Are we leaving our debt to our children?

I think this article by Dean Baker at Truthout explains fairly well how our national debt isn't a transfer of stuff now for debt later. Our lack of using all our productive capability is a real cost to our future generations. The (federal) debt only becomes a burden to future generations if paying the interest on that debt leads to inflation, where too much money is flooding the markets to compete for real goods and resources. The US debt clock is, to the penny, the amount of savings in bonds that the private sector holds and is not something we have to pay off out of our own pockets or that has to be taxed from us to pay off because the government doesn't need tax dollars to spend. The threat is inflation, not insolvency. We should focus on full employment growth and stable prices, not the mythical 'burden' of our debt.

Here are some highlights:

It's budget time, again. This means that the deficit hawks will be out in force warning us about the devastating debt burden that we are passing on to our children. So that this Halloween fright gang doesn't needlessly cause any kids to lose sleep, here's what parents can tell their children.

First, it is important to tell your kids that the national debt is not in any way a measure of intergenerational transfers from the young to the old. Debt is also an asset to the people who own the bonds. At some point, everyone who is alive today will be dead, which means that the bonds they own will be passed on to their or someone else's children and grandchildren.

Our children and grandchildren might owe the debt, but they will also be receiving the interest paid on the debt. There can be an issue of distribution within future generations (e.g. Bill Gates' descendants own all the debt), but that is a question of inequality within generations, not between generations. So, when you hear the deficit hawks ranting about the $15 trillion debt that we are passing on to our kids, you can tell your children that we are passing on $15 trillion in government bonds to our children.