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US deficit

DanishDynamite

Penultimate Amazing
DanishDynamite
Joined
Aug 10, 2001
Messages
10,752
Just read an article which quoted some US professor as to how the whole "UAE ports deal" was having politicians focusing on the wrong thing. The "ports deal" was just a symptom of a larger problem, i.e. the constant overspending of the US.

The US clearly spends beyond its means. Last year it had a deficit of about 800 billion dollars. This year it will probably reach 1 trillion dollars (according to the article).

The overspending is made up of loans (US bonds) and the selling off of US assets (ports, real-estate, etc).

I have many questions in this regard.

Firstly, how long can this continue?

Secondly, is it a bad thing that more and more of your capital assets are owned by foreigners?
 
DanishDynamite said:
Secondly, is it a bad thing that more and more of your capital assets are owned by foreigners?
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Not as long as more and more of their capital assets are owned by US companies. This would balance things out.

Part of the problem now is that the US is losing the trade defit with countries like China.
 
I'm a bit confused, are you talking about the trade deficit or the budget deficit?
 
DanishDynamite said:
IIRC, the trade deficit.
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I really don't understand the hand-wringing over that. The economy is still growing, and at such a clip the Fed keeps raising interest rates to slow it down! Wealth is increasing here, nothing wrong that it increases elsewhere also IMHO. The trade deficit is a trivia question, not a problem.
 
WildCat said:
I really don't understand the hand-wringing over that. The economy is still growing, and at such a clip the Fed keeps raising interest rates to slow it down! Wealth is increasing here, nothing wrong that it increases elsewhere also IMHO. The trade deficit is a trivia question, not a problem.
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I'm not an economist, so you'll need to slow down. :)

Are you saying that the US is not overspending by borrowing and selling off assets, or are you saying that the US is doing so, but that you are OK with that?
 
I thought the budget deficit was more like 400 B. And if it wasn't for the 200-300 B or so that the US has to pay each year to people that hold past US budget deficits then the current deficit would be even less. Those are rough numbers and in fact you hear so many versions of this stuff you wonder what's what...I mean, I know those numbers I listed are some version of the US budget deficit, but maybe it does or doesn't include X.

I wonder about stuff like this. It is just hard to know what is really important. You hear so many different versions. I've heard some say that the absolute value of the budget deficit doesn't matter but rather what matters is the size of the budget deficit relative to the GDP and that by that measure the deficit isn't that bad. Who knows? Economics is such an inexact science. As a skeptic I think I have a drive to try to figure things out and determine correct from incorrect but I'm realizing more and more that in some fields there is just no black and white answer and it's more a matter of opnion than fact.

I will say this...I think a general danger in the long term to the US or to any entity that has a lot of power is that with power comes complacency and softness. People can get so spoiled. There has been much lower than normal rainfall for several months in the area where I live and they're starting "conservation measures" by allowing people to water their lawns "only" twice a week and people are acting as if they're being told to cut off their own arm. People here so used to having absolutely everything they want that any cutback to levels that are still indugent by the standards of the rest of the world seem like deprivation.

If the deficits get so high that they become a real danger it'll be because people demand so much and they want it now even if it means saddling the future with bigger deficits. And on top of all this, the baby boomers are about to retire and start drawing on Social Security and Medicare. It'll be a real fiscal challenge.

One silver lining is that the immigration rate is high and that puts more younger workers in the workforce, which will soften the blow of so many baby boomers retiring. And also I think that helps combat the complacency thing...if there's one thing that immigrants to the US aren't, it's complacent. The fact that the "America" isn't a single nationality or religion helps I think because that attracts people of all kinds that want opportunity, and I think it makes people that are already here more open (relatively speaking) to newcomers.

But yeah, the damn politicians and their spending...man, I hope someone somewhere has a handle on this big picture because the numbers get scary sometimes.
 
Number Six:

I know exactly where you are coming from. I too get very, very confused when the economists start blabbing.

The article I read (in Danish, sorry) though, seemed to make things fairly clear.

The US was overspending last year and has been overspending for quite a number of years, which meant that if you spend more than you have, you either need to loan (via US bonds) or sell assets (real-estate, for example).
 
DanishDynamite said:
I'm not an economist, so you'll need to slow down. :)

Are you saying that the US is not overspending by borrowing and selling off assets, or are you saying that the US is doing so, but that you are OK with that?
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Now you're talking about borrowing again, which would have to do w/ the budget deficit, not the trade deficit.
 
DanishDynamite said:
Just read an article which quoted some US professor as to how the whole "UAE ports deal" was having politicians focusing on the wrong thing. The "ports deal" was just a symptom of a larger problem, i.e. the constant overspending of the US.

The US clearly spends beyond its means. Last year it had a deficit of about 800 billion dollars. This year it will probably reach 1 trillion dollars (according to the article).

The overspending is made up of loans (US bonds) and the selling off of US assets (ports, real-estate, etc).

I have many questions in this regard.

Firstly, how long can this continue?

Secondly, is it a bad thing that more and more of your capital assets are owned by foreigners?
Click to expand...

The spending vs. Gdp is high but not terribly so. Certainly not as bad as the long term debt of various european governments. This is a bit dated but gives the idea.
debtversusgdp.jpg
 
WildCat said:
I really don't understand the hand-wringing over that. The economy is still growing, and at such a clip the Fed keeps raising interest rates to slow it down! Wealth is increasing here, nothing wrong that it increases elsewhere also IMHO. The trade deficit is a trivia question, not a problem.
Click to expand...
Actually, wealth isn't increasing there, debt is. The increase in interest rates is meant to slow down the increase in credit. If you look at US GDP growth in detail you'll see that most of it is in the retail chain, and much of that is in unloading imported goods, transporting them to outlets, and selling them. Another chunk is down to construction, often funded by debt raised against inflating property prices. Another chunk is down to increased bank earnings.

Then there's the excess demand created by the government deficit. US military equipment may be made in the US, but the people that make it buy Japanese TV's from their incomes.

You can only live on credit for so long before somebody forecloses on you. Or sends round the leg-breakers.
 
Ed said:
The spending vs. Gdp is high but not terribly so. Certainly not as bad as the long term debt of various european governments. This is a bit dated but gives the idea.
debtversusgdp.jpg
Click to expand...
Very enlightening....if only I knew what relevance it had.

Could you explain, Ed?
 
DanishDynamite said:
Enlighten me, Oh Great One. Seriously.

I thought US bonds could be bought by anyone.
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They can be, but they benefit the US Government's budget. When you're referring to government spending, you're referring to the U.S. budget deficit. When you're referring to ownership of companies and trade imbalance, you're referring to the U.S. trade defecit. While U.S. trade does generate U.S. government revenue through taxes, the budget deficit has more to do with government spending than the trade deficit.
 
Please, those here who seem to be more in the know, could you please explain in at most two syllable words whether or not the deficit means that 'the overspending is made up of loans (US bonds) and the selling off of US assets (ports, real-estate, etc)' or not. And in either case, whether that means foreigners are owning more and more of the US capital assets or not? And in either case, whether that is a problem?
 
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