U.S. Government shuts down.

[Jester]

I was talking about the national debt. It is true that this increasing enormously and is a very big number now right?

$12 trillion US dollars of debt is held by the public (that is, not the fed), 75% of GDP.*

However, the stock of debt is largely irrelevant. What matters are the flows of interest on the debt.

Yes but the amount of debt is changing right? And there again is a ceiling reached at the end of this month right?

The debt ceiling is the point at which the Treasury no longer has authorization from congress to issue new debt, leaving them without enough money to pay the bills. (That is to say, the US defaults on some of its obligations.) This is because congress has both legally commanded them to spend (by passing bills) and legally forbidden them from raising the money (because of the debt ceiling.)

If this sounds incredibly stupid, that's because it is. It is nothing more than the US government preventing itself from borrowing for no good reason.

And this is where my question is really about. Why do you think it is not a real problem? Huge debt and printing of money will eventually lead to inflation right? And it also hopefully leads to a better economy and both things will give higher interest rates.

Huge debt and printing money is a problem *when* it leads to inflation and high interest rates, and through no other known channel. Inflation is very low, and interest rates are practically zero. This is the opposite of a debt crisis - a flight to safety.

The worst that could happen is that inflation starts to bite, and the government will have to raise taxes or cut spending. But US taxes are relatively low, and so investors believe they will pay back the debt and control inflation - and have made *gigantic* bets on that, going forward 30 years. Future borrowing is not going to be a problem.

The real danger is from austerity and deflation, and it's to the macroeconomy, not the government's finances. The danger is to become Japan, not Argentina.

-Jester

*For what it's worth, I think debt/GDP ratios are a terrible way to measure indebtedness, especially as pertains to the odds of a default. But it's the industry standard.