How much national debt is too much?

[Rhapsody1447]

I have always considered the Debt to GDP ration a bad measure.
A better measure would be the annual revenue vs debt.
This measures income vs debt burden, and shows the trend.
So Treasure bulletin for 2011
Income $2,302 T
Outlay $3,598 T
Debt $15.629T
So if someone made $23,000 a year, spent $36,000 a year, and had a $156,000 mortgage,
Do you think they would be a good credit risk?
How long could this person keep getting and maxing out new credit cards?
Sure they have lots of assets, but last time I looked Yosemite is not a liquid asset.
BTW, selling bonds are like getting new credit cards, (certificates of debt)

You're comparing a flow to a stock. If you are comparing the stock of outstanding debt to tax revenue, you'd look at interest expense as a percent of tax revenue (S&P warns that 20% is the danger level) and the amount of maturing debt in the period.

For example, I earn $100 this month, I owe the bank $30 of interest on my credit card balance, and I have to pay a friend back the $80 he lent me. I can't waive my credit card payment and my friend needs his money this month. Therefore if I can't borrow $10 from a different friend (or restructure the outstanding $80) I'll be in default.

During FY2011 in the US there was:
Income: $2,303.4B
Outlay: $3,603.0B
Net Debt Issuance: $1,299.6B
Gross Debt Issuance: $7,807B*
Net Interest Expense: $230.0B

You can read more here: Managing the Federal Debt > Publications > National Affairs
USTreasury update: 2011 debt positioning | atradersrant

Note that the majority of new debt issuance is done with short-term T-Bills and thus are borrowed at exceptionally low interest rates (0.35%?). The problem is that short duration debt increases your interest rate risk when you roll them forward. This is where the stock of national debt can become an issue. The long-term historical average for treasury interest rates is approximately 5%. Our extremely low interest rates have allowed us to increase our debt burden by 50% in three years while reducing our interest expense. The trouble is, that due to our high debt burden and short duration our budget is significantly exposed if interest rates ever return to their historical average. If we were paying an average of 5% on our current debt our annual interest expense would be $781 billion (33.9% of FY2011 revenue!) or more than we pay for Medicaid and Social Security. As our resident MMT'ers will tell you, the US can't default since we are monetarily sovereign and therefore bondholders take virtually no credit risk. However (and I'm sure they will argue this point), the government (and bondholders) does take interest rate risk when it is forced to issue so much new debt each year.

*Someone more qualified than I should audit this number. I pulled the data from here (warning: xls download) - http://tinyurl.com/74soefa

 

[Paschendale]

Personally, I'd like to see no debt. I think borrowing and lending money is a bad system in general. I really don't think a person should spend more than they have. This applies to a country, too.

 

[Thunder]

Personally, I'd like to see no debt. I think borrowing and lending money is a bad system in general. I really don't think a person should spend more than they have. This applies to a country, too.

yes, that would be nice.

but having a national debt isn't that big a deal...as long as it is controlled and at a certain level.

 

[TNAR]

I'm no expert, but wouldn't it be safer to conclude that our fiscal policies had a lot more to do with that than monetary?

Absolutely not! If anything, the monetary policy has more blame to carry than the fiscal policy.

The Federal Reserve System marked the moment in history when America could enjoy a loose fiscal policy without the appearance of having an insecure monetary policy. In fact, the monetary policy was deliberately deceiving specifically in order to allow for a loose fiscal policy. The facade of the gold standard was allegedly reintroduced, there were multiple rounds of banking regulations which purported to "fix" alleged inefficiencies in the market, and a majority of businesses were cajoled into supporting it. This was all monetary. Without the monetary policy firmly in place the fiscal policy would not have been possible.

And the Fed was established in 1913, while our position as the world's largest creditor with respect to net foreign asset position occurred during the early 80s, if I recall correctly.

The U.S. was the largest creditor as late as the end of WWI and became the world's largest debtor at the end of WWII.

If debt and deficit spending is being spent on public investments that spur economic growth and innovation in the long term, then it's beneficial.

How do you know? What would the money have been spent on in the private sector if it had not been taken by the government and spent willy-nilly on the sacrosanct "infrastructure"? Can you seriously claim that a third party can spend another person's money more wisely than the person himself? Especially when the party doing the spending enjoys all of the gains and suffers none of the losses?

No one really believes the US government is at risk for default.

Millions of individuals will disagree with you on this one.

How can anyone take them seriously when they've been so clearly wrong this whole time?

Depends on who "they" is. Many of "them" have been deadly accurate for numerous decades. Contrary to what you believe, inflation is a threat. Unless of course you don't feel that the destruction of 98% of the value in a dollar is a big deal. Borrowing costs are going up. Don't forget that you must consider these things in real terms rather than in nominal. Of course austerity has been met with contraction! The entire purpose of enacting austerity measures is to reduce spending! By definition this results in a certain number of people becoming unemployed who previously were employed by the state.

Correct me if I'am wrong but under the FED we have a debt currency. Federal Reserve Notes.

Fiat currency. There are no promises of any sort of redemption for Federal Reserve Notes (other than replacing it with an equal amount of Federal Reserve Notes).

There is nothing wrong with a large national debt....and even one that perpepually grows.

This is wrong on so many levels I would prefer for you to explain to us why debt does not matter.

 

[Mach]

yes, that would be nice.
but having a national debt isn't that big a deal...as long as it is controlled and at a certain level.

So economies are "under our control", and we know with certainty where this "certain level" is?
Let's even say the above is generally true (which it's not). Do you think politicians are incentivized to actually control the debt? Aren't politicains about getting re-elected, and pandering to their voting base (be it big corporations and wealthy, or public workers and the youth?).

I'll tell you, listening to NPR yesterday about the Greece crisis this came up. One of the panelists had the nerve to claim that prior to the recession, the debt in Greece was at a safe, manageable level (60-70% of GDP). It was only the CRISIS that caused this to become unmanageable.

You get it right? Even think-tank paid analysists make absurd, stupid statements, not realizing that all economies in human history have boom/bust cycles...and if the debt is "sustainable" during a boom, that has no direct bearing on whether or not it is sustainable during a bust. Not only that, but higher debt at the time of a bust is strictly worse than less debt during a bust. There is no equivocation on that.

I'm not saying the U.S. debt is a crisis necessarily, or that zero debt is necessary, I'm just pointing out that people have no ****ing clue what level of debt in the future will turn out to be safe, and they sure as **** have no control over it.

 

[Kushinator]

I'll tell you, listening to NPR yesterday about the Greece crisis this came up. One of the panelists had the nerve to claim that prior to the recession, the debt in Greece was at a safe, manageable level (60-70% of GDP). It was only the CRISIS that caused this to become unmanageable.

I wouldn't put too much faith in the panelist. Greece's debt to GDP ratio in 2007 was about 0.95.

I'm not saying the U.S. debt is a crisis necessarily, or that zero debt is necessary, I'm just pointing out that people have no ****ing clue what level of debt in the future will turn out to be safe, and they sure as **** have no control over it.

There are subtle differences. Greece is not monetarily sovereign and therefore cannot use fiscal policy to help alleviate accelerating unemployment without getting raped by credit markets.

 

[RGacky3]

yes, that would be nice.

but having a national debt isn't that big a deal...as long as it is controlled and at a certain level.

I hate to say it, but this is one issue that I someone agree with libertarians on (although not at all on their solution), debt does matter, its a class issue, the rich and buisiness class don't want to pay high taxes, but people still want public services and a safety net and the rich want protections and subsidies (direct and indirect), so the governments don't want to piss off the Rich or the buisiness class so they have taxes on them low and just borrow the difference, and the borrow it FROM ... the rich and the buisiness class, and pay them interest.

The solution is pretty simple, its not even a socialist solution ... Just tax the rich, and tax corporations, there are many different ways to do it, and for anyone that is terrified that there would be no investment and HUGE capital flight or whatever, just see post WW2 Social democratic Europe and the United States (with a 90% top tax rate).

People invest where there is a market and potential for a return, even if there are high taxes, I'd rather invest in Sweeden than Somalia.

Ultimately though the economy needs to move toward democratization.

There are subtle differences. Greece is not monetarily sovereign and therefore cannot use fiscal policy to help alleviate accelerating unemployment without getting raped by credit markets.

Which is exactly why they need to just pull out of the EURO imo, and focus on building their economy up, not stripping down what they have to pay off the banks.

Argentina unpegged their currency and partially defaulted, they're FINE, Iceland simply partially defaulted, they are FINE, and then both of them followed progressive policies to build their economy.

Let's even say the above is generally true (which it's not). Do you think politicians are incentivized to actually control the debt? Aren't politicains about getting re-elected, and pandering to their voting base (be it big corporations and wealthy, or public workers and the youth?).

I love how you throw public workeres along with big corporations and the wealthy, like teacherse unions and firefighters have even close to the influence that CITIgroup or Walmart does ... Common now.

But I think a lot of the public DOES care about the debt, thats why they are saying "tax the rich."

You get it right? Even think-tank paid analysists make absurd, stupid statements, not realizing that all economies in human history have boom/bust cycles...and if the debt is "sustainable" during a boom, that has no direct bearing on whether or not it is sustainable during a bust. Not only that, but higher debt at the time of a bust is strictly worse than less debt during a bust. There is no equivocation on that.

You can't compare the US to Greece, like Kushinator pointed out, Greece is not a monetary sovereign, also Greece is a small economy highly dependant on the rest of Europe, the U.S. If it wants to, can pull a lot more strings, the US is one of the largest (if not THE largest) consumers of debt out there giving it a lot of sway, if it wants to use it, over the banks, unfortunately most politicians want to get consulting jobs when their term is done, so they don't want to rock the boat.

 

[imagep]

It's interesting that huge fortunes have been created by many a conservative business hero using OPM (other peoples money), yet conservatives so often try to villianize debt.

 

[Matt Foley]

It's interesting that huge fortunes have been created by many a conservative business hero using OPM (other peoples money), yet conservatives so often try to villianize debt.

There should be a constitutional amendment against Usury above 0.00%

I wonder if there's a way around that, like creating constantly deflating currency. Who knows. Now that would be a "New Economic Paradigm".

 

[Canell]

Lol, I would understand if the US owed some money to other countries as their national debt. But the US owe those 16 trillion to themselves, OK to the FED that is supposedly a part of the government. WTH?

 

[Mach]

You can't compare the US to Greece, like Kushinator pointed out, Greece is not a monetary sovereign, also Greece is a small economy highly dependant on the rest of Europe, the U.S. If it wants to, can pull a lot more strings, the US is one of the largest (if not THE largest) consumers of debt out there giving it a lot of sway, if it wants to use it, over the banks, unfortunately most politicians want to get consulting jobs when their term is done, so they don't want to rock the boat.

I'm not. You both missed the point, Greece threw you off (I understand why). What I mention is really nation-agnostic, it's about the claim that:
"Debt level of XYZ is both manageable and ideal."

You should be well aware that countless numbers of people made this claim during the housing bubble in the U.S. They were demonstarted to have been wrong, when the bust arrived. We suffered an economic recession, this has nothing to do with Greece. What I'm pointing out is how many people have this mindset that they know what debt levels are OK. Someone has to make these calculations, and we should all be well aware of the epic proportions that getting it wrong has. So it's important, and people are getting it wrong. Therefore, understanding what debt levels are ideal at the federal, state, and individual levels, is important, and I don't see that the majority gets it right.

There are subtle differences. Greece is not monetarily sovereign and therefore cannot use fiscal policy to help alleviate accelerating unemployment without getting raped by credit markets.

Sure, it's not really about those differences though. We had our own recession, Greece has worse issue for different reasons, yes, but it doesn't change the fact that people everyone, U.S. and Greece, make these claims of manageable debt yet when the bust hit, their bluff was called. Worse, you have people who like the panelist above, who *still* claim the debt level prior to the bust was manageable (!), despite the evidence that post-bust, it wasn't.

You run simulations, you include worst case, best case, etc. How do you calculate based on the certainty that there will be a bust, most likely in finance/real-estate (we have seen this before, no excuse right?)? Do you think the federal government should use similar risk tolerance that a private wealthy investor uses? Or something more conservative?

For all I know, we may actually do better to milk the bubble all the way up, and then just suffer the bust, on average, when compared to being conservative the entire time. If this was the case though, I wouldn't be looking for causes of the bust, or whining about recession when all along that's precisely what was planned for, and determined to be optimal long-term...

 

[imagep]

There should be a constitutional amendment against Usury above 0.00%

I wonder if there's a way around that, like creating constantly deflating currency. Who knows. Now that would be a "New Economic Paradigm".

I realize that you are way far extreme left, but personally I don't have an issue with people receiving rent for their property. Money is property, just as if I had rented someone a backhoe to use for the weekend. If people couldn't get rent for lending, then no one would lend because no one wants to take a risk for no return. We wouldn't have a good banking system, and most people would never be able to own a house or purchase a new car.

Lending is a good thing. Debt can actually be a good thing also. Debt and lending occurs when income and wealth are maldistributed - when one person has more money than he has a use for, and another has less money than he has a need for. So the person with the cash rents his excess money out to the person who is in need. It's a mechanism that temporaraly solves the maldistribution issue.

The amount of debt in existence is the best measure of the amount of disparity of income and wealth in a society.

 

[Kushinator]

I'm not. You both missed the point, Greece threw you off (I understand why). What I mention is really nation-agnostic, it's about the claim that:
"Debt level of XYZ is both manageable and ideal."

You should be well aware that countless numbers of people made this claim during the housing bubble in the U.S. They were demonstarted to have been wrong, when the bust arrived. We suffered an economic recession, this has nothing to do with Greece. What I'm pointing out is how many people have this mindset that they know what debt levels are OK. Someone has to make these calculations, and we should all be well aware of the epic proportions that getting it wrong has. So it's important, and people are getting it wrong. Therefore, understanding what debt levels are ideal at the federal, state, and individual levels, is important, and I don't see that the majority gets it right.

Projections are just that, projections. What is important to understand is that countries like Japan, the U.S., Switzerland, Austrailia, etc... can manage public debt to GDP ratio's in the excess of 100% due to a monetary sovereign status, where as nations that exist in the E.U. simply cannot (and should not given E.U. mandates that require budget deficits by curbed @ -3% of GDP, known as the Stability and Growth Pact). To my knowledge, the E.U. did not sanction any member states, and elected to relax said standards because the result would essentially require sanctions on nearly every E.U. member. Europe's problem is that they did not follow their own rules that would have certainly prevented a sovereign debt crisis.

Sure, it's not really about those differences though. We had our own recession, Greece has worse issue for different reasons, yes, but it doesn't change the fact that people everyone, U.S. and Greece, make these claims of manageable debt yet when the bust hit, their bluff was called. Worse, you have people who like the panelist above, who *still* claim the debt level prior to the bust was manageable (!), despite the evidence that post-bust, it wasn't.

Hindsight is 20/20 isn't it? It all goes back to the fact that given the lack of a credit easing mechanism that does not require a bailout (think Eurobonds), ignoring rules that were put in place from a risk management perspective during the formation of the Eurozone was a recipe for disaster.

Do you think the federal government should use similar risk tolerance that a private wealthy investor uses? Or something more conservative?

No, and for reasons previously mentioned.

 

[Matt Foley]

I realize that you are way far extreme left,

Not really. Even Communists/Marxists charge usury. What I am is far-extreme-Christian who is told that if you charge your brother interest you're ass is gonna burn. And I don't believe this out of fear of punishment, but agree with it as a principle of right vs. wrong, and how I feel here *thumps chest*.

Gosbank - Wikipedia, the free encyclopedia

"Gosbank (Russian: Госбанк, Государственный банк СССР, Gosudarstvenny bank SSSR—the USSR State Bank) was the central bank of the Soviet Union and the only bank whatsoever in the entire Union from the 1930s until the year 1987."

Guess what Gosbank did.

but personally I don't have an issue with people receiving rent for their property. Money is property, just as if I had rented someone a backhoe to use for the weekend. If people couldn't get rent for lending, then no one would lend because no one wants to take a risk for no return.

I'm well aware of that's what happens in the "old paradigm".

We wouldn't have a good banking system, and most people would never be able to own a house or purchase a new car.

Maybe they should save money instead, yeah I know, very radical idea.

Lending is a good thing.

Lending is a very bad thing

Debt can actually be a good thing also.

Debt is a very bad thing

Debt and lending occurs when income and wealth are maldistributed - when one person has more money than he has a use for, and another has less money than he has a need for. So the person with the cash rents his excess money out to the person who is in need. It's a mechanism that temporaraly solves the maldistribution issue.

Maldistribution has nothing to do with it, it's simply evil in of itself.

The amount of debt in existence is the best measure of the amount of disparity of income and wealth in a society.

Not really. Lots of rich borrow money, in fact that's where the big profits off usury is made, not the mini-loans us peons make.

 

[Kushinator]

Not really. Even Communists/Marxists charge usury. What I am is far-extreme-Christian who is told that if you charge your brother interest you're ass is gonna burn. And I don't believe this out of fear of punishment, but agree with it as a principle of right vs. wrong, and how I feel here *thumps chest*.

Gosbank - Wikipedia, the free encyclopedia

"Gosbank (Russian: Госбанк, Государственный банк СССР, Gosudarstvenny bank SSSR—the USSR State Bank) was the central bank of the Soviet Union and the only bank whatsoever in the entire Union from the 1930s until the year 1987."

Guess what Gosbank did.




I'm well aware of that's what happens in the "old paradigm".



Maybe they should save money instead, yeah I know, very radical idea.



Lending is a very bad thing



Debt is a very bad thing



Maldistribution has nothing to do with it, it's simply evil in of itself.



Not really. Lots of rich borrow money, in fact that's where the big profits off usury is made, not the mini-loans us peons make.

Lending money without compensation (interest) results in a opportunity cost that increases exponentially as the duration of the loan approaches the 30 year mark. Your religious beliefs and opinions of modern finance are irrelevant to both this thread and sub forum....

 

[iguanaman]

You're not one of the people who subscribe to the "A strong dollar / deflation would be the death of us all, let's weaken it with inflation to 'boost' the economy" school of thought are you?

Your not one of those wingnuts who think we should go back to the gold standard are you? Deflation is much worse than inflation. Moderate inflation always comes with healthy growth and without growth all economies are doomed.
Like Buffet says Gold is a nearly useless commodity. We dig it up out of the ground, melt it down and put it back in the ground with people guarding it, Martians watching would be scratching their heads.

 

[grip]

When investors start dumping our bonds the debt is too much.

 

[Rhapsody1447]

When investors start dumping our bonds the debt is too much.

That's like saying you're not sick until you're dead.

 

[Matt Foley]

Lending money without compensation (interest) results in a opportunity cost that increases exponentially as the duration of the loan approaches the 30 year mark. Your religious beliefs and opinions of modern finance are irrelevant to both this thread and sub forum....

A) It's not a religious belief, what I read just confirms my belief.

B) You promote evil, what does that make you?

 

[RGacky3]

You should be well aware that countless numbers of people made this claim during the housing bubble in the U.S. They were demonstarted to have been wrong, when the bust arrived. We suffered an economic recession, this has nothing to do with Greece. What I'm pointing out is how many people have this mindset that they know what debt levels are OK. Someone has to make these calculations, and we should all be well aware of the epic proportions that getting it wrong has. So it's important, and people are getting it wrong. Therefore, understanding what debt levels are ideal at the federal, state, and individual levels, is important, and I don't see that the majority gets it right.

The point is there is a difference between private household debt, or even corprate debt and national debt, even sovereign and and nonsoverein currency national debt.

Now I agree that national debt is a problem, but it should'nt be seen as worse than other economic problems, such as excess capacity, and so on.

 

[imagep]

... Lots of rich borrow money, in fact that's where the big profits off usury is made, not the mini-loans us peons make.

It doesn't matter if they are rich or poor. Rich people who borrow money do so because they have a need for the money, a purpose for it. People who loan money have no need for their money, other than as property which they can rent out for a profit.

But thanks for explaining your religious views. I respect everyone's religion. I'm just glad that most people don't study the bible while in economics class.

So do you think it is wrong for an equipment rental company to charge money for equipment rental? And what are people who happen to have excess money at the time (like people who saved money all their life for retirement) supposed to do with this money? Should they not deposit it in a bank for safe keeping? Are they going to hell if the bank pays them interest? What's the difference between them investing loaning their money by loaning it to someone who needs it, and them investing in stocks that pay a dividend? what if the amount of interest matches up to the amount of inflation so that there is no real true profit involved - do they go to hell also?

 

[imagep]

When investors start dumping our bonds the debt is too much.

Who are they going to dump the bonds on?

 

[Kushinator]

A) It's not a religious belief, what I read just confirms my belief.

B) You promote evil, what does that make you?

That you have nothing of importance/interest to say in regards to this particular discussion is rather apparent. Try making a relevant comment for a change, this desire to rant adds nothing to the thread.

 

[Matt Foley]

That you have nothing of importance/interest to say in regards to this particular discussion is rather apparent. Try making a relevant comment for a change, this desire to rant adds nothing to the thread.

That's like saying, "right of a woman to do what she wants with her body," doesn't belong in a topic about killing babies.

 

[Matt Foley]

It doesn't matter if they are rich or poor. Rich people who borrow money do so because they have a need for the money, a purpose for it. People who loan money have no need for their money, other than as property which they can rent out for a profit.

Right, some people have no need for money, can I haz yurs then?

But thanks for explaining your religious views. I respect everyone's religion. I'm just glad that most people don't study the bible while in economics class.

It's not a religious view, it's an economic one. Bankers, usury in general, is the parasitical invisible hand on any economy. Usury does nothing but promote old money (unproductive members of society that have no useful skills) at the expense of new money (productive members of society not born with a silver spoon in their mouth).

So do you think it is wrong for an equipment rental company to charge money for equipment rental? And what are people who happen to have excess money at the time (like people who saved money all their life for retirement) supposed to do with this money? Should they not deposit it in a bank for safe keeping? Are they going to hell if the bank pays them interest? What's the difference between them investing loaning their money by loaning it to someone who needs it, and them investing in stocks that pay a dividend? what if the amount of interest matches up to the amount of inflation so that there is no real true profit involved - do they go to hell also?

If the interest rate is 0.00% or above, it's bad.