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Okay, I think you’re asking good questions. The implications of the governmentally held debt are particularly vexing to figure out. To really understand it, one has to look at spreadsheets to figure out where the money goes in each and every year. It's actually much easier to do it now that even SS is runing a deficit.

I don't have the numbers wrong. Economists disagree about the importance of the Intragovernmental Holdings portion of the debt, but it is imnportant to understand that this debt is also interest bearing. And when SS goes into the red as it has this past year and this year and peramently in 2016, the non-market T-bills in the Trust Fund will have to be redeemed by the USG from the General Fund to pay benefits. The government must come up with real money by borrowing it or reducing spending elsewhere. The Intragovernmental Holdings represent an unfunded liability, which is why it is included in the total national debt.

You’re 100% right about that…. up to the point you said, "will have to be redeemed by the USG from the General Fund to pay benefits." We agree on that. Yet you make a logical leap to "The government must come up with real money by borrowing it or reducing spending elsewhere." A leap too far. As the publicly held debt increases, the amount of money the government must pay to make the minimum payments on that debt increases. You know that. You are confusing yourself by crossing two scenarios,

The total debt limit is not increased and increased SS payments are made by cuts to everything else.
The total debt limit is increased and SS is paid by increasing the publicly held debt because SS is now operating in the red.

Either way, the publicly held debt will increase until it reaches 100% of GDP when we will be forced to default. Today’s GDP is $14T which is our current debt limit.

That’s why economists don’t like intergovernmental holdings. Because the concept makes scenario A theoretically possible and yet we operate under scenario B.

Practically all that matters to bond buyers is our publicly held debt because "The government must come up with real money by borrowing it or reducing spending elsewhere." All that matters is cash flow. ( Current Federal Cashflow )

There is no doubt that our bond ratings and interest rates to borrow will increase. Japan's debt is over 125% of GDP now. That is the danger we face with increasing our national debt, i.e., the debt servicing costs and rising interest rates. It is a downward spiral.

Yes! Correct! It is a spiral but airplanes wouldn’t go into spirals if pilots knew exactly when they would go into spirals. What you are imagining is that we metaphysically know the maximum debt ratio AND all our bond buyers agree with us. They won’t. Some will bail when they think we can’t make interest rates of 4%, some when it is 6% and so on.

You are arguing that the hard limit is 125% or a bit higher. You don’t know that it is. What we do know is that it is around 100%. Sometimes its higher, sometimes it is lower. For Greece, even with the backing of the ECU, it was 115%. The exact point is dependent on circumstance. Just because YOU think it’s 125% doesn’t mean that other people think that’s the limit. Japan is the exception that proves the rule. It’s not even that good an exception. The truth is, we will default when OTHER people think we’ve reached the limit. Maybe you feel that every bondholder will think by your rules. Good luck with that. They don’t call them bond vigilantes because they follow rules other people think are reasonable.

What you seem to be missing is that Congress will have to raise the debt ceiling in three months not three years.

The Congress will raise it in three months to last how long? One year? Two? Five? Congress can raise it up to the point that the total government debt minus the intragovernmental holdings equals the publicly held debt equals 100% of GDP.

The debt ceiling applies to our total debt including the publicly held debt and intragovernmental holdings. We can keep on raising the ceiling as we done for many years rather than default.

No. No, no we cannot. Your "many years" is not my "many years". The total debt can be raised until the publicly held debt reaches 100% of GDP, give or take depending on bold holder opinions and unknown interest rates. At the Republican’s spending rate, we will reach a historically reasonable risk of forced default in just five years. Five years isn’t much to me.

That brings its own dangers, but as long as we keep printing money, we can pay our debts, albeit with a declining dollar.

Please be serious. If that’s the point off all this then…. I’m guessing you’re about 23 years old. Your parents should come find you and set you straight. There is no way you could understand most of what you wrote and not understand why trying to inflate our way out of a short-term held debt is a bad, bad idea.

There is plenty of blame to go around including the American people who are uninformed and unengaged. Most would prefer to keep receiving government handouts without understanding that we can no longer afford to do so. The people don't want the politicians to treat them as adults nor do they want to feel the pain of the decisions that must be made.

If that is true then it all doesn’t matter. What I think is true is that the American people, even the educated ones, don’t know how deep a hole we are in and how fast we are digging. If the House doesn’t hold the line on debt, the American people won’t know why debt is important until it is too late. That is why Paulenty’s point is so helpful. It forces the clarity we need to get our spending under control. Most Americans don’t understand there is a hard, literally killing limit to deficit spending. If they do find out after it happens, God help anyone within ten miles of the Capitol. It will mean and end to our way of life, end of our constitution, old people will die needlessly, etc. Decisions have consequences and sometimes are out of proportion to what we think is reasonable.

By 2030, one in five residents in this country will be 65 or older, twice what it is now. The baby boomers are retiring at the rate of 10,000 a day and will continue to do so for the next 20 years. In 1950 there were 16 workers for every retiree; today it is 3.3; and by 2030 it will be just two. The welfare state has bankrupted us.

True. Now is the time to deal with it as we are sure that our (publicly) held debt to GDP ratio is manageable. If we wait until it might not be, it will be too late. At that point other people, far more brutal people, get to decide what the consequences are. What makes sense to me is to have the retirement age increased each year to keep the percentage of people on SS what it is today.

Either way, the publicly held debt will increase until it reaches 100% of GDP when we will be forced to default. Today’s GDP is $14T which is our current debt limit.

Not true. There is no automatic default when the publicly held debt reaches 100% of GDP. There is no hard limit.

Tell that to Bernanke and his quantitative easing. The dollar is still the world's reserve currency. I am guessing you are about 15 years old.

Where do you come up with this nonsense about the imaginary point of when the publicly held debt equals 100% of GDP. Yes, bond ratings will decline and the cost of borrowing will go up, but there is no automatic default. The real problem is when debt servicing costs continue to eat up more and more of the federal budget that we can no longer operate our government. Then we are forced into default. Congress has been raising the debt limit for a long, long time.

What makes sense to me is to have the retirement age increased each year to keep the percentage of people on SS what it is today.

It makes more sense to means test it. SS is not our biggest problem. It can be solved relatively easy thru a combination of ways. I prefer privatizing it with a small defined benefit program. Raising the retirement age every year is simplistic and won't work for those blue collar workers who have been engaged in hard physical labor. Some slight increases in the retirement age, changes to the computation of benefits and COLA, and small increases in payroll taxes can keep the system solvent.

Medicare and Medicaid are by far our biggest problems and the most difficult to solve. These programs are bankrupting the nation.