Understanding America’s Debt Problem


Good morning Hank, it’s Wednesday. We seem to have found ourselves in something of a debt crisis, and by we I don’t mean like, the vlogbrothers, I mean, like, the planet. I’ve already talked about sovereign debt problems in Europe; today I want to talk about the purported American debt crisis. But first let me define a few terms. There are basically two kinds of debt. Unsecured debt is debt that you promise to pay back but, uh, y’know, I have to take your word for it. And then there’s collateralized debt like a mortgage, which is debt that you promise to pay back and if you don’t pay it back I get your house. Generally, collateralized debt is safer than unsecured debt, which is why, like, mortgages tend to be less expensive than credit cards, although as we have lately learned, collateralized debt is not always a good investment. Another term, gross domestic product, is a measure of, like, the total annual economic output of a country. In 2010 the GDP of the United States was about 14.6 trillion dollars. That’s a big number! Unfortunately our total debt obligations are currently also 14.6 trillion dollars. This means that our debt to GDP ratio is about 100%. Which could be worse. [whispers]: It’s not good. So Hank, traditionally when governments have a debt to GDP ratio over 90% they tend to, I mean not always, but they tend to default on that debt, like they tend to go bankrupt. Basically the government tells its lenders, “We promised we would pay you back but we were lying. Sorry life is hard and full of disappointment, here’s a Tootsie Pop.” Just kidding, there are no Tootsie Pops. This is obviously a bad thing for the lenders but it’s also a bad thing for the government because once you’ve proven that you’re the kind of country that occasionally goes bankrupt, people are reluctant to lend you money at low interest rates. But it still happens all the time. In the last few centuries hundreds of governments have defaulted on their debt obligations and it doesn’t matter if the currency is backed by gold or silver or promises; it doesn’t matter. All sovereign debt is essentially unsecured debt. If you loan the government money by purchasing a treasury bond they don’t have a house to pay you back with. And the price of gold and silver are so far removed from their values as commodities they don’t work as currency backers either. Many countries on the gold standard have defaulted on their debts. There is only one thing backing currency in this world, and that is trust. Okay, side note: in order to help investors to know whether something is credit-worthy there are these independent, non-partisan, credit-rating agencies, like Standard and Poor’s. They rate debt from triple A on down and generally, just like individuals, the better your credit score the cheaper your debt. That’s why Australia pays 4% for ten-year government bonds and Greece pays 15%. Sorry Greece. So the US is well above that 90% debt-to-GDP ratio that sets off alarm bells and Congress, just barely, in the stupidest game of chicken ever, managed not to default on our debt. So the rating agency Standard and Poor’s was like, “You know, for the first time in US history, it’s time to downgrade their debt from triple A to AA plus.” Here’s what you’d expect to happen: our debt being less secure becomes much more expensive. This can be disastrous because as your debt gets more expensive, you need more money to service it so you have to raise taxes and cut spending, which can slow the economy and decrease government revenue. And then to make up the shortfall you have to acquire ever-more expensive debt until you go bankrupt. [chair rolling] But here’s the thing, Hank: that’s not what’s happening in the United states. In the days since Standard and Poor’s downgraded our credit rating, our debt hasn’t gotten more expensive; it’s gotten cheaper. In fact Hank, the yield on some treasury bills is so low the United States is essentially getting paid to borrow money. Why? A few reasons: First, the whole world economy is so voilatile right now that even if US debt is less safe than it used to be, it still seems more safe than anything else. Two, our so-called debt crisis would almost completely be solved by just not extending the Bush tax cuts which will happen if Congress does nothing, and, as you may have noticed, Congress is AWESOME at doing nothing. Three, the whole world is invested in the American economy. Hank, by some estimates, half of the American money in circulation, is in circulation outside the US. And lastly, at least for the time being, it’s really important to the countries that make stuff, like China, that countries that consume stuff, like the United States, keep consuming. So even though our debt’s been downgraded it’s still much cheaper than lots of countries with triple A ratings. Hank, the fact that the dollar remains the default currency of the world, and that people still trust the United states to pay its debts is worth trillions of dollars to us annually. Hank, that’s probabaly not going to go away anytime soon, but in the long run, every time we show an inability to get things done, politically or economically, we chip away at the world’s faith in us. Hank, I’ll see you on Friday.

100 comments on “Understanding America’s Debt Problem”

  1. Yujie Wang says:

    What are the boxes behind his back?

  2. ArbitraryDoom says:

    Books that need to be signed I think. Probably the Fault in Our Stars preorders, if I remember what that thermometer in the back was for.

  3. Alan Hendah says:

    America is wasting money on unnecessary things & needs to be changed for the better.

    Visit (TRUTHC0NTEST)vC0M & click on ***The–Present***

    A free powerful book that will show you what big changes need to be achieved in order to help America & the worlds debt problems. REALLY INTERESTING STUFF

  4. Pile of carbon says:

    Germany asked the federal reserve if they could have a look at their gold (gold which the US guards for Germany because reason). The answer was no, and when Germany wanted their gold back, the US said they could get it by 2020-something. My guess: the US gold reserve doesn't have any gold anymore.

  5. si afilia says:

    A country without debt Brunei and Libya

  6. Lindsey Bonin says:

    I know this is probably an ignorant question, but if two countries have debt to each other, can't they just cancel out some of the debt? I also know this is an old video, but I hope someone will help??

  7. Zoe Irons says:

    +Lindsey Bonin, I cannot reply to your comment anymore (Youtube! >:( ), nor am I an expert on global economics, but I am going to guess that countries are almost certain not to cancel each other's debts that because it would set a bad precedent. However, countries get CRAZY amounts of time to pay off their debts– for example, there are still countries paying off debts incurred during WWII, and that's okay, because the debts are super huge. The one time I can recall any debts being cancelled are Germany's debts (the ones incurred after WWI– they have new, more reasonable ones for WWII), because they were insanely high and unreasonable and prevented the German economy from recovering and falling into a major depression after WWI

  8. Patasaurus Rex says:

    You had me until you said not extending the Bush tax cuts would take care of our debt. The tax raises from letting those expire will do nothing to reduce our debt. To eliminate debt you have toincrease revenue and decrease spending. Spending is not being reduced and income is increasing only incrimentaly. America needs to wake up and stop borrowing money and finallycreate a balanced budget. This is the same advice a financial advisor would give a client who had more debt then their income.

  9. jenny1260 says:

    Sounds like this video might need an update judging from the comment about the spreadsheet used to publish the numbers being wrong?

    Also, would you be able to explain how all this relates to the 2008 economic crisis? I try but find it really hard to get a grasp of this debt/economy/credit rating thing.

  10. Angel Pair says:

    How did we and the world get into debt in the first place?????

  11. Gary Tuck says:

    iron your shirt dude lol

  12. Dark Red Scorpion says:

    i always wondered why countries are still lending us money. now i know….. either way, considering our position in the world, i think our government needs to do more to get rid of this debt rather than spend millions of dollars on doughnuts for themselves

  13. Jessie Lewis says:

    Ok, I now love these guys!

  14. gary morrison says:

    What is wrong with the deindustrialization and financialization of the US economy? To complain about debt is really to criticize the free market and who wants to do that? Freedom is being able to charge people interest when they buy groceries. Hell,sometimes we all need to be reminded that; money-makes-the-world-go-round-a-mark-a-yen-a-buck-or-a-pound-that-clinking-clanking-clunking-sound-that-makes-the-world-go-round…

  15. Alannah Hurley says:

    wat

  16. notaras1985 says:

    blah blah blah. you want to understand in a fe words global economic crises etc? the elite of the world controls and manipulates it by creating fake debts, crises etc. as it creates terrorists, and other cool stuff that you are familiar with…

  17. Joey Chiappetta says:

    Common solution to debt, just raise taxes. Real world application of raising taxes, people who it effects find loopholes or stop making money to avoid taxes which in turn effect GDP and now your making less money but still having debt. Plus the fact that every time they say increase taxes we promise to stop spending, they never do. Politicians receiving more money just means spend more not reduce debt.

  18. Summer Leppanen says:

    "Most expensive game of chicken ever" Well… three years later congress is still playing expensive games of chicken. So… Yeah, fun.

  19. This Guy says:

    Just hope that Bitcoins will get big enough to solve this problem. Money controlled by the people rather than the bank and Federal Reserve.

    As long as they don't get their dirty hands on it; we might still have a chance.

  20. Mithrandir Gray says:

    You summed it up beautifully…Countries that make stuff, like China and countries that consume stuff, like America….Americans produce nothing but debt and do nothing but consume….Nixon forced the Petro-Dollar on the world and it's never been the same since 1971…I just watched your video on the debt crisis from '09 and laugh at how much faith you put in the system….I'm sure you have total faith in the Federal Reserve and its current Quantitative Easing plan as well….I wonder what will happen when the Fed stops printing all that fiat currency….Please do a video on the Fed and let us know what your thoughts are when QE ends….

  21. Lazarou101 says:

    Why the hell is the dollar the universal currency ? Instead of say gold.

  22. Wholickedme says:

    if we nuke china then surely we can take their money to solve debt crysis

  23. SuperJeff says:

    Why can't U.S.A just conquer the entire world, officially? You know, just move troops tanks aircraft warships drones and all the shit they have to the borders of everyone and just force all the governments to become puppet governments and let us all just use the same currency. You know, do that to every country except Russia.

  24. DerpyBerb says:

    AUG 10 2011
    …things have changed a bit.

  25. Duggy Dugg says:

    this guy does not understand the problem ..gvt borrowing …gvt should not borrow…gvt should print dollars not gvt bonds ,  T bonds ; debt coupons 

  26. Joey Gerharz says:

    Very difficult to watch this video since it is largely premised on the discredited and error riddled Reinhart-Rogoff "90% rule" – http://www.cepr.net/index.php/blogs/cepr-blog/the-reinhart-rogoff-debt-to-gdp-error-why-it-matte – and the idea that the US is lagging behind China's production (their GDP is half the US but with a population 4 times larger). I'd like to see a do over.

  27. trey davis says:

    its simple its called bailouts . imperialism and giving all these illegals welfare 

  28. aichannnn says:

    So cute in this video

  29. Christina Keller says:

    Goodness, your shirt is wrinkly.

  30. tommy g says:

    out debt is cheap because the fed buys up treasury bills. supply and demand the cost goes up as the supply goes down and the way t bills work is there sold at a discount  then repaid later at full price. so if i sell enough at a minimal discount then buy enough to offset the cost the borrowing rate becomes negative. so were basically fucking people to get that low rate. because that buying of t bills is putting new money into the economy and by the time the t bills sold now are redeemed the purchasing power of those dollars will be much less than the original amount. which will not look good on Americas credit rating.

  31. sheikh hamad says:

    fuck u america americans eat from trash cause of american wars and foreign policy

  32. Mac Gyver says:

    Way to go, democrats.

  33. Radical Centrist says:

    3 years and 3 trillion added….

  34. SinHurr says:

    I see a pony.

  35. ClassicExampleBand says:

    Does anybody here understand where debt comes from?  All countries are in debt.  How can that be possible? If they were just in debt to each other, then two or more countries could just forgive each other's debts.  Unfortunately, countries are in debt to banks.  This is why there is so much debt, and no hope of getting out.  We need to put banks out of business and create government money.

  36. David Kelly says:

    Subtract 'debt' we don't need to pay back (debt to ourselves, debt we own, debt to people who also owe us and debt that's only profitable if its NOT payed off such as treasury onds) and suddenly it's closer to $3b.

  37. jwt242 says:

    I cannot begin to explain how awesome this concise explanation of our debt problem is. The only small issue I'd bring up is to ask what he thinks the probability of the US dollar being challenged as the world currency by at the minimum a 'basket' of other world currencies. I don't think there is but a negligible probability of a single national world currency save the US dollar for the foreseeable future. However, if a 'basket' of other world currencies supplants our currency's strong position as the world currency, as he implies, it would cost us trillions of dollars annually.

  38. Dilan Myra says:

    How Ironic

  39. Erik Benefield says:

    My word is my bond.

  40. maxismax100 says:

    THE REASON WHY AMERICA IS IN SUCH DEPT IS BECAUSE THEY ARE GIVING BILLIONS OF DOLLARS TO ISREAL AND  OTHER NATIONS FOR FREE AT THIS RATE AMERICA IS GOING TO GO BANKRUPT NO MORE AMERICA FINISH GOODRIDDINCE

  41. Erin Murphy says:

    Well, the whole point of Keynesian economics is that you have to spend money to make money. In other words by contracting government employment and production you give a boost to GDP until the private sector recovers and can sustain itself enough to contract on its own. There is nothing wrong with economic planning many countries have been successful in it's implementation in the past even the U.S. Problem is if you aren't careful you can raise inflation by devaluing your currency if you spend too much.

  42. The Semite says:

    Interest. It's interest's fault.

  43. John Adams says:

    Can you please do an update?

  44. Abraxas1177 says:

    You guys are awesome…

  45. nucleardeath07 says:

    So I have a prediction:  This current state in world affairs is unsustainable.  It will result in a world wide crisis, but not a war, something that will make the Great Depression seem tame.  What will result is a push for a world wide government and a global currency.  This will result in new lines being drawn in the sand, and a good chance of war as countries that support the one world government oppose those that don't.  (This could be for various reasons i.e. religion, current government system conflicting with the world view, and more)  And if we see a WWIII it will be because of this.  Our current state of growing interdependence is throwing all we thought about international politics and commerce out the widow.

  46. 313_God says:

    I dont dare read the commets

  47. Yo Boi Ike says:

    Japan is 235% debt.

  48. Nickolas Steffen says:

    Has John posted anything about the basic income movement?

  49. J Scott Upton says:

    Instead of "not extending the Bush tax cuts" we should cut government spending.

  50. stephen buckland says:

    deeper in debt the harder you get

  51. Harry McCusker says:

    Did the tax cuts get cancelled in the end?

  52. randydee says:

    I just threw my gold and silver in the garbage. Thanks for the (mis) information

  53. ViperX says:

    i lvie in sweden and 
    swedens debt to gdp ratio is 52% HAHA take that United states
    also swedens gdp to population ratio is bigger than the us

  54. Elizabeth Nichols says:

    And then there are the people who live in America who are complaining about debt. Im just a child and my parents have credit card debt and house debt. Yet we are still surviving im going to school im eating a good homemade dinner every night. Americans, especially the government, Please get you sh*t together. Also why are you people not funding schools i mean obviously we are the people that are going to take care of you in about 20 years. Treat us well and we'll treat you well.

  55. ketam1ne says:

    Y'know who else besides the US Congress is great at doing nothing?

    The UN.

  56. Girts Dzerins says:

    the whole world has less debt than the United States, it is difficult to imagine

  57. Mystogan Edolas says:

    Norway is the safest country, followed right behind by Switzerland.

  58. Rashail Wasim says:

    The constitution states that the us can not default on its debt

  59. 8GREENC says:

    "There is one thing backing currency in this world and that is trust" .. I get the chills

  60. UltimateBargains says:

    Why does the US economy depend on the government to confiscate wealth through taxes just to spend that stolen wealth to grow the economy? Would that wealth better serve the economy by staying in the hands of those who created that wealth?

    Socialism is a crime against humanity.

  61. John Isaac Felipe says:

    HEY VLOG brothers, STOP MAKING LIGHT OF THE SITUATION! YOU DOUCHES, 18 TRILLION DOLLARS, a 600% INCREASE IN THE NATIONAL DEBT isn't NOTHING!

  62. C4geD says:

    Sweden's debt to gdp ratio is 43.9% TAKE THAT AMERICA

  63. Zen Russell says:

    completely cut off government spending until we save 18 trillion it could take 8 years or less depending on how much tax revenues we make in a year.

  64. Elizabeth Grace says:

    Could you do another one of these, but updated?

  65. muhammad luqman says:

    please talk slower…

  66. callofduty102903 says:

    The reason USA is in a deficit is because of all the money we spend for socialist programs like Medicare and welfare. Eliminate all social programs to put an end to freeloaders.

  67. يوسف سلامة says:

    The UAE is so low in dept that it's taxes are 0 how do they do this i'm not complaining more money for me

  68. Cody Ramey says:

    Aww the bush tax cut comment ;-;

  69. a24396 says:

    the whole "hank" – "john" I'll see you on "day" is actually really awesome! You two are amazing people! Thanks so much for posting!!!

  70. Major Wopershall says:

    BLUF!!!! Thats Army for Bottom Line Up Front, where should I be placing my investment possibilities….Real Estate, stock market, Gold coins, Silver coins…????How do I protect my family ?

  71. unifieddynasty says:

    You want me to raise the debt limit? Not until you defund Planned Parenthood, repeal gay marriage, and deport Obama!

  72. Marcus A. Brown says:

    There are no tootsie pops!

  73. Prime Star says:

    It's in the U.S. constitution that it cannot default on its debt.

  74. manictiger says:

    We really need to deal with this, NOW.
    Remember what happened to Greece? We don't want to wind up like that.

  75. Bretton Hills says:

    @vlogbrothers Can you please do an updated version of this since china started selling American debt?

  76. andrewxc1335 says:

    John Green for President!

  77. Devon Bound says:

    Oil, cheap oil. Energy controls the …

  78. Jason says:

    It's 2016 and looking back I think John had a lot right in the video. I don't think ending Bush tax cuts would have made the impact he suggested, and he didn't mention how interest rates factor in. Because the debt is so big if they increase interests rates, the cost of servicing the debt becomes very high. Interest rates 5 years later are still at historic lows with some nations now with negative rates — which is just ridiculous.

  79. KC19 says:

    I don't really see it as a crisis… It is not an ideal situation. But it is not a crisis.

  80. Natasha Paige Cortez says:

    John green is a cuckolded idiot. He doesn't understand the concept that Principle + interest > Principle alone… Banks lend money they don't have on fractional reserve. There are built in pockets of poverty with our banking system. He is a white guilt jew loving cocksuker.

  81. GM Steelhaven says:

    5 years later… how ya doing?

  82. Wolf Rider says:

    sooooooo… why do we spend so much on foreign aid when we need so much ourselves?

  83. Teri Nagy says:

    How does comparing one year of economic output to the debt that the US has accrued since its founding make sense?

  84. Elliott Collins says:

    John's talk of a 90% threshold here makes me think he's using the Reinhart & Rogoff paper that was eventually found to be based on some sketchy weighting and a simple Excel error. Oh how times change.

  85. Jaime Mannings says:

    Who are we borrowing money from? Is the debt total only the debt U.S. Government debt of the is the debt of all U.S. Citizens included in this as well?

  86. Pavel S says:

    The congress bashing always makes me laugh 😀

  87. Robert J. Simpson says:

    Cutting spending is a very good thing.

  88. Robert J. Simpson says:

    Are you guys Keynsians?

  89. Elyria says:

    ಠ_ಠ <(Tofu frog is our savior.) (Oh my frog god.)> ಠ_ಠ [Chart behind John explained]

  90. andrew says:

    the federal reserve you damn fools

  91. Sam Vidas says:

    "We promised we would pay you back, but we were lying, sorry, life is hard and full of disappointments, here's a tootsie pop, just kidding, there are no tootsie pops."
    "There are no Tootsie Pops." – John Green, 2011

  92. Robin Best says:

    and people say the Banks don't rule the world.

  93. EL MEXICANO MALCOLM X says:

    Why should Americans work then just print nothing but $100 and tell other countries we only printed $1 then we would be like Dubai

  94. SeaBass Gorka says:

    As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills.6 In this sense, the government is not dependent on credit markets to remain operational. Moreover, there will always be a market for U.S. government debt at home because the U.S. government has the only means of creating risk-free dollar-denominated assets

  95. Jakraful says:

    That this debt to GDP ratio of 90% leads to bankruptcy is a debunked theory. It was published during the higher of the Greece crisis and spread fast but after some students tried to replicate it they found out that the person who published it just wasn't able to work properly with excel.

  96. 404 Error says:

    The US only has the reserve currency because a British politician and Banker screwed the British and sold them out. World war two didn't help either.

  97. Joseph Leonard says:

    Dude. You really gotta iron your shirt

  98. Annali Flores says:

    19 trillion

  99. Scott Korin says:

    As of 2018, the US debt to GDP ratio is now slight over 100%

  100. Eoghan Connolly says:

    Several years later and now we have Modern Monetary Theory to save the day

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