National debt

[tourmaline]

So, this isnt my usual forum, but I have known for a while that the US has a budget deficit (no **** Sherlock) but did not consider it ever (forehead palm). Deficit spending has led to a huge national debt. So what are the citizens of the US to do?

To me the most practical (and generalized/vague) solution would be to hold current tax rates or increase taxes plus cut spending big.

This seems to be an anti-dem and an anti-rep stance. I wouldn't consider myself a nut-bagger or a dem or rep or anything else for that matter when it comes to this. I'm just curious how we are going to be responsible adults about our massive debt.

The big 3 pieces of pie are defense, medicare et al, and social security. If social security is going to collapse eventually, why not put a cap on eligibility? There isn't the Evil Empire anymore and the two ongoing wars are a waste, why not cut defense spending? Every other piece of the pie is insignificant in comparison.

Yes yes, Obamacare/Regan-diplomacy/war-on-terror have not helped.

Really, can we please stay away from blaming previous administrations or political parties? Everyone, Dem, Rep, admin, congress, up to and including now has been to blame.

eh-hem..... Everyone, Dem, Rep, admin, congress, up to and including now has been to blame.

I'm sorry Mr. Garrison, [load speaker] EVERYONE, DEM, REP, ADMIN, CONGRESS, UP TO AND INCLUDING NOW HAS BEEN TO BLAME.

WTF? How long an we keep this up? Are we really that irresponsible? Is there anyone else out there who is pro-taxes and anti-spending?

 

[Puppycow]

Eventually we will have to at least stop the debt from growing, and preferably start paying it down. But not while unemployment is still so high and economic growth is still so weak. This can for another year or two.

Let's put the debt in perspective. Do you own a house? Do you have a mortgage? The national debt to the nation is roughly the same size as a typical mortgage is to a typical homeowner. People pay off mortgages all the time, in normal inflationary economic times.

The average household debt per capita is about $50,000 and the average income per capita is also about $50,000. This is just the average. Obviously some people have much higher ratios of debt to income. In the case of the nation, the GDP is about $14 trillion every year and the debt is about $14 trillion. The people who lend the nation money, purchasers of bonds, are willing to lend at very low interest rates. Close to zero for one-year or 2-year T-bills. Around 2.6% for 10-year treasuries, and just under 4% for 30-years. Those are much better deals than you or I can get for a mortgage.

So, I agree with you in the long run, but we can certainly wait a year or two for the unemployment situation to improve before starting. The national debt is not an emergency. It has been worse before and it got better. There have always been people wringing their hands about it, but that's because they don't really see it in perspective or understand how normal economic growth and normal monetary inflation help take care of a big chunk of it in the long run.

 

[MG1962]

I have nothing to add to Puppycow's excellent post other than to say I have been through a few of these cycles. It all works out in the end

 

[lomiller]

To me the most practical (and generalized/vague) solution would be to hold current tax rates or increase taxes plus cut spending big.

The devil is in the details. Tell us what spending do you want to see cut, keeping in mind the current deficit is 3X as large as all non-mandatory, not-military spending combined.

 

[lomiller]

If social security is going to collapse eventually, why not put a cap on eligibility?

Social security will be in trouble in 25 years but right now is still taking in more then it pays out.

There isn't the Evil Empire anymore and the two ongoing wars are a waste, why not cut defense spending? Every other piece of the pie is insignificant in comparison.

how much do you think defense spending should be cut? In any case, if you are looking for practical solutions this isn't it because most Americans support current levels of defense spending.

Yes yes, Obamacare/Regan-diplomacy/war-on-terror have not helped.

Obamacare has yet to kick in so it can't be hurting

 

[casebro]

Anybody got a clue to the value of America? And our debt:value ratio?

(eta, even the value of the government's holdings? Office building that could be sold and leased back, national forest lands that could be sold to developers, oceanfront military bases, General Motors, ... The value is staggering, and makes the national debt trivial. )

Foreigners are still buying our debt, even at 0% profit, because we are still a very stable place to invest. All else is immaterial, except to forecast.

The Chinese hold 11% of our debt, they have a trillion dollars invested in America. Call me when they start wholesaling it off.

 

[Beerina]

If we had no debt, Congress would borrow more since they can spend just a little more, to get more votes.

So even if it were balanced, it would naturally become unbalanced.


If there were no debt, we'd have something like half a trillion dollars extra to spend on things besides interest payments. IIRC, at several points in the last 30 years this interest payment was actually larger than that particular year's deficit.

Of course, let's hope the last two years are the anomaly rather than the new standard. Depending on next Tuesday, I suspect so.

 

[KoihimeNakamura]

I wouldn't bet on it. Seriously, the republicans are as bad, and the debt hasn't skyrockted as much as people would like to say.

 

[Ziggurat]

I have nothing to add to Puppycow's excellent post other than to say I have been through a few of these cycles. It all works out in the end

We haven't been this deep in the red since WW2. But 1) it was rather easy to see where the budget cuts would come from after the war, and 2) the debt was almost entirely held domestically. Neither of those conditions is met now. Huge fractions of our debt are held overseas (which means payment of those debts is a bigger drag on our economy), and not only are there no obvious places in the budget which we know will get cut, there are in fact looming budget explosions as the baby boomers move onto social security and medicare.

It all works out in the end until it doesn't.

 

[DavidJames]

It all works out in the end until it doesn't.

Regarding the debt. I'm just curious, Is there a clip level where you begin getting concerned? If so what is it and has it been reached in the past and have you ever complained on this forum about it?

Yes, this is transparent, I am looking for hypocrisy. GWB ran up the debt well beyond Clinton but I don't recall many Republicans complaining about it. Now it's the end of the world.

 

[Ziggurat]

Regarding the debt. I'm just curious, Is there a clip level where you begin getting concerned?

Nope, for me it's a continuous transition of concern as debt mounts.

If so what is it and has it been reached in the past and have you ever complained on this forum about it?

Hell if I remember. I've got over 16,000 posts here, only some of them are memorable to me.

Yes, this is transparent, I am looking for hypocrisy.

Well, there's always plenty of that to go around.

GWB ran up the debt well beyond Clinton but I don't recall many Republicans complaining about it.

I do. Not so much among Republicans in Congress (which is one reason that the Tea Party has also targeted incumbent Republicans), but outside of Congress, yeah, there were definitely plenty of Republicans who were vocal about their displeasure with his spending.

Now it's the end of the world.

No, but now it's worse. Significantly worse.

 

[Francesca R]

This can [wait?] for another year or two.

There is no valid reason to delay credible medium term deficit reduction plans, even if they are intentions. But the US political process has not delivered any such plan (as is shown in CBO and OMB projections). There is no projection anywhere that has debt falling as a fraction of GDP that I know of.

Huge fractions of our debt are held overseas (which means payment of those debts is a bigger drag on our economy)

Not really. Assuming that the debt is desired (IE the government thinks the value of the borrowed principal exceeds its cost of borrowing--which we can take as true* since they otherwise would not have borrowed), then borrowing from foreigners is less of a drag on your economy, since your domestic private savings pool can do something more productive than lend to the state at negative real rates of interest.

Heavy foreign borrowing puts a country at greater risk of a funding crisis--but that's not what you argued.

*You may disagree with the government about that, but that is not relevant to your argument here.

 

[Ziggurat]

Not really. Assuming that the debt is desired (IE the government thinks the value of the borrowed principal exceeds its cost of borrowing--which we can take as true* since they otherwise would not have borrowed), then borrowing from foreigners is less of a drag on your economy, since your domestic private savings pool can do something more productive than lend to the state at negative real rates of interest.

It's less of a drag when the borrowing happens, but that's now in the past. And that money has already been spent, the benefits already consumed. It's more of a drag when repayment takes place, which is what matters if you're projecting what will happen next.

 

[Brainster]

Reducing the deficit would not be a bad idea. Reducing the debt on the other hand, is problematic. The last time the government did any serious paydown of the national debt was after the Civil War, from about 1870-1890. This period is known to economists as the Great Deflation.

Just as when the government prints money leads to inflation, when the government retires debt it brings about deflation. And while deflation sounds great (who wouldn't want cheaper prices at the store?), do you really want wages and housing values to decline?

 

[Francesca R]

It's less of a drag when the borrowing happens, but that's now in the past. And that money has already been spent, the benefits already consumed. It's more of a drag when repayment takes place, which is what matters if you're projecting what will happen next.

Erm, borrowing and spending is not all in the past. More of it happens now (and in the future) than did before. I am rather surprised at your comment there.

 

[Ziggurat]

Erm, borrowing and spending is not all in the past.

The debt we already have is from borrowing done in the past.

 

[Ziggurat]

Reducing the deficit would not be a bad idea. Reducing the debt on the other hand, is problematic. The last time the government did any serious paydown of the national debt was after the Civil War, from about 1870-1890. This period is known to economists as the Great Deflation.

Paying down the debt isn't the only significant economic event during that period. There was also the Coinage Act of 1873, which essentially put the US on a gold standard. It's hard to do much about deflation when you're on a gold standard. I'm not sure why you think we'd face the same problem now.

Just as when the government prints money leads to inflation, when the government retires debt it brings about deflation.

And what happens if the government prints money in order to retire debt? Is that like strapping buttered toast to the back of a cat and dropping it? Or making redshirts and storm troopers fight?

 

[casebro]

Huge fractions of our debt are held overseas... (.

Last time I looked it up, the Chinese held 11%, about $800B. The vast majority is held domestically. Hmm, how to reconcile your 'huge' with my 'vast'?

And lately, our govt bonds have been selling for close to 0%. I take that to mean that we are trading printed paper for more slips of printed paper, at close to no cost? I guess I don't see the harm in raising debt levels interest freeley.

 

[Francesca R]

The debt we already have is from borrowing done in the past.

So what? Borrowing from overseas is less of a drag on economic growth than borrowing domestically regardless of when it happens. In the case of prior borrowings, the domestic savings pool was not drawn on to finance the government in the past either--except to the extent it volunteered to be, in which case domestic investors did buy your government's bonds.

You either have some parochial "Never borrow from a stranger" mindset, or you're saying "Borrowing is a drag once you have to pay it back, as long as you magically forget about any benefits it delivered (inclusive of the benefit of borrowing from who you borrowed from". Either way your statement is wrong.

 

[Francesca R]

Last time I looked it up, the Chinese held 11%, about $800B.

It's not all China. Overseas holders amount to USD 4.2 trillion which is about 31%.

So it is significant. The point is that the fact that foreigners own the US liability is not a drag on the US economy (relative to Americans holding it). Just ask someone who can go to a commercial bank for a home mortgage compared to someone whose credit constraints require them to raise the money from their immediate neighbours.