A trillion dollars is over $8,900 per American household (calculated by dividing a million million dollars by 112 million American households.)
So, a trillion dollars could be described as a little less than $10,000 per household. What I like about this description is that it is easy to recall and to comprehend in terms of how much a subtraction (or addition) of this amount would impact a family budget.
Yet, for some reason, large numbers are often described with some absurd imagery, such as how high would a stack of $20 bills have to reach in order to make a trillion (which would be 3000 miles according to Congressman Poe). Or how much distance would a string of $100 bills have to stretch in order to make a trillion (which would be 38 times the Earth's circumferance according to Senator Thune)
Just to put a trillion dollars in context, if you started spending the day that Jesus was born and you spend a million dollars every single day, you still wouldn't have spent a trillion dollars. This is a lot of money.
Daily Show - Moment of Zen AFP - How much is a trillion dollars? Well...
So how tiny would you look standing next to a trillion dollars? You can see for yourself by reviewing the graphics in this diary: What Does One Trillion Dollars Look Like?
But rather than describing a trillion dollars in terms of length, height, time, or volume, I think it's more useful to describe in terms of the goods/services that could be bought as well as in terms of the size of the population for which the good/services would be used. In the case of a trillion dollars of debt, this represents a shared cost to our country of almost $10,000 per household (which implies that over future years, Americans will have to pay this money back and thus forego almost $10,000 worth of goods/services for each of their households).
But will our government actually ask us to pay this debt back? In theory, taxes could be raised high enough such that we would have an annual budget surplus of $100 billion per year. If so, then a trillion dollars would be paid back in 10 years.
I think this is unlikely, because the last year in which there was any reduction in the federal debt was in 1960. After that year, our federal debt has grown or stayed the same each year.
The last year in which we paid off all of our federal debt was in 1835, during Andrew Jackson's presidency.
So the federal debt has grown steadily, with only a few short periods in which the debt was reduced (e.g., from 1853 to 1857, the debt was reduced by half) before heading back up to new heights.
[For the source for the above information, see this article:
mises.org - Perpetual Debt: From the British Empire to the American Hegemon - 2004.]
Assuming we never pay down the debt, then what is the actual cost of a trillion dollars of deficit spending and who will pay the cost and what form will it take and when will it be paid?
One possible answer relates to the annual interest that we pay on our federal debt. According to this diary (Would you believe we pay more in interest than on Medicaid?), for the year 2009, we will pay $260 billion in interest on our federal debt, which is more than we will spend on Medicaid (i.e., $215 billion). So, perhaps, we will pay through higher taxes levied for the purpose of paying this interest.
Yet, what is to stop our government from just borrowing money to pay the interest on the national debt, just as our government annually borrows money to pay for expenditures that exceed tax revenues? If we're borrowing a trillion per year, then we're not really paying for the $260 billion in interest.
But eventually, many people would argue that we will have to pay for it, either through higher interest rates, a weaker dollar, higher taxes, reduced social programs, higher inflation, weaker economic growth, fewer jobs, etc. Although at this moment, interest rates are low, the dollar has stabilized, taxes are not getting appreciably raised, social programs are still meeting the required benefits, the CPI is negative 0.4% (over the last 12 months), and the deficit spending is expected to increase GDP and jobs, there will come a time somewhere in the future, where this extra spending will have a negative impact.
Yet, some of these forms of payment could actually be partially beneficial. For example, a weaker dollar could reduce outsourcing. (See this diary: Outsourcing to India will stop in 2.3 years.) Yes, it would raise the price of all our imports, but our biggest costs are domestically-based (e.g., health care, education, housing). The strong dollar is mainly beneficial to those with a good paying job with good health care benefits. If your income is zero, then those cheap goods from abroad are unaffordably expensive.
Also, higher interest rates could encourage savings, which would help to re-capitalize our banks and provide capital for new investments that could lead to economic growth and jobs. It would also help our retired seniors who are reasonably reluctant to put a large percentage of their savings in the stock market, but at the same time, are discouraged to find that risk-free treasury bonds are paying less than 2.8%.
With respect to inflation, does the printing of trillions for the purpose of paying the debts of bankers necessarily lead to "more money chasing goods" and thus inflation? Many pundits have said that the Japanese tried to bailout their banks, after which they experienced a decade of deflation. Or how about printing of trillions for the purpose of investing in new energy technologies? It's possible that such an investment could lower the price of energy and create new industries/jobs, which could provide a very long-term, high return that would more than compensate for the deficit spending as well as the consequent interest payments.
Perhaps, we could just end all federal taxation and just deficit spend. If we did this, then we should stop borrowing from the Federal Reserve and instead just have Uncle Sam print the money. In this way, when we print money, we don't generate debt that needs to be paid back. Also, it would be good to make sure that there is minimal waste in the spending (e.g., less crazy wars) and much good investment, in order to promote economic growth and keep inflation low. Also, it would be good to reduce the unequal allocation of government spending, so that we don't ever have a situation where there's high inflation but only some people are getting the government money. The way we could do this is through a generous Basic Income Guarantee, national health insurance, the gradual elimination of the existing social programs (e.g., Medicaid, Medicare, Social Security), and a cost-efficient federal workforce.
Anyway, the above paragraph is just a half-baked thought that I decided to throw out there. But getting back to the main question of the diary, the more I think about a trillion dollars, the less I feel I know what it means.
By the way, my next diary is going to be titled "What are clouds?". I will begin with a clear definition:
A visible body of very fine water droplets or ice particles suspended in the atmosphere at altitudes ranging up to several miles above sea level.
And I will end by quoting Joni Mitchell:
Joni Mitchell - Both Sides Now (Live, 1970)
I've looked at clouds from both sides now
From up and down, and still somehow
It's cloud illusions I recall
I really don't know clouds at all
Here's a good diary that provides a helpful description of what a trillion means.
A Trillion Here, A Trillion There ...
Now that you're properly numbed, what is a trillion dollars besides 10% of the national debt?
It's enough to give every woman, man and child in the United States $3278, which is $9 apiece more than what each Alaskan will get from state oil dividends this year.
It's twelve times what the federal government spends each year on transportation.
Ten times what it spends on education.
Six times what Senator Obama has vowed to spend over 10 years for energy independence.
It's 19% more than NASA's budget for the entire half century the space agency has been in existence.
It's 38% more than this year's bloated Pentagon budget.
It's 60% of what's needed to renew and repair America's entire infrastructure of bridges and roads.
It's 50% of what's needed to provide universal health coverage for all Americans.
Here's a libertarian perspective on what wasteful spending means:
Krugman in Need of Remedial Education
Those who sat on the sidelines uninvolved had to fund this mad proposal with their tax dollars or the dollars had to be conjured up out of thin air causing either inflation now or some massive problem down the road (such as paying interest on the national debt).
So, what do you think it generally means when the government borrows and spends a trillion dollars? What do think it means in our case, with so much of the deficit spending going to those greedy, foolish financial companies and their bond holders? If you have no idea, you can just throw your hands up in the air and shake your head to the side and say "it beats the hell out of me." You could use this symbol "Y" for hands in the air and "<@>" for shaking your head.
By the way, the number after a trillion is quadrillion.