"Termites in the Attic": Is It Time to Panic About America's Soaring Debt?

It was "the U.S. is not indebted enough" comment heard 'round the world (well, at least in our world).

In a wildly contrarian view, money manager Ken Fisher last week argued the U.S. has too little debt and that we have a much higher borrowing capacity.

Greg Ip, U.S. economics editor for The Economist, isn't nearly as sanguine as Fisher about America's rising deficit: More government debt crowds out the private sector's ability to borrow and ultimately results in higher interest rates -- slowing down the overall economy.

However, Ip doesn't expect a debt shock for America, as seen in East Asia during the late 1990s, and says America's massive deficit isn't as bad as the bears like Peter Schiff and Marc Faber fear -- especially relative to the rest of the world.  

America's public debt is roughly $6.7 trillion, which is a big number. Put in more meaningful terms, U.S. public debt as a percentage of GDP (or compared to the size of the economy it must support) is 48%. (Click here for a terrific, interactive map on global public debt trends and forecasts.)

Seems high, no? Depends on the context. In the United Kingdom, debt as a percentage of GDP is 64%, with Italy at 113% and Japan at a whopping 185%, according to The Economist. Other advanced countries are tracking toward 90-to-100 percent debt-to-GDP. "That is a very worrisome trend" for the G8 economies, Ip says.

As for America, Ip envisions a "termites in the attic" scenario, with gradually more American taxpayer money devoted to paying off our national debt -- and the interest on that debt. As time goes by, Ip says more and more Americans are going to ask: "What's in it for me?," and start demanding politicians actually lay out plans to reduce, rather than expand, the debt.