To consider politicians are going to tame debt In an election year? Or at all for that matter?
No one can spin the numbers to say that the current track we are on is not going to have an impact on our future. At some point debt simply becomes unsustainable or and can’t be paid back. These figures are calculated within the current interest rate environment; that will not last forever. Debt as a percentage of GDP increased 41%, but the economy stopped contracting. That’s a recovery? If you don’t count the debt (eyes rolling)
“The national debt currently accounts for 53 percent of GDP, up from 41 percent a year ago. That’s likely to rise to 85 percent of GDP by 2018 and 200 percent of GDP by 2038 unless dramatic changes are made, the commission said.”
US needs plan to tame debt soon, experts say
Mon Dec 14, 2009 5:20pm EST
By Andy Sullivan
WASHINGTON, Dec 14 (Reuters) – The U.S. government must craft a plan next year to get its ballooning debt under control or face possible panic in financial markets, a bipartisan panel of budget experts said in a report on Monday.
Though the government should hold off on immediate tax hikes and spending cuts to avoid harming the fragile economic recovery, it will need to make such painful changes by 2012 in order to keep debt at a manageable 60 percent of GDP by 2018, according to the Peterson-Pew Commission on Budget Reform.
Without action, investors could lose confidence in the United States, driving down the dollar and forcing up interest rates, said the former lawmakers and budget officials who crafted the report. That could cause a sharp decrease in the country’s standard of living.
“We will be less free if we don’t tackle this,” said Jim Nussle, a Republican member of the commission who earlier served as a White House budget director and chairman of the budget committee in the U.S. House of Representatives.
The 34-member commission published its report as Congress was poised to raise the debt limit from its current $12.1 trillion level to allow the government to continue operating.
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The debt is a very unfortunate part of having a recovery (even a crappy one like we have now). But the doom and gloom prophecies of how bad the debt is are just misplaced.
“Debt as a percentage of GDP increased 41%” may sound very terrifying, particularly if someone compares that to their personal finances (where it really would be terrifying). But stating such big numbers just doesn’t honestly portray the situation.
Here are some graphs supporting how hyped the debt problem really is:
http://i266.photobucket.com/albums/ii264/Eivanauskas/DebtPaymentsOverTime.gif
http://i266.photobucket.com/albums/ii264/Eivanauskas/DebtasaofGDP.png
The first graph shows that debt payments will rise to levels only seen in the 80s and 90s where we didn’t hear quite the same hype as we do today. The second graph compares the debt as a percentage of GDP of the US with other countries.
2008 wasn’t hype. It was the result of over leverage and too much debt. Today’s unemployment isn’t hype. If you look at “real unemployment” one could say that number is much closer to 17% (from Shadow Stats) To look the wave of entitlements that are coming due and unfunded, current derivatives problem (what is not unwound by any means – not marked to market) in light of the collapse of 08. Do you think what David Walker, former Comptroller speaks of is “doom and gloom”? Beginning next year and every year there after for the next 20 years, 78 million Americans (total) will become pensioners and medical dependents of the U.S. Tax payer. Plug those numbers in and you see what Walker is describing as a fiscal cancer. You can not simply post comparisons to the interest rate payment of today versus the 90s and say all is ok. Consider the things he mentions in this clip and understand these are real concerns, not hype. We haven’t begun to deal with them.
http://www.youtube.com/watch?v=XcxVf2lubCQ
What David Walker speaks about isn’t hype or doom and gloom. He has the best idea and insight of what is going on in terms of what we owe and have committed to (Entitlements) As he says Washington is asleep.
I never said unemployment isn’t hype, unemployment is a serious problem. I think it’s the worst problem our economy faces. The hype I referred to was the size of the debt. Along the same lines, we do have problems with the baby boomer generation entering retirement and taxing social security and medicare.
While these are all problems that if not dealt with, increase the government’s debt, that doesn’t relate to what effect that debt has on our economy. It’s that effect that is hyped.
I listened to David Walker and disagree, yes he has credentials (certainly more than I do) but I can also pull out an authority figure in Paul Krugman who sees things differently. I don’t see the point of playing “who can come up with the most authoritative figure”.
Would you please address what I posted initially, I would be interested to see what you think.
By the way, you should put a button on here so new comments get sent to people’s email
.
Edwin
I seriously see much of our problems as the result of not running a fiscally sound ship personally and at all other levels. 2008 occurred for a variety of factors. Iceland, Dubai, US Investment Banks, etc are all reflective of too much debt. Derivatives blew up last year because we had our head in the sand; they were unregulated and they still aren’t accounted for. But they aren’t drained from the system.
Walker’s numbers appear to be more than only concerns. These entitlements Walker is speaking of were designed when our population was much smaller and people only lived to 67 on average. Our largest age demographic is 65 and over (percentage wise) What happens when these stats kick in? Are we simply going to rely on the bond market or increased GDP?
Here are some graphs supporting how hyped the debt problem really is:
http://i266.photobucket.com/albums/ii264/Eivanauskas/DebtPaymentsOverTime.gif
http://i266.photobucket.com/albums/ii264/Eivanauskas/DebtasaofGDP.png
The first graph shows that debt payments will rise to levels only seen in the 80s and 90s where we didn’t hear quite the same hype as we do today. The second graph compares the debt as a percentage of GDP of the US with other countries.”
Yea, I wasn’t ignoring your charts. Thanks for posting those. I will try to look at them later. At first glance though my thoughts are that they don’t consider the problem of the issues Walker is dealing with. I believe it is more realistic to include the all things we will have to pay for (sovereign debt obs. PLUS coming entitlements to paint an accurate picture. I will see if I can fine some charts or graphs.
Once again, I totally agree on your most recent points. Unemployment is a problem and so are entitlements. A problem that really needs fixing.
But your replies haven’t really addressed what I disagree with, which is that debt is an overhyped problem that isn’t as big a problem as many outlets will tell us. Those graphs perfectly illustrate this. Other countries had, and still have, much higher debt that we do yet are able to function without collapse. Even the US (as in the first graph) has had much larger debt in the recent past than we have now and on par with projections.
Yes debt is not good, but good economic policy is to run a deficit during a recession to get the economy running again and to pay down that deficit during a boom (assuming of course we do pay it down, politicians still try to get more and more spending during booms).
As I mentioned I need to look at those numbers again. But when you look at places that are buckling like CA who is running a $20 Billion deficit, it is because they have spent way too much and have a debt service burden; So, let us not forget the states. An economic recovery this year, next year or the year after, will not take away these problems. This is leading to across the board cuts in state jobs, decreased consumer spending, which leads to higher unemployment. THIS is what appears evident to me. Deficit spending will in fact move GDP, but I’d like to visit where unemployment is in 6 months. Like I said if the trajectory is reversed, I will be absolutely thrilled, because more people will be working. Unfortunately, I just don’t see that happening.
Indeed the problems are something that can’t be fixed just by deficit spending during the recession. California is in deep shit and I can honestly say I don’t know what a good solution for that would be as they don’t have quite the flexibility of the federal government to deal with their problems in the short term.
It sounds like we may just be coming from a different perspective. I agree that states are being hit extremely hard by the recession due to their limited budgets and, like private employers, are being forced to cut their workforce to deal with it which in turn decreases consumer spending and drives the economy even lower. While the states can’t do anything about this, I do think that the federal government can do a lot to fix the problems short term with a more efficient, and properly sized, stimulus.
Of course this won’t do anything to fix problems like entitlements and irresponsible spending (however we want to define that) but it is a necessity to bringing about a more sustainable economy and getting us back to full employment. Once that’s done, all of the issues you have brought up need to be tackled, along with the debt.
On another note, in 6 months and beyond unemployment is looking to be as bad as it is now. Hell, it was considered good news that we lost “only” 11,000 jobs last month even though we need to gain about 127,000 jobs a month just to keep up with population growth let alone bring the unemployment rate down.