Before I go on, I want to clear up a misguided analogy that I frequently hear repeated. The misguided analogy is the idea of the government behaving like a household running up a massive amount of credit card debt.
If this is the way you like to think about things, let me ask you this: Which of your credit cards charge you 0% interest? I ask because that is the interest rate creditors around the world are willing to lend to the U.S. federal government. And what sort of credit card company starts to reduce the interest it charges on your debt as you become progressively more indebted (see the figure…)?
Similarly, Jared Bernstein with a succinct post from last May on why the “family budget” is a terrible metaphor for the U.S. Government’s budget.
We need a long range plan to reduce the size of our budget deficit (and therefore the rate at which our cumulative debt grows), and likely more focused government spending in the short run. Right now, we are stuck in policy no man’s land, and seem unable to act on either.