Matt Welch seethes over the new peak in national debt:

[Tuesday night's] speeches were notable less for what they contained and more for what they did not: any engagement with the issue of having a debt load (of $16 trillion) that is now larger than GDP, of having a long-forecasted entitlement time bomb marching northward toward 100 percent of federal spending, of having underfunded obligations in the trillions of dollars promised by politicians addicted to handing out “free” benefits…. One of the great ironies of this convention already is that speaker after speaker denounces Republicans for being unable to tell the truth or get their facts straight. Meanwhile, one of the most important truths of modern governance—we are well and truly out of money—sits neglected in the corner.

Yglesias rebuts Welch:

Many states and municipalities are up against hard budget constraints, but the US government has the ability to create US currency in unlimited quantities. It hasn’t run out of money and won’t ever run out of money. It would be nice for people to understand this point separately from controversies over whether public sector programs are wise or just.

This graph helps rebut Yglesias’ complacency:

Chart-debt-gdp

We are approaching World War II levels. What conceivable reason is there for that – apart from rank profligacy under Bush and deep recession under Obama? I know interest rates are not soaring; that low demand is the main economic problem right now; but to keep this monster metastasizing over the next few years is asking for trouble – especially when a Bowles-Simpson-style deal could be done in a sane and constructive polity. Mark Thoma urges everyone to chill for the moment:

Deficit spending does not hurt the economy so long as debt loads remain below the critical threshold where investors worry about default, and there’s no sign we are near that point. In fact, the evidence says that in the presence of high unemployment an increase in the deficit helps the economy so long as we make the necessary adjustments to taxes and spending — and both types of changes will be required to solve our long-run budget problem — once the economy is on healthier footing.

However, in the long term, Thoma notes, the debt will become a problem, particularly if the biggest driver – rising healthcare costs – aren’t tamed:

All other problems, including Social Security, pale in comparison. It’s also important to recognize that this is not a government problem: Private sector health care costs are rising just as fast or faster, so simply shifting the burden away from government is not enough to solve the problem. In one way or another — and which way is the source of much of the rancor between the parties — the health care cost problem must be addressed.

Frankly, I’ve been shocked at the Democrats’ inability to grapple with the debt question. The platform is a pathetic reversion to paleo-liberalism. Even Bill Clinton didn’t bring it up at length, although he did help explain why the Grand Bargain failed. The Obama argument is simple: we need to cut the long-term debt urgently, while keeping growth alive for now. The only way to do that convincingly is a bipartisan deal in which Democrats give on entitlements and Republicans give on taxes. Obama offered a 2.5:1 spending cuts-tax hike debt reduction package. The GOP refuse to compromise an inch on taxes. Obama has even cut Medicare already. The case is closed on who can compromise to move us forward. What Obama needs to argue is that his re-election would force the GOP to compromise.

If Obama fails to make this case tonight – for how he would grapple with the debt going forward – he will miss a giant opportunity to bring back worried independents.