.4 trillion debt figures does not take into account roughly $45 trillion in unlisted liabilities and unfunded retirement and health care commitments. That would put the nation’s full obligations at $56 trillion, or roughly $184,000 per American, according to this calculation.

We need to do something like this

Milwaukee neighborhoods could print own money

2 neighborhoods consider printing own currency for exclusive use in local stores

They may be talking funny money, but it’s not funny business.

Residents from the Milwaukee neighborhoods of Riverwest and East Side are scheduled to meet Wednesday to discuss printing their own money. The idea is that the local cash could be used at neighborhood stores and businesses, thus encouraging local spending. The result, supporters hope, would be a bustling local economy, even as the rest of the nation deals with a recession.

“You have all these people who have local currency, and they’re going to spend it at local stores,” said Sura Faraj, a community organizer who is helping spearhead the plan. “They can’t spend it at the Wal-Mart or the Home Depot, but they can spend it at their local hardware store or their local grocery store.”

Incentives could be used to entice consumers into using the new money. For example, perhaps they could trade $100 U.S. for $110 local, essentially netting them a 10 percent discount at participating stores.

It’s not a new concept—experts estimate there are at least 2,000 local currencies all over the world—but it is a practice that tends to burgeon during economic downturns. During the Great Depression, scores of communities relied on their own currencies.

And it’s completely legal.

As long as communities don’t create coins, or print bills that resemble federal dollars, organizations are free to produce their own greenbacks—and they’d don’t even have to be green.

Debt Collection Abuses – know your rights

Debt Collection Abuse? What Debt Collectors Can and Cannot Do

 With the economy slumping and food and gas prices through the roof, many Americans are finding it difficult to keep up with their monthly expenses. Add in a layoff, medical problem or other unforeseen expense and it’s easy to fall behind in your bills … making you a ready target for debt collectors.

Even if you fall behind in bills, you still have a right to be treated with respect. Keep reading to find out YOUR rights if a debt collector calls.

There are an estimated 6,500 collection agencies in the United States, and complaints against them rose 26 percent in 2007, and 43 percent in the last five years, according to the Better Business Bureau.

For the past three years, in fact, debt collectors have been the subject of more complaints than any other industry, according to The Federal Trade Commission (FTC). Among the top complaints:

  • Using vulgar language
  • Trying to collect more than they’re owed
  • Sharing the person’s debt information with friends and family
  • Trying to collect extra fees such as late fees or court costs

It’s quite common for debt collectors to use this type of harassing, intimidating behavior to try to get you to pay … but it’s not always legal for them to do so.

If a Debt Collector Calls, What Rights Do You Have?

Knowing your rights is the first step to protecting yourself from a collection agency, and your first right is to have proof that the debt is yours. Ask the debt collector to send you written proof of the debt.

Otherwise, it’s possible the debt may actually belong to someone else with a similar name. Also, before you agree to pay anything or state that you do owe the money, find out if the debt is still enforceable. Depending on your state, certain debts have statute of limitations that range from three to 15 years.

If, in fact, you believe you don’t owe the debt, you can get a debt collector to stop contacting you by sending them a written letter stating you do not owe the money. While the debt collector may not contact you after this point, you can still be sued for the money if it’s determined that the debt is yours.

What CAN the Debt Collector Do?

The collector may contact you by mail, in person, by telephone, telegram or fax. However, they may not contact you at unreasonable times or places, such as before 8 a.m. or after 9 p.m., unless you agree.

Certain debts expire after three to 15 years. To find out the statute of limitations in your state, contact your state attorney general’s office.

If you have an attorney, the collector is required to contact him or her instead of you. However, if you don’t have an attorney a debt collector may contact other people, typically only once, to find out where you live or work, or to get your phone number. The collector may not tell anyone other than your attorney that you owe money.

What CAN’T the Debt Collector Do?

The Fair Debt Collection Practices Act requires that debt collectors treat you fairly and prohibits certain methods of debt collection. According to the FTC, debt collectors may NOT:

  • Use threats of violence or harm
  • Publish a list of consumers who refuse to pay their debts (except to a credit bureau)
  • Use obscene or profane language; or repeatedly use the telephone to annoy someone
  • Falsely imply that they are attorneys or government representatives
  • Falsely imply that you have committed a crime
  • Falsely represent that they operate or work for a credit bureau
  • Misrepresent the amount of your debt
  • Say you will be arrested if you do not pay your debt
  • Say they will seize, garnish, attach, or sell your property or wages, unless the collection agency or creditor intends to do so, and it is legal to do so
  • Say actions, such as a lawsuit, will be taken against you, when such action legally may not be taken, or when they do not intend to take such action
  • Send you anything that looks like an official document from a court or government agency when it is not
  • Use a false name
  • Collect any amount greater than your debt, unless your state law permits such a charge
  • Deposit a post-dated check prematurely
  • Use deception to make you accept collect calls or pay for telegrams

Consumer Justice

If you feel you have been harassed or abused by a debt collector, report the problems to your state attorney general’s office and the Federal Trade Commission.

You can also sue a debt collector you believe has violated the law up to one year from the date of the violation. You can recover damages, attorney’s fees, and court costs, along with up to $1,000 additional. A group may also sue a collector for up to $500,000 in damages or 1 percent of the collector’s net worth, whichever is less.

If you do enter into negotiations with a debt collector, make sure to get everything in writing BEFORE you pay anything. Along with the amount you agree to pay, ask for the negative information to be removed from your credit report, or at least listed as “paid in full” rather than “paid in settlement.”

One final tip, debt collectors’ commissions are based on the business they do each month. So negotiating near the end of the month may give you some leverage.