For the first time in six years, the United States Treasury Department paid a small portion of the national debt. In the second quarter of this year, the U.S. is expected to pay down $35 billion on the near $17 trillion national debt because of stronger-than-expected revenues, according to a statement released by the Treasury at the end of last month.
In the April to June quarter, the Treasury announced that it would use $35 billion in net marketable debt and end the quarter with roughly a cash balance of $75 billion. This is the very first time the government has made a payment towards the national debt since 2007 when it made a $145 billion payment in the second quarter.
Alexander Gelber, Acting Assistant Treasury Secretary for Economic Policy, said in a separate statement that the economy grew better than expected in the last quarter, which was one of the driving factors to the decision to pay down debt.
“The combination of proposed deficit reduction measures and stronger expected US economic growth is projected to put our national debt on a declining path as a share of the economy and lower the deficit to less than 2 percent of gross domestic product (GDP) by 2023,” stated Gelber.
Although many might see this move as remarkable, the fact is that the national debt is astronomical and a payment such as $35 billion is equivalent to a minimum payment on an average citizen’s credit card – it’s just about 0.02 percent, again a very small amount in the grander scheme of things.
Some are questioning the moves behind the debt payment. One of the theories being put forward is that the Republican and Democratic leadership want to prove to the voters that they’re doing something right and acting on the enormous debt loads. Another theory is that the U.S. isn’t really paying down the debt because of the various means it funds itself. Therefore, it can mask such a measure.
“I don’t believe in coincidences,” said Money Morning Chief Investment Strategist Keith Fitz-Gerald in a statement. “Our leaders in Washington on both sides of the aisle are terribly under pressure from the American public right now, and I think this is a very convenient announcement to say, “Hey, we’re doing the right thing, keep us all in office for a little while longer.’ It’s like taking blood from the left arm and putting in in the right arm and calling it a transfusion.”
Regardless of what Washington does, the federal government has to address the national debt. The Congressional Budget Office (CBO) projects that the national debt will reach $25 trillion by the year 2021. Also, with enhanced debt loads comes with increased interest payments. It was reported last month that interest payments are projected to hit $763 billion in the next decade, but only if the status quo remains the same (meaning if interest rates stay where they are).
The U.S. will be running out of options, especially since China is decreasing its holdings of U.S. debt as it is suffering from its own debt problems and its other lenders, such as Japan, experience weakened economies.
In the end, since the elected representatives on both sides of the aisle and the American people will not address the debt and make the tough decisions, the U.S. only has a couple of options: inflate or declare bankruptcy.