No sane person could be happy to see US national debt above $16.7 trillion (that’s eleven zeroes after the seven!) – unless you happened to be a creditor, of course. If the USA pays just 1% interest on its borrowing, the interest payment is $167 billion per annum – roughly $8400 per citizen. The money is paying to service debts already amassed and doesn’t include the current public deficit spending, of course. You could pay for free healthcare and education for all with that sort of money, but the prospect of the debt being paid down in any foreseeable future is surely an unrealistic dream. On the other side of the equation, the US GDP is roughly $16.2 trillion (World Bank 2012) and tax revenues are something like $2.4 trillion. This means that if output remained unchanged and the US government spent every cent it received on paying off national debt (without it compounding), it would take seven years to pay off the existing debt!
With that said, unless bipartisan agreement is found to increase the US debt ceiling, even allowing for clever accounting, the US will default on its obligations before the end of February. If the world’s largest economy can’t honour its obligations, the fallout will make the Global Financial Crisis look like a domestic squabble about the housekeeping money.
US Treasury secretary, Jack Lew commented: “Without borrowing authority, at some point very soon, it would not be possible to meet all of the obligations of the federal government. He added that: “I'm not sure this is the year for the long-term fiscal challenge to be dealt with. I actually believe that we've made so much progress in the short and medium term, we have a little time to deal with the longer term.”
The Republicans had tried to tie agreement over budget and debt ceiling negotiations to concessions over taxes, spending and the healthcare reforms in the recent past. However, the government has made it clear that concessions are not in the offing this time around and it may be that the Republicans are not ready for another harmful fight in an election year.