Healthy economy equals quiet bulletin board

[Giant Communist Robot]

Italy was the hardest hit

Last quarterly figure I have seen is 10.6% unemployment for Italy (this is a total figure, not based on age). GDP quarter over quarter and year over year is shrinking. Industrial production is weak, also. French PMI's are stagnant; GDP quarter over quarter is zero. Spain has had negative GDP for over a year now, with shrinking Industrial New Orders, industrial production, and retail sales. I don't have data for the smaller economies, but the EU is so bad it's scary.

This is where our future is headed right now

I'm unconvinced. Things are different in the two places.

By all means, federal government: Please keep on with our monstrously unsustainable habit of spending money

Where's the evidence it's unsustainable? Europe? From my point of view, I don't see any evidence of harm in the data. As I've pointed out may times, government spending adds to the GDP.

[Giant Communist Robot]

In order to make up the shortfall of $1.3 trillion (the difference between spending and revenue in 2011), taxing only

Please! No taxes!

To keep the value of the dollar from inflating too much, the government borrows to cover the deficit. Central Banks, like China's, use their trade surplus to buy the debt. They don't want to bring the money home as it would inflate their own currency, and with an export based economy that's bad. The average maturity of our debt is probably about three to five years. The last auction for 5 year Treasuries had a rate of .708 percent. Our core inflation is now about 2%. This looks sustainable. Meanwhile, the deficit spending pours into the economy.

Our trade gap doesn't look like a problem. Yes, the Chinese have lots of dollars, but every economics textbook I've seen says the same thing: eventually the dollars accumulating in those Fed accounts will be spent here, buying things from us, instead of taking the money back to China. It's comparative advantage at work. We buy iphones manufactured by slaves, and they buy soybeans. Sarcasm aside, those accounts, like China's, mean future jobs for Americans.

[Shapley]

Where's the evidence it's unsustainable? Europe? From my point of view, I don't see any evidence of harm in the data. As I've pointed out may times, government spending adds to the GDP.

We've added over $5 trillion in real debt to our total, which has resulted in an increase of a little over $1 trillion in GDP in the same period. I would say that's probably unsustainable.

[Shapley]

Please! No taxes!

To keep the value of the dollar from inflating too much, the government borrows to cover the deficit. Central Banks, like China's, use their trade surplus to buy the debt. They don't want to bring the money home as it would inflate their own currency, and with an export based economy that's bad. The average maturity of our debt is probably about three to five years. The last auction for 5 year Treasuries had a rate of .708 percent. Our core inflation is now about 2%. This looks sustainable. Meanwhile, the deficit spending pours into the economy.

Our trade gap doesn't look like a problem. Yes, the Chinese have lots of dollars, but every economics textbook I've seen says the same thing: eventually the dollars accumulating in those Fed accounts will be spent here, buying things from us, instead of taking the money back to China. It's comparative advantage at work. We buy iphones manufactured by slaves, and they buy soybeans. Sarcasm aside, those accounts, like China's, mean future jobs for Americans.

The latest report I saw indicates that uncertainty over tax policy is hampering investment. Investors are expecting both tax increases and budget cuts from Washington. Which candidate is elected will probably determine how much of each, but they expect both regardless of the winner.

Perhaps you should mail a few copies of those textbooks to Washington...

[Giant Communist Robot]

Where's the evidence it's unsustainable? Europe? From my point of view, I don't see any evidence of harm in the data. As I've pointed out may times, government spending adds to the GDP.

We've added over $5 trillion in real debt to our total, which has resulted in an increase of a little over $1 trillion in GDP in the same period. I would say that's probably unsustainable.

They're very big numbers. The last figures I have show 1.2 trillion in gov spending, yet the GDP grew by only 128 billion (QoQ). This suggests the spending is keeping us afloat. As I've tried to point out, when the debt (which covers the spending) becomes too large we'll see evidence. Since I don't see any--just because the numbers are large and scary doesn't mean there is a problem--my idea is we can continue to spend and acquire debt. But I could be wrong.

[Giant Communist Robot]

The latest report I saw indicates that uncertainty over tax policy is hampering investment.

Beyond any doubt. This is what has annoyed me about Obama. Elected on a wave of good feeling, with a Democratic Congress in his pocket, he faced the greatest economic crisis of a generation--and he gave us Obamacare, a tax. Was that his "shovel-ready" project? Thanks, Barry!

[Giant Communist Robot]

I would say that's probably unsustainable.

Humor me and consider this: the latest yield on a seven year treasury is about 1%, while inflation is about 2%.

[Shapley]

I"ve always said that debt was not a big deal, as long as there are assets (GDP, in the case of government debt) to cover it. I realize that household and business debt are different from government debt, but many businesses, consumers, and government leaders don't think of them differently.

When considering the debt/GDP ratio, it is logical only to consider the publicly-owned debt. Intergovernmental borrowing, which makes up about 1/3 of the current debt (down from about 1/2 four years ago) is inconsequential in that regard. It is, to use the home-budget analogy again, like borrowing from one's own savings account. It is technically owed, if you want to retire as comfortably as you planned, but it is owed to yourself, so it can be left unrepaid without impacting your financial standing overall. Since 2009, when the payroll tax was cut as part of the stimulus package, nearly all debt incurred has been publicly-owned debt. This is one of the reasons for alarm, methinks.

[Giant Communist Robot]

Since 2009, when the payroll tax was cut as part of the stimulus package, nearly all debt incurred has been publicly-owned debt. This is one of the reasons for alarm, methinks.

I was unaware of that. See, this is the kind of information you won't find on the FRB's balance sheet. Part of QE and all of The Twist were aimed at purchasing Treasuries, though.

[Shapley]

The Treasury's Debt To The Penny website is excellent for knowing the amount of debt, public and intergovernmental. The search application is useful for obtaining historical debt information.

Unlike 'budget deficits', the Treasury site keeps track of actual borrowing and spending, rather than such things as 'projected deficits' or on-budget and off-budget accounts. That's why I prefer to use it for discussions on debt/deficit issues. Budgets can be misleading.

Using the search application, we can see that total debt at the end of 2008 was $10,699,804,864,612.13. But the publicly-held debt was 'only' $6,369,318,869,476.54.

Today, the total debt stands at $16,020,684,444,134.58, of which $11,270,527,020,333.43 is publicly held. That means that intergovernmental holdings have increased only $419,671,428,665.56.

In the four years prior, during which total debt rose from $7,596,142,802,424.14, public debt rose from $4,408,389,327,642.95, a difference of some $1.961 trillion (okay, I got tired of typing large numbers... ) The intergovernmental holdings rose during that sime time by $1.142 trillion.

By the way, I was wrong on my percentages earlier. Intergovernmental holdings are now about 41%. That's what I get for working from memory. In any case, it is a declining percentage, and has increased very little since the payroll tax cut of 2009.

[Haggis@wk]

MORT ZUCKERMAN: Brace For An Avalanche Of Unfunded Debt: The fiscal cliff isn’t as scary as the looming deficit and debt crisis about to swamp the country.

The greatest fiscal challenge to the U.S. government is not just its annual deficit but its total liabilities. Our federal balance sheet does not include the unfunded social insurance obligations of Medicare, Social Security, and the future retirement benefits of federal employees. Only in the small print of the financial statements do you get some idea of the enormous size of the unfunded commitments. Today the estimated unfunded total is more than $87 trillion, or 550 percent of our GDP. And the debt per household is more than 10 times the median family income.

Something that can’t go on forever, won’t. Debts that can’t be repaid, won’t be. Promises that can’t be kept, won’t be. Make your plans accordingly.

[barfle]

I can't imagine how we can even begin to reduce the debt, considering how much it costs just to pay the artificially low interest payments on the existing debt. One of these days, people are going to realize the loans won't be repaid. With a little luck, I'll be beyond caring by then.

[Giant Communist Robot]

I can't imagine how we can even begin to reduce the debt, considering how much it costs just to pay the artificially low interest payments on the existing debt. One of these days, people are going to realize the loans won't be repaid. With a little luck, I'll be beyond caring by then.

I don't see any reason to think the debt will ever be paid. As long as the economy can continue to grow, we should be able to add more.

[Shapley]

Good to hear from you again, GCR! It's been a while!

[Shapley]

The Mercatus Center at George Mason University says the debt is unsustainable.

Ten Things the Latest CBO Report Tells Us About Federal Finances

[Giant Communist Robot]

The Mercatus Center at George Mason University says the debt is unsustainable.

Ten Things the Latest CBO Report Tells Us About Federal Finances

It takes all kinds of people to make a world. Libertarians and the like have complained mucho about our fractional reserve system, which guarantees we will always be in debt. You will have to get rid of the Federal Reserve before we can be debt free. How likely is that to happen? I expect GDP will continue to grow, spending will go up, taxes will go up, and debt will rise. CBO forecasts have been criticized lately. My point of view has always been that the debt isn't a problem until a problem begins to show. That would be inflation--which is low even by ShadowStat measures--, loss of investor confidence in the U.S.--not apparent in the Treasury market--, and some like to link taxes as well. Taxes are a special case and I don't have time to discuss them now, but in sum I'd say they are the domain of Congress and will be changed at their pleasure. They are not bound to raise taxes.

I want to be apolitical about things and just look from an economic point of view. I don't think the expectations I gave are best for the country, but most likely.

[Giant Communist Robot]

There is always something wrong with my posts. but no one mentions it. I think they are hilarious, but no one else seems to like it.

[Shapley]

Welcome back!

[Shapley]

"There is always something wrong with my posts. but no one mentions it."

You mean something besides the claim that debt is not a problem?

I've always said debt is not a problem as long as you have the assets to cover it. In the case of personnal budgets, that is actual assets, but in the case of government, it is usually measured by GDP. In either case it is the same thing, to a degree - it measures the ability to service the debt. This is why so much focus is placed on the debt-to-GDP ratio, though I'm not sure there is a fixed ratio that differentiates the good from the bad. More likely it is a function of debt-growth-to-GDP-growth, it the same thing, in the long run, but I think it is a more accurate measure of fiscal responsibility than the simple debt-to-assets measure. We probably all overextend ourselves in trying times, such as the United States did during World War II and some homeowners do when they purchase a home, but it is more a measure of how we respond to that overextension that reflects our fiscal well-being, In my opinion.

If the debt grows with equal rapidity in both good times and bad times, then you've clearly got a spending problem. Such is the case today, methinks. Our spending and our deficit were boosted sharply in 2008 and 2009, ostensibly as a response to the need for emergency spending to boost the economy. However, now that the economy has supposedly recovered (and it has to a degree, even though GDP shrank very slightly last quarter), spending has declined only a miniscule amount, and that decline was probably because they couldn't find anything else to spend it on. Now, with the sequestration cuts approaching, some are screaming bloody murder, as if the miniscule cuts are going to bankrupt the nation.

[Giant Communist Robot]

I've always said debt is not a problem as long as you have the assets to cover it

The government can print as much money as they like. Just because we owe money, and a lot of it, doesn't mean it's a problem. It becomes a problem when it causes inflation or a loss of investor confidence in the U.S.

Can the government print enough money to pay it's debt? Sure, it could. Could that cause inflation? Of course. Would it scare investors away from Treasuries? You bet. But do we see any of that happening? Just where is this problem?

I read that R and R book twice--the one where they look at GDP and debt ratios--and my opinion is "correlation is not causation". I don't think they made their case.

even though GDP shrank very slightly last quarter

Looking at the GDP numbers, the big drop was government spending.

You mean something besides the claim that debt is not a problem?

I was probably thinking about inflation.