U.S. Debt, Today and Tomorrow

[Giant Communist Robot]

We'll get some cuts, some new taxes, a new budget ceiling.

[Haggis@wk]

We'll get some cuts, some new taxes, a new budget ceiling.

Won't work.....

If you want to see just how bad the problem is, go here and spend some time working the calculators. You’ll quickly realize that minor adjustments in taxes and spending won’t fix things. Hell, zeroing out Social Security or defense won’t fix things.

[piqaboo]

It cannot be one party's fault.
Compromise works in two directions.
Neither side will, so we're locked.

I think the first cuts need to be total loss of pay til the thing passes, for all congression folk and senators.
Not a freeze. They forfeit.

[Giant Communist Robot]

Won't work.....

Of course it will. It won't work only if you insist on a balanced budget.

[Haggis@wk]

Of course it will. It won't work only if you insist on a balanced budget.

Okay, pick a number of (presumably) perpetual debt you would be happy with. 50% of GDP? If you killed the SS program completely tomorrow, never mailed out a check and cut grannies all over the country at their knees you would still have government spending of 50+% of GDP until...? Is it your theory that we can't ever pay off any debt so we just learn to live with it increasinng every year?

[Giant Communist Robot]

Okay, pick a number of (presumably) perpetual debt you would be happy with. 50% of GDP?

I'm not convinced that metric is meaningful. The relationship of debt to the sum values of goods and services suggests there are better ways to look at this, because it just isn't clear what it means. GDP does imply tax revenue, which pays debt. Checking the Treasury Budget I see the payment on debt accounts for ~20% of revenue. That leaves ~80% as discretionary income for Congress. Is that a problem?

Debt has at least two good points

1)It eases the burden on taxpayers
2)and it provides the government with cash when it is not collecting taxes

[Giant Communist Robot]

I see everyone's ignoring me, either I'm too obnoxious or turgid.

Let's try this: suppose your monthly bills, say mortgage and credit cards, etc; comes to 20% of your monthly income. Sounds pretty good. Much of that 80% that's left you spend on drugs (you realize I'm comparing you to Congress). I was figuring someone would object to my characterizing entitlements as discretionary, but it didn't happen. But this is a fact: Congress makes the laws and creates entitlements, if they get tired of them they can amend or end them any time they want. That's why I say "discretionary". What we see now is political theater. The public must be preconditioned.

I don't believe we'll see any big changes, though. Some spending cuts, some tax increases.

I've given two good reasons for government debt and as I see it the problem is spending.

[Shapley]

"But this is a fact: Congress makes the laws and creates entitlements, if they get tired of them they can amend or end them any time they want."

I make that argument all the time, but I get ignored, too.

[Giant Communist Robot]

Let's try this: suppose your monthly bills, say mortgage and credit cards, etc; comes to 20% of your monthly income.

Now imagine further that the interest rate on your credit card and mortgage is less than the rate for inflation. And they say the U.S. is broke.

[Haggis@wk]

Let's try this: suppose your monthly bills, say mortgage and credit cards, etc; comes to 20% of your monthly income.

Now imagine further that the interest rate on your credit card and mortgage is less than the rate for inflation. And they say the U.S. is broke.

But if you borrow 40 cents of every dollar you spend how long with the bank carry your loan?

[Giant Communist Robot]

But if you borrow 40 cents of every dollar you spend how long with the bank carry your loan?

To continue the analogy, banks would consider this 40% debt ratio acceptable. I checked two debt ratio calculators to learn this. Also, for individuals, taxes and insurance are lumped in as debt, something the government doesn't pay.

I've pointed out previously that Central Banks don't buy Treasuries for their yield, necessarily. They do it for security and to minimize inflationary impact at home. Honestly, look around at the rest of the world and tell me where else Central Banks could go.

Where does that 40% figure come from? My Treasury Budget link a few posts back shows a little less than 20%.

I'm not trying to argue things are all rosy. I believe if you look at the governments' behavior you can identify its' character. The salient feature of the budget is spending on entitlements for S.S. and Dept. of Health and Human Services. Since tax money pays for these, it must come from those who make more and be redistributed through the agencies to those who make less. This is the lions' share of what our government does. It's actions define its' function, which is to align the economic infrastructure with it's ideas of social justice.

Those ideas are never going to go away, nor should they. As a nation we need to look at how much spending we are comfortable with, and the consequences. Personally I feel we spend too much and I fear we are going to spend even more. Just my opinion.

[Haggis@wk]

Where does that 40% figure come from? My Treasury Budget link a few posts back shows a little less than 20%.

Politifact checked Conrad's claim of 40 cents borrowed for every dollar spent and determined, from Treasury stats, that it's actually 37%, close enough to the 40 cent claim to rate it as truthful.

[Giant Communist Robot]

Where does that 40% figure come from? My Treasury Budget link a few posts back shows a little less than 20%.

Politifact checked Conrad's claim of 40 cents borrowed for every dollar spent and determined, from Treasury stats, that it's actually 37%, close enough to the 40 cent claim to rate it as truthful.

Looking at the link you supplied, I see they are not using current figures. It looks like they were current when the interview took place, however. Check my link with the current figures and do the math yourself--you'll see the <20% figure I gave.

[Giant Communist Robot]

This debt to GDP ratio does apparently have some importance to it--I saw it it a book I'm reading. Unfortunately they don't say why, so I'm still in the dark. My idea is the terms are what's important. I'll have to read more.

[Shapley]

The layman's view is that GDP is the determination of a nation's net worth. Just as it does not pay for an individual to ow more than he owns, it is assumed it does not pay for a nation to do so, either.

As I see it, and based on the nature of the discussion other hold the same view, the primary reason it matters is that there comes a point when one simply will not be able to collateralize more debt, and no more borrowing will be possible. For individuals this has a greater impact, because they actually collateralize their loans agains that which they own: if one defaults, their creditors come collecting.

That's not really the case with nations. China does not hold a lien on Manhattan or Yellowstone National Park. Their debt is based on 'faith and credit', an unsecured loan, if you will. We can print worthless money to pay them off, and their recourses are limited to borrowing no more or going to war to seize that which they believe they are owed. War to resolve debt makes little sense, though.

Theoretically, we have more flexibility in imposing austerity to head off a loss of credit than as a result thereof. That seems to be evident in the EU. The Greeks are seeking austerity measures that will satisfy lenders without raising too much ire among the citizens, and they have some options for doing so. If the lenders stop lending, however, their options will be reduced markedly, as they will be forced to spend no more than they can raise.

[Shapley]

The layman's view is that GDP is the determination of a nation's net worth. Just as it does not pay for an individual to ow more than he owns, it is assumed it does not pay for a nation to do so, either.

I realize, of course, that you are not a layman in these matters. I was speaking more of my understanding of it...

[Giant Communist Robot]

Just as it does not pay for an individual to ow more than he owns

What about buying a house? Wouldn't most people, say at least first time buyers, owe more than they own? Should young people just starting out, say with good credit and income sufficient to qualify for the payments avoid home ownership until they can pay cash?

I'm reading Reinhart and Rogoff'sThis Time is Different and they mention GDP/debt several times. When I'm done I'll look elsewhere for an explanation.

[Shapley]

"What about buying a house? Wouldn't most people, say at least first time buyers, owe more than they own? "

Technically, no. Prior to the last decade or so, banks would only lend up to 80% of a home's value, theoretically leaving the homeown with more equity in the home than debt. When calculating net worth, the value of the home is weighed against the mortgage and other liens thereupon. Lenders used to be unwilling to lend to people with negative net worth. From the looks of the lending market, that very logical requisite is returning.

[Giant Communist Robot]

banks would only lend up to 80% of a home's value, theoretically leaving the homeown with more equity in the home than debt

This doesn't look right to me. The homeowner has 20% equity and the mortgage holder has the rest at the time of purchase, don't they?

[Giant Communist Robot]

The layman's view is that GDP is the determination of a nation's net worth. Just as it does not pay for an individual to ow more than he owns, it is assumed it does not pay for a nation to do so, either.

The government doesn't own the GDP. What it does have is the right to tax the crap out of you to pay for entitlements. The right to tax is a tangible item, in the past governments have even sold the right to others (I'm thinking of France). Anyway, they own a big chunk of everyone's earnings in perpetuity, and the value of this right is what I think should be important.

My reading list if full for the moment but I will look into this later to find my error.

On the subject of default, Reinhart and Rogoff give Australia, New Zealand, Canada, Denmark, Thailand and the U.S. as the only countries that have not defaulted.