One person’s debt is another person’s asset. These are merely the two sides of the same coin. When you borrow money from the bank, the bank shows your loan on their books as an asset. When you pay the bank back, the bank’s assets are reduced by that amount, which is why the bank is always eager to make loans.
The bank needs to make a profit to stay in business, so it charges interest. If the risk of default is low, that interest will be low, because you are a good investment. If the risk of default is high, the bank needs to charge a higher interest rate to protect itself against the expected number of loans that will default. That’s what credit ratings are (or at least should be) all about.
When you buy savings bonds or your retirement fund buys Treasury notes you are, at the same time, increasing the national debt and investing in your future in the least risky way you can. The reason the risk is low is that the government’s expected revenues (e.g., taxes) are expected to be adequate to provide you with a return on your investment when the time comes for you to draw on it.
This whole system of debt/investment is the basis of modern economic development. Government debt is what puts money into circulation. Without it, we would return to a feudal subsistence economy, which seems to be the unstated goal of some of those complaining about it.
A deficit, on the other hand, is a short term imbalance between revenues and expenditures. There is absolutely nothing wrong with governments running deficits to correct for a bad economic climate, so long as they balance these deficits with surpluses when the economy is doing well.
The problem the US faces now is that it ran deficits during the boom years 2000-2007, which was a political choice to reduce taxes, mostly for the benefit of the very wealthy. These are the same people who now want to slash expenditures so that they don’t have to give back any of their gains. Doing so would make permanent a well documented transfer of wealth from the poor to the rich over that period. That’s a losing political argument, so the tactic of choice has been to try and scare people about the size of the national debt, which is terrifying to the economically ignorant.
Unfortunately, there are many economically ignorant voters, and lots of money behind the effort to scare them about the size of the national debt.
Debt and assets are basic principles of accounting that have been well known since the Renaissance. Actually, they were known in ancient Babylon, but then forgotten for centuries. Given the current panic over debt, perhaps we are in for a new Dark Ages.
