National Debt

[jclay2]

We need Ron Paul. The republicans love to say they are financially conservative, but that is a joke and laughable. Right now our current debt as a country is near 9.2 trillion dollars! Just go to the government website if you don't believe me.

http://www.treasurydirect.gov/NP/BPDLogin?application=np

[Corydoras]

David Walker, Comptroller of the United States on 60 Minutes:
http://www.youtube.com/watch?v=QxoP_9W6FC8

[jclay2]

What is funny is how the debt has grown the greatest under republican presidants such as bush and reagan.

[Tom228]

A lot of you may not believe me, but the National debt isn't as bad as everyone thinks. I'll tell you why.

Guess, to whom does the government owe the money to?

Answer is ~70% to the American people (through bonds and securities)
~30% to foreign nations

So if you divide it up: (Based on about $10 dollar debt)

$7 trillion dollars the USA owes to itself
$3 trillion owed to other nations

The reason people are so alarmed is that, hell it's in the trillions, I'd hate to owe someone trillions of dollars. But the thing is we only really need to worry $3 trillion dollars, and compared to our GDP (about $13 trillion) we're not as bad as everyone thinks. If you don't believe me take an economics class. Yea sure David Walker is an accountant, but he isn't an economist, at least I don't think. Every time you look at debt you have to see, 1. how much is owed to itself and to others 2. How does it compare to the GDP 3. What is the money being used for.

And if we paid off the debt then a few things will/ may happen: 1. un even distribution of wealth 2. Paying back countries makes the US poorer

But not paying it off could lead to : 1. higher interest rates which creates a crowding out effect (the idea a large public debt will decrease private investment)

These are a few things I could think of.

I'm not saying that we should continuously deficit spend I'm just saying, know the facts and make rational decisions.

[noxagol]

Not paying them back now will make the US poorer when we pay them back later because of all the interest acrued.

[Tom228]

The thing is, as far as I know, no country in the world has called in the debts.

[Cowlesy]

Tom - It is true that National Debt as a % of GDP is declining marginally. What happens if GDP begins to decline (recession -- the economy does in fact run in cycles), and all the baby boomers retire and begin to collect social security and medicare, so gov't outflows increase.

So GDP declines, we have to borrow more money to pay benefits (unless we raise taxes), and National Debt as a % of GDP balloons. The USD is backed by nothing, so how much longer do you think people will continue to lend money to the U.S. government? Certainly foreigners are wary, and individuals in the U.S. are going to demand a higher return for a riskier asset (USD denominated gov't securities). So what happens when no one will lend us money like they used to? We'll have two options. We can either raises taxes, or we can cut benefits.

The National Debt does matter.

[Tom228]

Tom - It is true that National Debt as a % of GDP is declining marginally. What happens if GDP begins to decline (recession -- the economy does in fact run in cycles), and all the baby boomers retire and begin to collect social security and medicare, so gov't outflows increase.

So GDP declines, we have to borrow more money to pay benefits (unless we raise taxes), and National Debt as a % of GDP balloons. The USD is backed by nothing, so how much longer do you think people will continue to lend money to the U.S. government? Certainly foreigners are wary, and individuals in the U.S. are going to demand a higher return for a riskier asset (USD denominated gov't securities). So what happens when no one will lend us money like they used to? We'll have two options. We can either raises taxes, or we can cut benefits.

The National Debt does matter.


Only (understatement I know) 3 trillion matters, unless you feel like paying back yourself. About recession, hell we had a recession in 2001(ish) the US is still here and well. Currently the GDP is growing not shrinking so that's not much of a problem. To me your scenario would have to involve like huge sudden changes in the economy, so I personally don't think we'll have such a scenario.
Currently we are experiencing GDP growth by about 3% (2006). It's sudden economic shocks that really cause problems, but if it's gradual like SS, Medicare/ medicaid, it usually isn't that bad.

GDP= Consumer spending + Private Investment + Government Spending + Net Exports. (GDP=C+I+G+Xn)

[fsk]

This is another topic I already discussed in my blog (http://fskrealityguide.blogspot.com/2007/11/national-debt-who-is-creditor.html).

[Cowlesy]

Tom - Thanks for the GDP reminder (eyeroll). The cash-on-cash cost of imports is up 14% this year. You may say like Mr. Bernanke that (U.S. citizens who hold their savings in dollars are only affected if they buy imported goods), but that's a complete farce. If an imported tire costs $50, and a domestic tire costs $40, you'd think "Well no one will buy imported tires and only buy domestic tires", but in reality businesses adjust the cost of the domestic tire to be in-line with the imported tire. Not to mention, we import all the rubber we use to make tires (if the price of an observable input of production increases, then this price increase inflates the cost and ultimately the price of the good). There are lots of companies out there who've had depressed margins due to increased input prices (caused by the deterioration of the dollar), and ultimately this flows into the employment market and ultimately to consumption levels. By the way, even Goldilocks organizations like my beloved Heritage Foundation have charts that would make you squirm at the massive increases of gov't outflows due to entitlement programs in the next 8 years. Your point that we had a recession in 2001 supports my assertion that the economy runs in cycles, but the mal-investment caused by overtly cheap credit is going to exaggerate the effects of the next recession. We are already seeing it in the credit freeze here.

[forsmant]

GDP does not measure the sustainability of growth. A country may achieve a temporarily high GDP by over-exploiting natural resources or by misallocating investment. For example, the large deposits of phosphates gave the people of Nauru one of the highest per capita incomes on earth, but since 1989 their standard of living has declined sharply as the supply has run out. Oil-rich states can sustain high GDPs without industrializing, but this high level would no longer be sustainable if the oil runs out. Economies experiencing an economic bubble, such as a housing bubble or stock bubble, or a low private-saving rate tend to appear to grow faster due to higher consumption, mortgaging their futures for present growth. Economic growth at the expense of environmental degradation can end up costing dearly to clean up; GDP does not account for this.


The limits of GDP (or GNP, a slightly different notion) can be summed up in the words of two critics. Robert Kennedy said[3]:

The gross national product includes air pollution and advertising for cigarettes and ambulances to clear our highways of carnage. It counts special locks for our doors and jails for the people who break them. GNP includes the destruction of the redwoods and the death of Lake Superior. It grows with the production of napalm, and missiles and nuclear warheads... it does not allow for the health of our families, the quality of their education, or the joy of their play. It is indifferent to the decency of our factories and the safety of our streets alike. It does not include the beauty of our poetry or the strength of our marriages, or the intelligence of our public debate or the integrity of our public officials. It measures everything, in short, except that which makes life worthwhile.

The second critic, Simon Kuznets the inventor of the GDP, in his very first report to the US Congress in 1934 said[4]:

...the welfare of a nation [can] scarcely be inferred from a measure of national income...

In 1962, Kuznets stated[5]:

Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what.


http://en.wikipedia.org/wiki/GDP

If you take the GDP and the national debt and divide by the population of the USA (300,000,000) you would get these numbers.

43,982 GDP
30,000 Debt

Per person

The debt number does not include personal debt.

[Tom228]

Well it might be to early to tell what will happen. I don' think anyone knows for sure, since this has never happened before, as far as I know.

[fsk]

The GDP is the USA is *NOT* growing. The GDP of the USA is shrinking! (http://fskrealityguide.blogspot.com/2007/12/real-gdp-growth-has-been-negligible.html)

The problem is that inflation-adjusted GDP growth is calculated using the corrupt and biased CPI. If you use M2 as your inflation index, GDP is shrinking slowly. If you use M3 as your inflation index, GDP is crashing.

[Tom228]

The GDP is the USA is *NOT* growing. The GDP of the USA is shrinking! (http://fskrealityguide.blogspot.com/2007/12/real-gdp-growth-has-been-negligible.html)

The problem is that inflation-adjusted GDP growth is calculated using the corrupt and biased CPI. If you use M2 as your inflation index, GDP is shrinking slowly. If you use M3 as your inflation index, GDP is crashing.

Ok the figure I gave is REAL GDP (it's adjusted for inflation, meaning inflation is not accounted for) which is 3% as of 2006.

http://www.econstats.com/gdp/gdp__q1.htm

It shows both REAL and NOMINAL GDP

[fsk]

The problem is that statistic is adjusting for inflation USING THE BIASED CPI. The CPI *SEVERELY* understates the true inflation rate.

If you use M2, M3, or the price of gold as your inflation index, then the US economy is SHRINKING, not GROWING.

You are confusing price inflation with economic growth!

[Tom228]

The problem is that statistic is adjusting for inflation USING THE BIASED CPI. The CPI *SEVERELY* understates the true inflation rate.

If you use M2, M3, or the price of gold as your inflation index, then the US economy is SHRINKING, not GROWING.

You are confusing price inflation with economic growth!

If what you state above is true, then shouldn't we technically be economically crashing right now?

I'm not quite sure if this is what you're talking about

Source: http://en.wikipedia.org/wiki/Money_supply

Recent Money Supply changes

USA

Percent change at seasonally adjusted annual rates M1 M2 M3
3 Months from Mar. 2007 TO June 2007 -0.9 5.2 --
6 Months from Dec. 2006 TO June 2007 0.1 6.3 --
12 Months from June 2006 TO June 2007 -0.7 6.1 12.0
12 Months from Sept 2006 TO Sept 2007 0.4 6.7 14.1

Source for M1 and M2
Source for M3
Source for M3

I can't seem to fix the chart, but click on the link and it's near the bottom.

[fsk]

The CPI rate is around 3% and the "official" GDP growth rate is 3%. If you use M2 as your inflation index, the US economy is stable. If you use M3 as your inflation index, the US economy is shrinking at a rate of 10%/year.

A lot of the M3 money is held by foreign central banks. As long as foreign banks are willing to lose to inflation on their dollar holdings, they're subsidizing the US economy.

Look at my blog post again. (http://fskrealityguide.blogspot.com/2007/12/real-gdp-growth-has-been-negligible.html)

Working with *UNADJUSTED* raw GDP numbers, calculate the "inflation index" using M2 or M3 instead of the CPI.

[jon_perez]

What is funny is how the debt has grown the greatest under republican presidants such as bush and reagan.It's extremely ironic, embarrassing and hypocritical for the supposed party of "small government". Like Ron Paul says, Republicans have truly lost their way. I think it started as far back as Nixon and Reagan. Eisenhower, a Republican, was the president who warned against the military-industrial complex but succeeding Republicans, possibly/likely Reagan may have even fostered this more than the Democrats!

To go by the GAO statistcs though, it is the welfare programs that are draining America's coffers significantly more than military spending and the Democrats would be more to blame for that.