The Biggest Threat to National Security is the Debt

[AZJoe]

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The Biggest Threat to National Security is the Debt
http://www.thefiscaltimes.com/Column...-Trillion-Debt

There have been debates, bluster, TV coverage, and more, but you know what’s been lacking in this Presidential race…a serious discussion of the debt, deficit, and government spending. …

In just ten years, there will only be enough money coming into the federal government to pay for interest and entitlements…and nothing else. … It will mean dire things for interest rates, inflation, and the value of the dollar…and by extension the value of all you possess and plan to retire on.

The growth in the federal government debt is becoming geometric. … it took two hundred years for our nation to accumulate $5 trillion in debt, yet during just the eight years of the George W. Bush presidency, it doubled and moved from $5 to $10 trillion. Now in the Obama presidency, it is doubling again, moving from $10 to $20 trillion. A freight train is coming at us, and we are not discussing it. Most frightening is that it’s all scheduled to get much worse …

Finally, you can’t go much below zero in setting interest rates. The Fed has aided and abetted spending in Washington as it has kept interest rates artificially low. When rates return to historical norms, hundreds of billions will be added each year in interest cost at the federal governmental level. The Federal Reserve has actually done much more than this as its balance sheet swelled over the last few years from $850 billion in 2008 to $4.4 trillion today. Without the Fed buying Treasury paper as it’s done, there is no way the federal government could have run the deficits it has without inflation or taxation that would have caught the interest of Congress, voters…and maybe even Presidential candidates. …

[Todd]

Yep. It's like the Ship of Fools. There's this waterfall we are all heading towards.....and everyone is arguing about a wall, ISIS, and women's rights.

[CaptUSA]

Yep. It's like the Ship of Fools. There's this waterfall we are all heading towards.....and everyone is arguing about a wall, ISIS, and women's rights.

Don't forget about the bathrooms and cakes!

[jllundqu]

Yep

And Hillary/Trump want to add mountains of debt.... Trump is the king of debt.

[goldenequity]

[AZJoe]

..

[Zippyjuan]

http://www.foxbusiness.com/politics/...port-says.html

National Debt Would Increase $11.5 Trillion Under Trump, Report Says


Donald Trump would have a Miracle-Gro-like affect on the debt, increasing it by $11.5 trillion within 10 years, according to a new report that looks at the policies he’s put forth in his campaign. The researchers estimate Hillary Clinton would add $250 billion to the U.S.’s debt over the next decade.

The Committee for a Responsible Federal Budget released a report on Monday called “Promises and Price Tags: A Fiscal Guide to the 2016 Election,” which analyzes policies Trump and Clinton have outlined throughout their campaigns. The report criticizes the presumptive Republican and Democratic nominees for president because they have not laid out proposals for tackling our growing national debt, though the authors wrote “[i]t is encouraging that, in this election, both candidates have put some emphasis on fiscal responsibility.”

That doesn’t cushion the blow of the numbers. For reference: Publicly held debt in the U.S. increased about $7.1 trillion since President Barack Obama took office, according to the Federal Reserve Bank of St. Louis, though a sharp, upward trend in the debt started a year before he was inaugurated. Right now, publicly held debt in the U.S. amounts to 75% of GDP. Clinton’s policies would increase that to 87% by 2026 and Trump’s would push it to 127% in the same time frame, the report says.

Assuming Congress passes what he proposed during the campaign. And there are always new problems which pop up and want more money.

[jllundqu]

http://www.foxbusiness.com/politics/...port-says.html



Assuming Congress passes what he proposed during the campaign. And there are always new problems which pop up and want more money.

He didn't try to hide this fact during the campaign, but people still vote and support him. THey'll be singing his praises as the debt clock rolls past $35 trillion

[Madison320]

http://www.foxbusiness.com/politics/...port-says.html



Assuming Congress passes what he proposed during the campaign. And there are always new problems which pop up and want more money.

Let's see what actually happens. Those debt predictions are usually way off. For one thing they never anticipate recessions. For another they assume tax rates changes are proportional to tax revenue. So if the rate doubles they assume the revenue will double. In reality revenue could fall if rates doubled, if rates were already too high.

I want to see what happens with the spending side. On the one hand Trump seems to be worried about wasteful spending, on the other he seems to want to expand all the big programs like SS and Defense.

[Zippyjuan]

Also wants to go after ISIS, build his beautiful wall, and spend at least a $1 trillion on infrastructure programs- besides cutting taxes on the wealthy and big businesses.

Noting that Congress has to write all spending bills- the President doesn't. The first budget under Obama was in 2009 and it called for $3.1 trillion in spending ($3.5 trillion actually spent). https://en.wikipedia.org/wiki/2009_U...federal_budget


2017 budget calls for an estimated $3.65 trillion in spending. Not much of an increase (deadlock and "sequestration" helped). http://federal-budget.insidegov.com/l/120/2017-Estimate

[RJB]

Debt is wealth. The more debt you have, the more you can spend.

One of Zippy's heroes taught Jan Helfeld that lesson.

[Zippyjuan]

There is good debt and bad debt. Good debt is borrowing to pay for your education so you can get a better job or buying a home. Bad debt is using your credit card to buy lunch at Taco Bell and not paying it off at the end of the month.

As a country, borrowing to get through an emergency can be a good thing but the borrowing for the Federal government is getting to be too easy and too often. States go into debt during crises but are required to get back into balance.

[Dr.No.]

The US can't go bankrupt. If interest payments become an issue, the US could simply instruct the Federal Reserve to purchase the debt. That is what happens in Japan.

The issue with government deficits is inflation. When the government deficits spends, it is adding financial assets to the economy. This can lead to inflation if new goods are created to match that new money. Currently, we could add 800 billion to 1.2 trillion to the deficit, and still not experience inflation. There is that much excess capacity in the economy.

[AZJoe]

[Zippyjuan]

[Madison320]

xx

[jllundqu]

The US can't go bankrupt. If interest payments become an issue, the US could simply instruct the Federal Reserve to purchase the debt. That is what happens in Japan.

The issue with government deficits is inflation. When the government deficits spends, it is adding financial assets to the economy. This can lead to inflation if new goods are created to match that new money. Currently, we could add 800 billion to 1.2 trillion to the deficit, and still not experience inflation. There is that much excess capacity in the economy.

What in the actual $#@! are you doing on this forum? Don't even know where to begin with this post. "Purchase the debt" ??

[Dr.No.]

What in the actual $#@! are you doing on this forum? Don't even know where to begin with this post. "Purchase the debt" ??

It is simple reality. Why hasn't there been hyperinflation, high interest rates, loss of dollar value during Obama's doubling of the deficit? Because the deficit is fundamentally misunderstood by so many people.

The US is never at a risk of default, because the US prints the currency.

[jllundqu]

It is simple reality. Why hasn't there been hyperinflation, high interest rates, loss of dollar value during Obama's doubling of the deficit? Because the deficit is fundamentally misunderstood by so many people.

The US is never at a risk of default, because the US prints the currency.

I'm not even going to debate such an asinine response. I suggest you read up on your Milton Friedman and the velocity of money... Free money from the fed given to corporate America, which then uses it to buy its own stock or sit on it is pretty freaking low velocity = no inflation. If you think that printing money is the solution, why not print our way to prosperity?

[Dr.No.]

I'm not even going to debate such an asinine response. I suggest you read up on your Milton Friedman and the velocity of money... Free money from the fed given to corporate America, which then uses it to buy its own stock or sit on it is pretty freaking low velocity = no inflation. If you think that printing money is the solution, why not print our way to prosperity?

Except that many of Friedman's claims have been debunked. He defines velocity of money as an arbitrary function...hence, velocity is low because velocity is low. Firstly, banks do not lend out reserves; that whole concept of credit creation is wrong. Secondly, why would banks expand the money supply to inflationary levels? They will make loans and create credit to the extent that they can find credit worthy customers, and to the extent that their own balance sheets are healthy.

It isn't "free money given to corporate America".

The Federal Reserve bought assets of the banks, in exchange for newly made reserves. The end result is that the banks are sitting on ~2.3 trillion in reserves earning .25% interest, while the Federal Reserve is earning nearly 4% coupon payments on the MBSs and a little over 2.5% on the treasury bonds. Imagine if the banks were making that money instead! Sure, companies are taking advantage of the low-interest rate environment to buy stock and issue more dividends(because their profits are higher).

The reason the US government cannot print its way to prosperity is the inflation cost. When government spends money, the real cost is that it is reallocating assets from the private sector. When they build a tank, the private sector has to find the labor/resources/factories to build that tank. When they issue a Social Security check, the market has to find resources to provide the food/housing/entertainment the check-receiver desires. Now the private sector doesn't always operate at 100% capacity, especially during recessions. Frequently, there are idle resources standing by. To the extent that those idle resources are being tapped by the new money, it is fine; there will be no inflation as the new production rises to meet the new demand for it. But if the government inserts too much demand in the economy, in the form of dollars, the private sector will start tapping into its non-idle resources, and you will get more inflation.

[Madison320]

But if the government inserts too much demand in the economy, in the form of dollars, the private sector will start tapping into its non-idle resources, and you will get more inflation.

Over the last 50 years or so, prices have gone up anywhere from 10X to 30X.

What would you say accounts for this?

[Dr.No.]

Over the last 50 years or so, prices have gone up anywhere from 10X to 30X.

What would you say accounts for this?

Well, according to the CPI and million prices project, prices have overall gone up about 7.5x in the last 50 years. I'd say that inflation accounts for this. But that isn't hyperinflation. That is an average of 4% interest per year; and, of course, the rate has been much lower from 1990 until now.

Also, remember that the government cannot directly affect the circulating money supply, that is, the credit level. Banks set the credit level, and that is the money that chases the goods provided by the economy. The government can stimulate investment, which will lead to credit creation and and increase in credit levels. The Federal Reserve can lower interest rates, which lowers the cost of money and can very moderately stimulate credit creation.

[Zippyjuan]

It is simple reality. Why hasn't there been hyperinflation, high interest rates, loss of dollar value during Obama's doubling of the deficit? Because the deficit is fundamentally misunderstood by so many people.

The US is never at a risk of default, because the US prints the currency.

The debt had nothing to do with that.

[Madison320]

Well, according to the CPI and million prices project, prices have overall gone up about 7.5x in the last 50 years. I'd say that inflation accounts for this. But that isn't hyperinflation. That is an average of 4% interest per year; and, of course, the rate has been much lower from 1990 until now.

Also, remember that the government cannot directly affect the circulating money supply, that is, the credit level. Banks set the credit level, and that is the money that chases the goods provided by the economy. The government can stimulate investment, which will lead to credit creation and and increase in credit levels. The Federal Reserve can lower interest rates, which lowers the cost of money and can very moderately stimulate credit creation.

Specifically the monetary base correct?

[Dr.No.]

Specifically the monetary base correct?

What do you mean? The monetary base has gone from about 60 billion in 1966 to about 3.7 trillion (about 60x). Even if you say that is all low-velocity, QE money, even prior to QE, it had gone from 60 billion to about 900 billion. That is still a 15x difference. If inflation were completely a monetary phenomenon based on the monetary base, you would have needed to see a 7.5x jump.

As a comparison, the total credit level has gone from 1.2 trillion to 63 trillion, about a 53x jump. Prior to QE, it was at around 54 trillion, still a 46x jump.

As you can see, while the monetary base and the credit levels generally move together, the exact ratio is not at all fixed. In the strictest sense, banks are not constrained by the monetary base, or reserve. Banks will expand credit as they see fit. As they do this, this will create upward pressure on interest rates. If the Federal Reserve wants to maintain its interest rate target, it will need to inject money into the base to maintain short-term rates. That is why you see a lag between loan creation and reserve credits at the private-bank-level.

[Madison320]

What do you mean? The monetary base has gone from about 60 billion in 1966 to about 3.7 trillion (about 60x). Even if you say that is all low-velocity, QE money, even prior to QE, it had gone from 60 billion to about 900 billion. That is still a 15x difference. If inflation were completely a monetary phenomenon based on the monetary base, you would have needed to see a 7.5x jump.

As a comparison, the total credit level has gone from 1.2 trillion to 63 trillion, about a 53x jump. Prior to QE, it was at around 54 trillion, still a 46x jump.

As you can see, while the monetary base and the credit levels generally move together, the exact ratio is not at all fixed. In the strictest sense, banks are not constrained by the monetary base, or reserve. Banks will expand credit as they see fit. As they do this, this will create upward pressure on interest rates. If the Federal Reserve wants to maintain its interest rate target, it will need to inject money into the base to maintain short-term rates. That is why you see a lag between loan creation and reserve credits at the private-bank-level.

It's not going to be an exact ratio but I challenge you to find anything else that has anywhere near that much correlation.

[Dr.No.]

It's not going to be an exact ratio but I challenge you to find anything else that has anywhere near that much correlation.

It is not even close to a near ratio. They just tend to go up together...you can find the same correlation with government spending, stock market growth, wages, loans, etc. etc. The ratio of the monetary base/price level(inflation) or credit level/inflation jumps all over the place. Like I said, CPI has gone up 7.5x in 50 years. Pre-QE, there is a 15x jump in the monetary base; post QE, a 62x jump. If there was a consistent ratio, you should see a similar 6-9x rise in the monetary base. You can see here how year-to-year changes in the base don't correspond to jumps in CPI.

[AZJoe]

Oldie but Goodie

[AZJoe]

A One minute perspective from 2011:

[Dr.No.]

Oldie but Goodie

The US government budget is not like a household budget. This is the fundamental mistake that video makes.