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Breaking down the current level of federal debt, future level of federal debt, and the impact of this debt on the economy Current Level of Federal Debt FACT: The debt crisis is talked about in terms of federal deficit and federal debt. Using numbers from the August 2012 Congressional Budget Office report:  Federal Budget Deficit (Outlays over Revenues) o The federal budget deficit for is $1.1 trillion for FY 2012 or 7.3% of GDP. This is the fourth year in a row that the deficit has been over $1 trillion.  Federal Debt (Total Debt Held By The Public) o The federal debt held by the public will reach $11.4 trillion this year or 73% of GDP. FACT: The current level of federal debt amounts to $99,797 per American household. If you add in unfunded obligations for seniors, veterans, and retirees – it’s $528,000 per household. USA Today reports that it’s more than five times what Americans have borrowed for everything else — mortgages, car loans and other debt. Future Level of Federal Debt FACT: According to the National Commission on Fiscal Responsibility and Reform, “federal debt this high is unsustainable.” The Commission projects that if we continue on our current course:  By 2025 revenue will be able to finance only interest payments, Medicare, Medicaid, and Social Security. Every other federal government activity – from national defense and homeland security to transportation and energy – will have to be paid for with borrowed money. Debt held by the public will outstrip the entire American economy, growing to as much as 185% of GDP by 2035. Interest on the debt could rise to nearly $1 trillion by 2020.

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Economic Impact of Federal Debt FACT: The National Commission on Fiscal Responsibility and Reform outlines the impact of this level of federal debt on the economy: September 2012

High Interest Rates Decrease GDP: “It will drive up interest rates for all borrowers – businesses and individuals – and curtail economic growth by crowding out private investment. By making it more expensive for entrepreneurs and businesses to raise capital, innovate, and create jobs, rising debt could reduce per-capita GDP, each American’s share of the nation’s economy, by as much as 15 percent by 2035.” Government Loses Access to Resources: “Rising debt will also hamstring the government, depriving it of the resources needed to respond to future crises and invest in other priorities. Deficit spending is often used to respond to short-term financial “emergency” needs such as wars or recessions.” Dangerous Exposure to Foreign Creditors: “Large debt will put America at risk by exposing it to foreign creditors. They currently own more than half our public debt, and the interest we pay them reduces our own standard of living. The single largest foreign holder of our debt is China, a nation that may not share our country’s aspirations and strategic interests.” Increased Risk of Debt Crisis: “If we do not act soon to reassure the markets, the risk of a crisis will increase, and the options available to avert or remedy the crisis will both narrow and become more stringent. In a recent briefing on the risk of a fiscal crisis, CBO explained that while ‘there is no identifiable tipping point of debt relative to GDP indicating that a crisis is likely or imminent,” the U.S. debt-to-GDP ratio is “climbing into unfamiliar territory” and “the higher the debt, the greater the risk of such a crisis.”’

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September 2012

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