$10,157,132,546,846.21 Debt

[Oliver]

I just saw a short clip on CNN about the national debt clock
not being able to show the 10 Trillion in Debt:

http://us.cnn.com/video/#/video/us/2008/10/04/dnt.lemon.natl.debt.clock.cnn

Is the Debt something to be concerned about? - And if so, why?

[UserGoogol]

Yes, but looking at the debt in absolute terms is misleading. Debt as a percentage of GDP is the more relevant metric, since the richer you are the more debt you can afford. And in terms of that, the United States is uncomfortably high but not unprecedentedly so, with other not-poor countries ahead of us. (http://en.wikipedia.org/wiki/List_of_countries_by_public_debt) Although I don't want to play the "lol Oliver is German" card, it might be worth pointing out that Germany does have a higher debt-GDP ratio than the United States, although we're pretty close.

[WildCat]

Although I don't want to play the "lol Oliver is German" card, it might be worth pointing out that Germany does have a higher debt-GDP ratio than the United States, although we're pretty close.
Oliver's not interested in the €1.3 trillion German debt, German politics bores him.

[slingblade]

Is the Debt something to be concerned about? - And if so, why?

Would it do me or the debt any good if I were concerned?

As far as I can tell, I haven't spent any of that money; no one asked me if I wanted it spent; no one asked me what to spend it on; no one asked if I wanted it spent on my behalf or for services I use.

It goes on without me, Oliver. So, what would you like me to do? Sit here and wring my hands over it? Will that help?

Or do you want me to be who Matteo, another Anti-American poster on the boards, wants me to be? You want me to go protest? Think if I stand outside my house, 2000 miles from Washinton D.C., and jump up and down and scream about it all, that anyone there will hear me or care?

Oliver, if your precious and perfect government ever dares to do something that you, personally, don't like, what do YOU do about it? And whatever that is, does it work? Does it stop your government from acting?

[Oliver]

Oliver's not interested in the €1.3 trillion German debt, German politics bores him.


Nope. It would bore you as well, being a US Forum. My question,
however, is: What will the consequences be?

After all, it seems as if Governments can make as much debt as
they want. So being a private person, I would assume that there
must be some point in time, when it will cause severe problems,
such as inflation...

[Oliver]

Would it do me or the debt any good if I were concerned?

As far as I can tell, I haven't spent any of that money; no one asked me if I wanted it spent; no one asked me what to spend it on; no one asked if I wanted it spent on my behalf or for services I use.

It goes on without me, Oliver. So, what would you like me to do? Sit here and wring my hands over it? Will that help?

Or do you want me to be who Matteo, another Anti-American poster on the boards, wants me to be? You want me to go protest? Think if I stand outside my house, 2000 miles from Washinton D.C., and jump up and down and scream about it all, that anyone there will hear me or care?

Oliver, if your precious and perfect government ever dares to do something that you, personally, don't like, what do YOU do about it? And whatever that is, does it work? Does it stop your government from acting?


While your name-calling is A. Irrelevant, B. Your Belief, I'm actually
interested when it will be a problem - and what kind of problem. That
you and me can't do anything about our countries debts, is out of
question.

[slingblade]

While your name-calling is A. Irrelevant, B. Your Belief, I'm actually
interested when it will be a problem - and what kind of problem. That
you and me can't do anything about our countries debts, is out of
question.

Name-calling? I didn't call you any names. Show me where you think I did that.

As to when it will be a problem, isn't that now?
What kind of problem? A monetary problem.

All of it completely out of my control. And yours. No. I'm not worried. My worry won't help. Why bother?

[Oliver]

Name-calling? I didn't call you any names. Show me where you think I did that.

As to when it will be a problem, isn't that now?
What kind of problem? A monetary problem.

All of it completely out of my control. And yours. No. I'm not worried. My worry won't help. Why bother?


I am no America Hater other than being skeptical. If you think
that this is anti-american, well - that's a nice belief, but also
a stupid one on a Skeptic Forum.

And I told you that I know that very well, that we most probably
can't do anything about that unless we vote for someone who
actually will do something about that in contrast to throwing
a Trillion into lousy markets.

The question is: Where is the line when it will be a problem - and
what kind of problem? ... Inflation?

[RandFan]

...it might be worth pointing out that Germany does have a higher debt-GDP ratio than the United States, although we're pretty close.So, answer your own question Oliver, is the debt something to be concerned about or is it only something to attack America on?

[Oliver]

So, answer your own question Oliver, is the debt something to be concerned about or is it only something to attack America on?


No - the Debt here in Germany is similarly bad as well. The question
is when this will be a problem - and what kind of problem. Or if Gov's
can make trillions of trillions of debt and nothing whatsoever will
happen.

[RandFan]

No - the Debt here in Germany is similarly bad as well. Then why didn't you start a thread about Germany's debt?

I'm not an expert but my understanding is that it's not too late to turn things around if we can just get some fiscal responsibility.

[geni]

So, answer your own question Oliver, is the debt something to be concerned about or is it only something to attack America on?

To be fair we can't calculate german debt right now because we can't get a straight answer out of the german gov on the question of are they going to provide a 100% garentee for bank deposits.

[Oliver]

Then why didn't you start a thread about Germany's debt?

I'm not an expert but my understanding is that it's not too late to turn things around if we can just get some fiscal responsibility.


Because this is a US board where virtually nobody gives a **** about
German debt. Plus I saw the coverage at CNN about the US debt which
lead me to the question in the first place...

...Anti-US-Conspiracy? ... Uhm, no.

ETA: Okay, but what if things don't "turn around"? At which point will it
affect the economy or be a matter of inflation?

[RandFan]

...Anti-US-Conspiracy? ... Uhm, no. I never claimed conspiracy. Just an obsessive compulsive interest in all things negative about the US on your part.

ETA: Okay, but what if things don't "turn around"? At which point will it affect the economy or be a matter of inflation? It's a problem right now and it will continue to be a problem and will only get worse if things don't turn around. Further, a reduction in productivity will seriously exacerbate the problem. We don't have a lot of room for error right now. As for inflation, the problem isn't debt it's how we deal with that debt. Printing up money or borrowing from Peter to pay Paul will simply increase inflation. What America needs is fiscal responsibility.

[TragicMonkey]

Well, at least we have the satisfaction of knowing that if we go down, we'll drag most of the rest of the world with us. Especially Germany. They can mock us all they like---as they freeze to death in their harsh glacier-ridden tundras and windblown steppes.

[Oliver]

I never claimed conspiracy. Just an obsessive compulsive interest in all things negative about the US on your part.

It's a problem right now and it will continue to be a problem and will only get worse if things don't turn around. Further, a reduction in productivity will seriously exacerbate the problem. We don't have a lot of room for error right now. As for inflation, the problem isn't debt it's how we deal with that debt. Printing up money or borrowing from Peter to pay Paul will simply increase inflation. What America needs is fiscal responsibility.


That sounds like Ron Paul said it himself. But I thought than someone
"less nutty" than Paul can explain to me what the side effects of the
debts are. I'm asking because the debt isn't a new thing at all - and
things went pretty well all the time despite the debt.

So they don't seem to be correlated. Are they? - And how so?

[ServiceSoon]

Higher public debt will lead to less trust in a currency by international countries.

[Oliver]

Higher public debt will lead to less trust in a currency by international countries.


Ergo: It will decrease the currencies value -aka- inflation, right?

[RandFan]

I'm asking because the debt isn't a new thing at all - and things went pretty well all the time despite the debt. It shouldn't be all that hard for you to figure out Oliver. How much can YOU borrow before it bankrupts you? How would borrowing an ever increasing amount in relation to your income hurt you? You figure that out and you will have your answer. Some things really are not all that difficult.

The difference between you and a nation state is that a nation state can print money or play other inflationary games. If you need help understanding the problems of inflation then do some reading (http://en.wikipedia.org/wiki/Inflation).

[Matteo Martini]

Italy has also BIG problems with their (our?) debt

[rjh01]

Yes, but looking at the debt in absolute terms is misleading. Debt as a percentage of GDP is the more relevant metric, since the richer you are the more debt you can afford. And in terms of that, the United States is uncomfortably high but not unprecedentedly so, with other not-poor countries ahead of us. (http://en.wikipedia.org/wiki/List_of_countries_by_public_debt) Although I don't want to play the "lol Oliver is German" card, it might be worth pointing out that Germany does have a higher debt-GDP ratio than the United States, although we're pretty close.

Check out the talk page. That is interesting. It also gives the source as this
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html

[Beerina]

Politicians run to the defense that it's stlill small, historically vs. GDP.

Though after last week, who knows?


But that's what The People get for voting for politicians who bribe them with $2.3 trilliion per year spending, and counting.


The annual interest payment is what, $400 billion per year? We'd have close to a balanced budget had we not been borrowing over the last 30 years to buy votes. That is, we'd be spending $400 billion per year more on actual stuff than we are now.



Gene Wilder as a resigned Willy Wonka: Stop. Don't do it. Stop.

[ServiceSoon]

Ergo: It will decrease the currencies value -aka- inflation, right?Not necessarily.

We'd have close to a balanced budget had we not been borrowing over the last 30 years to buy votes. That is, we'd be spending $400 billion per year more on actual stuff than we are now.
Please explain.

[Francesca R]

I would assume that there must be some point in time, when it will cause severe problems, such as inflation...There can be, but you can measure how concerned people are about rising inflation from the forward break-even inflation rate on publicly traded inflation-linked government bonds (http://www.inflation-linked.com/breakeven.html), or the offered spread on inflation swaps (http://en.wikipedia.org/wiki/Inflation_derivatives). As of now there seems to be no particular concern (can't post evidence at the moment)

Another concern could be that the US government could default on paying interest or principal on some of the debt, as some countries have done (EG Argentina in 2002 (http://en.wikipedia.org/wiki/Argentine_economic_crisis_(1999-2002)), although their president is now talking about reversing that, due to the extent to which Argentina's sovereign debt has since been shunned by global investors). Concern about that can be tracked too from the spread of credit default swaps on US government bonds. That is non-zero (http://www.reuters.com/article/bondsNews/idUSLO11601220080924) right now, but hardly large.

Alternatively if the world, out of its concern, just switched to increased reluctance to hold US government debt, then either the nominal yield on US government bonds might rise (because everyone would want more compensation for a higher risk) or the US dollar would go down, all else being equal (assuming investors' concern about other sovereign governments did not rise too. In fact US T-bond yields are close to multi-year lows, and the dollar, which has been falling quite a lot in the last six years, has appreciated quite a bit since July, particularly against the euro.

[Beerina]

Not necessarily.

Please explain.

Since we spend something like $400 billion per year on debt interest, if we didn't have the debt, we would have an extra $400 billion. This could go to reducing or balancing the budget, if not leaving a little extra leftover most years.

Congress would catch up in a few years, of course, as they ramped up their spending and started generating $250 billion/year deficits under the argument that it's a small fraction of GDP and it buys them votes.

[Darat]

Yeah but that means you wouldn't have been able to buy that great new thing for the military 5 years ago, I know you only played with it once on Christmas day but you did so want it.

And anyway you can always apply for a new credit card and use that to pay of the interest this year...

[a_unique_person]

Australia has a fantastic public debt rating, and it's private debt rating stinks. Public debt, if it is invested well, can be a good thing. People buy homes at similar rates, and no-one says it's a stupid decision to make financially.

[plumjam]

all this debt, who is it owed to?

[AWPrime]

Yes, but looking at the debt in absolute terms is misleading. Debt as a percentage of GDP is the more relevant metric, since the richer you are the more debt you can afford. And in terms of that, the United States is uncomfortably high but not unprecedentedly so, with other not-poor countries ahead of us. (http://en.wikipedia.org/wiki/List_of_countries_by_public_debt) Although I don't want to play the "lol Oliver is German" card, it might be worth pointing out that Germany does have a higher debt-GDP ratio than the United States, although we're pretty close.
However riches are more likely (then debt) to go away.

[CapelDodger]

The question is: Where is the line when it will be a problem - and
what kind of problem? ... Inflation?

It's worked before :).

The current German national debt is largely down to the costs of reunification at a foolish valuation of the GDR Mark for short-term political expediency. I said it was foolish at the time, and (as usual) I've been proven right.

The US national debt is down to living beyond their means since at least Reagan's days, and arguably earlier (the Bretton Woods system didn't fall apart because of US financial rectitude, after all).

There are two potential problems when it comes to debt. One is for the debtor that can't can't borrow any more. The other is for the creditor who can't collect if they foreclose. So I'll pose a new question : is the US too big a debtor to be allowed to fail?

I don't think so.

[CapelDodger]

However riches are more likely (then debt) to go away.

Not if you've hidden them offshore and off-balance sheet :). That's the trick. Flaunt your assets while concealing your liabilities and you'll end up with nothing. Even a divorce-lawyer understands that.

[CapelDodger]

And anyway you can always apply for a new credit card and use that to pay of the interest this year...

You are sooooooo down with the modern zeitgeist :). Of course, now we're into post-modern ...

It's not just mortgages that are folded into those complex debt instruments, it's credit- and store-card debt, car loans, holiday loans, loan-consolidation loans, US Treasury bonds, yadda-yadda, mixed in with options, insurance, swaps, and what-all else. No wonder their real value is so indeterminate when people come to think about it. Which they only do when the music stops.

The remarkable thing is that none of this is really new. It's just the most recent manifestation of a speculative bubble. The scale is new, but then so is globalisation.

[Oliver]

Thank you for the answers so far - I have to admit that it's a quite complex
issue and it seems that even experts have contradicting opinions about the
outcome of a high dept. The English Wikipedia article sums up the risks this way:

Lendings to a national government in the country's own sovereign currency are often considered "risk free" and are made at a so-called "risk-free interest rate (http://en.wikipedia.org/wiki/Risk-free_interest_rate)". This is because the debt and interest can be repaid by raising tax receipts (either by economic growth (http://en.wikipedia.org/wiki/Economic_growth) or raising rates), a reduction in spending, or failing that by simply printing more money. Some economists argue that, in an economy near the full employment, this would increase inflation and reduce the value (http://en.wikipedia.org/wiki/Value_%28economics%29) of the invested capital (http://en.wikipedia.org/wiki/Capital_%28economics%29). An extreme example of this is provided by Weimar Germany (http://en.wikipedia.org/wiki/Weimar_Republic) of the 1920s which suffered from hyperinflation (http://en.wikipedia.org/wiki/Hyperinflation) due to its government's inability to pay the national debt.

*snip*

U.S. Treasury bonds denominated in U.S. dollars are often considered "risk free" in the U.S. but this ignores the risk to foreign purchasers of currency exchange rate (http://en.wikipedia.org/wiki/Exchange_rate) movements. In addition, this implicitly accepts the stability of the US government and its ability to continue repayments in a financial crisis.

Source: http://en.wikipedia.org/wiki/Government_debt#Risk




What does all of that mean in light of the economic crisis?

[CapelDodger]

Thank you for the answers so far - I have to admit that it's a quite complex
issue and it seems that even experts have contradicting opinions about the
outcome of a high dept.

Debt is not a problem if it can be serviced. Debt is fundamental to capitalism, and to government.

Borrowing to fund productive investment is good. Borrowing to fund current expenditure is bad. Borrowing to fund speculation is really bad.

Industry normally runs in debt, because it has has borrowed at x% to invest in real capital (factories, mines, canals, railways, research, whatever) that returns (x+y)%. They make a profit after servicing the loan, and can pay it off over time. Over time, of course, they make new investments that improve returns, but as long as those investments make a positive return over the cost of capital that's not a problem. The result is economic growth.

Governments can borrow to make productive investments, such as education or the US highway system. These increase GDP by more than the cost of capital, which pays for the borrowing and again leads to economic growth.

Borrowing to fund an unearned high-life or (for instance) unproductive wars leads to disaster.

What does all of that mean in light of the economic crisis?

Nothing good for people that have lived the high-life by credit-card, nor the people that lent them the money. The people with productive assets and economies will come through.

[Oliver]

Debt is not a problem if it can be serviced. Debt is fundamental to capitalism, and to government.

Borrowing to fund productive investment is good. Borrowing to fund current expenditure is bad. Borrowing to fund speculation is really bad.

Industry normally runs in debt, because it has has borrowed at x% to invest in real capital (factories, mines, canals, railways, research, whatever) that returns (x+y)%. They make a profit after servicing the loan, and can pay it off over time. Over time, of course, they make new investments that improve returns, but as long as those investments make a positive return over the cost of capital that's not a problem. The result is economic growth.

Governments can borrow to make productive investments, such as education or the US highway system. These increase GDP by more than the cost of capital, which pays for the borrowing and again leads to economic growth.

Borrowing to fund an unearned high-life or (for instance) unproductive wars leads to disaster.

Nothing good for people that have lived the high-life by credit-card, nor the people that lent them the money. The people with productive assets and economies will come through.


While I understand your explanation, I completely fail to connect the
Dots concerning government debt. It's said that the national debt in
the US doubled in less than a decade. So given your explanation, it
suggests that positive returns are declining, which -by logic- would
have been an indicator for an economic deceleration for years now.
Wrong?

And there is another quite disturbing thing I heard. David Walker, the
former U.S. Comptroller General of the United States and head of the
Government Accountability Office from 1998 to 2008, said the actual
debt isn't 10 Trillion but 55 Trillion Dollars:

AxaZT5JS7Og
How so?
And when is someone going to publicly address the debt? [It seems
to be one of those Issue no one is willing to mention]

[AWPrime]

Not if you've hidden them offshore and off-balance sheet :). That's the trick. Flaunt your assets while concealing your liabilities and you'll end up with nothing. Even a divorce-lawyer understands that.
Doesn't that actually agree with me, for hiding isn't actually making it go away?

[UserGoogol]

The annual interest payment is what, $400 billion per year? We'd have close to a balanced budget had we not been borrowing over the last 30 years to buy votes. That is, we'd be spending $400 billion per year more on actual stuff than we are now.

I see no reason to believe that. If the government didn't take on any debt, then the private sector would be free to take on more debt instead, and it seems very plausible that we'd still have the same amount of money tied up in paying off interest in the end. The dynamics are complicated and I sure as hell am not an economist, but it seems extremely presumptuous to assume that we'd have the full $400 billion dollars to spend as we wanted. (Of course, it might be argued that it's better for that money to be borrowed by the private sector than by the government in the first place because they can spend it more effectively, but that's an argument against government spending, of which public debt is merely a symptom.)

ETA: Also, it's not like paying off debt necessarily prevents wealth from being created, it just means that the wealth has to be sent off to the lenders. It's not ideal and it probably distorts the market or something, but it's not like paying off debt makes wealth vanish away to never-never land.

[firestorm]

I say we overthrow the government then say, 'Debt? Uh, that regime is gone and didn't leave a forwarding address. Sorry.'

[AWPrime]

I say we overthrow the government then say, 'Debt? Uh, that regime is gone and didn't leave a forwarding address. Sorry.'
You mean like the russian revolution?

[CapelDodger]

While I understand your explanation, I completely fail to connect the
Dots concerning government debt. It's said that the national debt in
the US doubled in less than a decade. So given your explanation, it
suggests that positive returns are declining, which -by logic- would
have been an indicator for an economic deceleration for years now.
Wrong?

I'm afraid so. Increasing debt can be sustainable over the short-term (and a decade or two is short-term) even when it's unsustainable over the long-term, and the extra government spending actually boosts the economy, because there's more money moving through the system. At some point the people providing the credit get nervous and stop lending, which is when the whole situation unravels - and that always happens in the short-term. As we see now.

And when is someone going to publicly address the debt? [It seems
to be one of those Issue no one is willing to mention]

In the Clinton Presidency the rampant Reagan deficit was turned into a surplus, because his administration was addressing the debt. The surplus went out the window when the Cheney/Rove administration took over, and the deficit became even more rampant. There are indeed people who don't care to mention that :).

Real Conservatives have been mentioning it a lot, often very forcefully, but they've been sidelined.

[CapelDodger]

Doesn't that actually agree with me, for hiding isn't actually making it go away?

Yes, I am agreeing with you. I hoped the smilie would get that across :).

[CapelDodger]

And there is another quite disturbing thing I heard. David Walker, the
former U.S. Comptroller General of the United States and head of the
Government Accountability Office from 1998 to 2008, said the actual
debt isn't 10 Trillion but 55 Trillion Dollars:

AxaZT5JS7Og
How so?

Interesting interview.

David Walker is referring to future obligations that have been taken on but not funded (particularly social security). The US has an ageing population of Boomers who will soon be retiring and making demands on the government for medical care and pensions that they are legally entitled to, but for which no provision has been made. The Boomer generations are as much at fault as the governments they've elected because they haven't made sufficient provision for their own retirement, but there it is. When they retire they stop paying as much tax, but they expect the benefits. It's a looming fiscal train-wreck.

(I'm a retired British Boomer myself, but I did make provision. I've worked out how long I can afford to live and I've adjusted my drinking accordingly. The planned obsolence of my liver :).)

[RandFan]

In the Clinton Presidency the rampant Reagan deficit was turned into a surplus, because his administration was addressing the debt. The surplus went out the window when the Cheney/Rove administration took over, and the deficit became even more rampant. There are indeed people who don't care to mention that :).

Real Conservatives have been mentioning it a lot, often very forcefully, but they've been sidelined.Clinton deserves credit but we should put that in context with a huge economic expansion that was unprecedented. And of course Clinton worked with a Republican congress. I'd kinda like to see those dynamics back. I think the Dems will gain a lot more seats in both houses. I hope like hell they show some fiscal responsibility. It's an important time and I don't envy Obama and the mess he is going to inherit.

[Policenaut]

I hope like hell they show some fiscal responsibility.

Wishful thinking especially with a filibuster-proof senate which looks likely right now.