National Debt Thread II: Attack of the Fiscal Responsibility

[Geilinor]

Well on let me ask at what point does our debt to gdp ratio become too large to be sustainable? Or else what absolute debt (ie how many trillions in the red) can we have before people stop buying new bond issues from the us treasury?

There's no absolute number. We don't know what debt to GDP ratio is too much.

[Elemental North]

Well on let me ask at what point does our debt to gdp ratio become too large to be sustainable? Or else what absolute debt (ie how many trillions in the red) can we have before people stop buying new bond issues from the us treasury?

There's no absolute number. We don't know what debt to GDP ratio is too much.

Yes the Treasury Department and the Federal Reserve is rather secretive about that. Does anyone else here think the Fed. is unconstitutional?

[Llamalandia]

That is egregiously untrue. We were very, VERY close to defaulting not too long ago, and as such Standard & Poors lowered our credit rating. Whilst it was not as low as Greece, it was the first time our rating had been lowered since the Great Depression.

The reason we were close to defaulting was not because we didn't have the money to pay our debts, but because Congress almost didn't approve the money. Greece is struggling to come up with the money.

Right and eventually the same thing will happen to the USA (though it will be a while admittedly).

The bigger issue here though is why are we borrowing? The is fed govt doesn't make a whole lot of wise investments. I mean 2/3 of the budget goes to either ss/Medicare/Medicaid and defense spending. Neither of those "investments" provides much return to the govt. sure they built the Internet back i the 80s but really the Feds haven't done a whole heck of money makers or economy improves lately. I mean its either entitlements or military for the most part with a crappy bailout thrown in here or their.

Just because we can borrow money and in fact can actually borrow it relatively cheaply at the moment doesn't mean we should borrow it. I mean heck the govt would be better off investing the stock market for crying out loud.

[Atlanticatia]

I think that in a small country/economy having a high amount of debt to gdp could be a problem if they randomly got hit with a huge recession or war, and then didn't have the ability to borrow or something it'd be a problem.

But tbh our debt and deficits are basically a choice, because we definitely have the ability to pay. We have one of the lowest ratios of taxes to GDP in the developed world, so it's not like we don't have a decent tax base to finance it or anything.

We collect 20% of GDP in taxes or something like that. Canada and the UK collect 30-35%. Denmark is 48%. We're hardly an overtaxed nation and if push came to shove for some reason it wouldn't be that hard to raise needed revenues.

It's like we're millionaires who choose to live off of a credit card. What i'm trying to say is, we could never default on debt unless we choose to, because we have debt by choosing to be an extremely low-tax nation.

[Llamalandia]

Well on let me ask at what point does our debt to gdp ratio become too large to be sustainable? Or else what absolute debt (ie how many trillions in the red) can we have before people stop buying new bond issues from the us treasury?

There's no absolute number. We don't know what debt to GDP ratio is too much.

Oh ok, so just borrow until we go bust and no one wants to lend anymore, is that it?

[Llamalandia]

I think that in a small country/economy having a high amount of debt to gdp could be a problem if they randomly got hit with a huge recession or war, and then didn't have the ability to borrow or something it'd be a problem.

But tbh our debt and deficits are basically a choice, because we definitely have the ability to pay. We have one of the lowest ratios of taxes to GDP in the developed world, so it's not like we don't have a decent tax base to finance it or anything.

We collect 20% of GDP in taxes or something like that. Canada and the UK collect 30-35%. Denmark is 48%. We're hardly an overtaxed nation and if push came to shove for some reason it wouldn't be that hard to raise needed revenues.

It's like we're millionaires who choose to live off of a credit card. What i'm trying to say is, we could never default on debt unless we chose to, because we have debt by choosing to be an extremely low-tax nation.

No eventually our debt could become to large. I mean after all people don't have an unlimited money supply at some point people just won't have any money left with which to buy us bonds even if they want to. Admittedly that's a ways off, of course the larger issue is that they will likely stop desiring to buy us debt long before they are unable to continue buying it.

[Eastern Equestria]

That I don't disagree with. But I still think that everyone who gripes about our "exorbitant" military spending needs to look at the matter from perspective.



The United States has never been in danger of defaulting on our debts. As a matter of fact, we have an excellent credit rating among the international community.

That is egregiously untrue. We were very, VERY close to defaulting not too long ago, and as such Standard & Poors lowered our credit rating. Whilst it was not as low as Greece, it was the first time our rating had been lowered since the Great Depression.

"We have lowered our long-term sovereign credit rating on the United
States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term
rating.

We have also removed both the short- and long-term ratings from
CreditWatch negative.

The downgrade reflects our opinion that the fiscal consolidation plan
that Congress and the Administration recently agreed to falls short of
what, in our view, would be necessary to stabilize the government's
medium-term debt dynamics."

-Standard & Poors

AA+ is still comparatively excellent (the second highest rating Standards and Poors gives out actually), and is behind only AAA nations such as Germany and Sweden, which we could already tell are faring better than us from an across the board perspective. And as long as we control the issuance of our own currency the only way for us to default in the manner of Greece would be for us to let it happen.

[Elemental North]

There's no absolute number. We don't know what debt to GDP ratio is too much.

Oh ok, so just borrow until we to bust and no one wants to lend anymore, is that it?

Precisley.

[Atlanticatia]

I think that in a small country/economy having a high amount of debt to gdp could be a problem if they randomly got hit with a huge recession or war, and then didn't have the ability to borrow or something it'd be a problem.

But tbh our debt and deficits are basically a choice, because we definitely have the ability to pay. We have one of the lowest ratios of taxes to GDP in the developed world, so it's not like we don't have a decent tax base to finance it or anything.

We collect 20% of GDP in taxes or something like that. Canada and the UK collect 30-35%. Denmark is 48%. We're hardly an overtaxed nation and if push came to shove for some reason it wouldn't be that hard to raise needed revenues.

It's like we're millionaires who choose to live off of a credit card. What i'm trying to say is, we could never default on debt unless we chose to, because we have debt by choosing to be an extremely low-tax nation.

No eventually our debt could become to large. I mean after all people don't have an unlimited money supply at some point people just won't have any money left with which to buy us bonds even if they want to. Admittedly that's a ways off, of course the larger issue is that they will likely stop desiring to buy us debt long before they are unable to continue buying it.

A large amount of our debt is held by the government itself. People won't run out of money to buy bonds with. US currency is the reserve currency is the world, and there is hundreds of trillion of dollars of wealth.

If for some reason it did happen(not going to), we could raise tax revenues a few % and wipe out the deficit/debt.

[Vetalia]

US lawmakers should certainly be concerned; we do need to start planning for the drag that programs such as Medicare and Social Security will place on the overall budget situation. However, the cyclical deficits that have been incurred since the recession are correcting themselves and will reduce the deficit to effectively neutral levels starting this year (i.e. less than or equal to NGDP growth). Longer-term they will start to worsen but that's where the Medicare and Social Security tax hikes/reforms will come into play. We will also need to plan for the future refinancing of the debt incurred in recent years at record low rates as well as the debt refinanced at those low rates to avoid worsening deficits caused by higher interest rates and payments, which are a complete waste.

[Geilinor]

There's no absolute number. We don't know what debt to GDP ratio is too much.

Yes the Treasury Department and the Federal Reserve is rather secretive about that. Does anyone else here think the Fed. is unconstitutional?

Even the Treasury and Fed don't know the number. No economist knows, because the number doesn't exist.

[Silent Majority]

There's no absolute number. We don't know what debt to GDP ratio is too much.

Yes the Treasury Department and the Federal Reserve is rather secretive about that.

This isn't an issue of something being kept secret by the government, this is an issue of economists not knowing the answer.

[Geilinor]

Oh ok, so just borrow until we to bust and no one wants to lend anymore, is that it?

Precisley.

When we start getting close to "too much", we'll know. Debt is not causing our economic problems right now.

[Atlanticatia]

If we really wanted to for some reason we could get into surplus quite easily and get rid of most of the national debt quite easily.

[Llamalandia]

No eventually our debt could become to large. I mean after all people don't have an unlimited money supply at some point people just won't have any money left with which to buy us bonds even if they want to. Admittedly that's a ways off, of course the larger issue is that they will likely stop desiring to buy us debt long before they are unable to continue buying it.

A large amount of our debt is held by the government itself. People won't run out of money to buy bonds with. US currency is the reserve currency is the world, and there is hundreds of trillion of dollars of wealth.

If for some reason it did happen(not going to), we could raise tax revenues a few % and wipe out the deficit/debt.

Umm you do realize the tax rate would have to be 100% on everyone to pay of debt at 100% debt/gdp ratio. If it were higher say 2 or 300% we literally could not tax out way out with literally beginning to confiscate wealth in addition to taking 100% tax on all economic activity.

[Llamalandia]

Precisley.

When we start getting close to "too much", we'll know. Debt is not causing our economic problems right now.

Ok but it's certainly not helping either. But again why are we borrowing to begin with? You know how about people invest in real business that actually grows economies rather than just buying govt debt which is basically a safe way to store money, but given that gifts aren't very productive is effectively idle capital.

[Atlanticatia]

A large amount of our debt is held by the government itself. People won't run out of money to buy bonds with. US currency is the reserve currency is the world, and there is hundreds of trillion of dollars of wealth.

If for some reason it did happen(not going to), we could raise tax revenues a few % and wipe out the deficit/debt.

Umm you do realize the tax rate would have to be 100% on everyone to pay of debt at 100% debt/gdp ratio. If it were higher say 2 or 300% we literally could not tax out way out with literally beginning to confiscate wealth in addition to taking 100% tax on all economic activity.

Why would we pay off $17 trillion of debt in one go? It'd be over a long period of time.

We could raise tax revenues by 5%, have a decent surplus, and put every surplus towards paying down the debt.

And our net government debt isn't 100% of GDP, it's closer to 80-85%.

And having zero net government debt isn't really a good or bad thing. There's no point of paying off all of it. Realistically, we could easily get to 40-50% of GDP without much rise in the tax base.

Also since most of our debt is held by the US govt itself there isn't a point of reducing it that much.

[Post-Keynesian Economics]

When we start getting close to "too much", we'll know. Debt is not causing our economic problems right now.

Ok but it's certainly not helping either. But again why are we borrowing to begin with? You know how about people invest in real business that actually grows economies rather than just buying govt debt which is basically a safe way to store money, but given that gifts aren't very productive is effectively idle capital.

We're borrowing because it artificially (do not read artificial, however, as bad in this case) grows the private sector, allowing it to then naturally grow even further.

A public sector deficit = a private sector surplus

[Geilinor]

A large amount of our debt is held by the government itself. People won't run out of money to buy bonds with. US currency is the reserve currency is the world, and there is hundreds of trillion of dollars of wealth.

If for some reason it did happen(not going to), we could raise tax revenues a few % and wipe out the deficit/debt.

Umm you do realize the tax rate would have to be 100% on everyone to pay of debt at 100% debt/gdp ratio. If it were higher say 2 or 300% we literally could not tax out way out with literally beginning to confiscate wealth in addition to taking 100% tax on all economic activity.

It wouldn't be paid off in one year. That should have been obvious.

[Atlanticatia]

Also US treasury bonds are the safest investment in the world. So the US is in a unique position that allows us to borrow alot.

Reducing the nominal amount of 'debt' too much could have adverse effects, hurting the private sector and there would be less safe investments, leading to a less stable financial system.

[Geilinor]

When we start getting close to "too much", we'll know. Debt is not causing our economic problems right now.

Ok but it's certainly not helping either. But again why are we borrowing to begin with? You know how about people invest in real business that actually grows economies rather than just buying govt debt which is basically a safe way to store money, but given that gifts aren't very productive is effectively idle capital.

Think of it this way: some government spending, such as on infrastructure and education, is an investment in the future that grows the economy. Most businesses want those investments and will be more than willing to buy debt in order to fund those things.

[Atlanticatia]

We should focus on reducing debt-to-gdp a small amount, if we wanted to reduce debt rather than the $ amount. For example, increasing the amount of debt by 2% each year while the economy grows by 3% each year isn't really a big deal. We wouldn't be reducing the nominal amount per se, but as a % of GDP we'd be in a good situation without harming economic growth, and we'd be prepared for any future economic shocks.

[Geilinor]

We should focus on reducing debt-to-gdp a small amount, if we wanted to reduce debt rather than the $ amount. For example, increasing the amount of debt by 2% each year while the economy grows by 3% each year isn't really a big deal. We wouldn't be reducing the nominal amount per se, but as a % of GDP we'd be in a good situation without harming economic growth, and we'd be prepared for any future economic shocks.

This^. An alternative to reducing the deficit is to grow GDP faster.

[Atlanticatia]

If Obama hadn't enacted some of his stimulus programs, for example, and instead tried to have an extremely small deficit, the recession would have likely been much worse, harming future private sector growth.

Those trillion-dollar + deficits helped support the economy's structure during the recession.

We should focus on reducing debt-to-gdp a small amount, if we wanted to reduce debt rather than the $ amount. For example, increasing the amount of debt by 2% each year while the economy grows by 3% each year isn't really a big deal. We wouldn't be reducing the nominal amount per se, but as a % of GDP we'd be in a good situation without harming economic growth, and we'd be prepared for any future economic shocks.

This^. An alternative to reducing the deficit is to grow GDP faster.

And it's harder to grow the private sector without public spending. So there needs to be a happy medium between taxes, spending, the deficit, and economic growth that ultimately has the best results.

[Llamalandia]

No eventually our debt could become to large. I mean after all people don't have an unlimited money supply at some point people just won't have any money left with which to buy us bonds even if they want to. Admittedly that's a ways off, of course the larger issue is that they will likely stop desiring to buy us debt long before they are unable to continue buying it.

A large amount of our debt is held by the government itself. People won't run out of money to buy bonds with. US currency is the reserve currency is the world, and there is hundreds of trillion of dollars of wealth.

If for some reason it did happen(not going to), we could raise tax revenues a few % and wipe out the deficit/debt.

True but its not all just accounting tricks. For instance we raided the ss trust fund or lock box. We have to actually pay that money back, otherwise oops no money to pay out social security benefits with. Or else we have to raise taxes elsewhere ie use income tax revenue to pay off the as debt which effectively would make the borrowing a backslid way to force a tax increase on everyone.