National debt?

[LeatherneckPA]

Remember when they used to tell you "there is no such thing as a stupid question'? well, as I've already adequately demonstrated, I'm pretty ignorant when it comes to money. About the only thing I've ever done right with it was my TSP and planning to retire on a law enforcement pension. Other than that, if you can make a mistake with money, I've done it.

So can somebody explain to me, in really simple terms and language, how a country perceived by most of the world to be one of the most prosperous can have such a ridiculous debt as to be measured in trillions of dollars? (It is that high, isn't it?)

I mean, how can we owe ANYBODY any money when all we keep doing is giving away bushels full of money to other countries who burn our flags and effigies of our leaders?

 

[dex]

U.S. National Debt Clock

 

[Zoocat]

Ok, I'll take a shot at a very simplistic explanation. Our dollars used to be quite valuable, also our goods were desireable, and oil is priced and traded in dollars. Consequently, other countries wanted to buy our treasuries so we kept selling and selling and selling them. So now we owe trillions, mostly to Japan and China.

Please, others more versed in world economics step in and correct me or elaborate.

The question on my mind is, now that the dollar is falling, when will our lenders stop buying treasuries? And when will oil currency change to the Euro? And what will happen to us all when/if that happens? I think we are looking at higher interest rates down the road. Woe oh woe is us.

 

[dumpster56]

Ok, I'll take a shot at a very simplistic explanation. Our dollars used to be quite valuable, also our goods were desireable, and oil is priced and traded in dollars. Consequently, other countries wanted to buy our treasuries so we kept selling and selling and selling them. So now we owe trillions, mostly to Japan and China.

Please, others more versed in world economics step in and correct me or elaborate.

The question on my mind is, now that the dollar is falling, when will our lenders stop buying treasuries? And when will oil currency change to the Euro? And what will happen to us all when/if that happens? I think we are looking at higher interest rates down the road. Woe oh woe is us.

Pay everything off and get into cash? Oops the dollar will not be worth much.

I have decided to stop all dumb spending. I have a good TV computer two paid off late model vehicles a house with a 30K mortgage which I will pay off sooner than later with a fixed rate loan. But then again as I watch the american charge everything from gasoline to the cup of morning coffee I say we are really a few years away from a major disaster economically. But then again I will be chastised as being all doom and gloom. Hey what do I know I was just a gym teacher before I semi ERd.But I did call the run up in oil prices a year ago.

 

[bpp3]

The question on my mind is, now that the dollar is falling, when will our lenders stop buying treasuries? And when will oil currency change to the Euro? And what will happen to us all when/if that happens? I think we are looking at higher interest rates down the road. Woe oh woe is us.

Yes, the dollar will probably some day go the way of the Pound Sterling, which is... ...doing just fine, last I checked.

 

[neihn]

I am not an economist, but let's look at this argument - With our debt, it means many countries think the US is safe and secure market to invest their money. So if a country has no national debt, it means no country is really interesting in investing money to her.
So how much debt is too much? Looks at the gdp vs debt graph over the years. I think we doing pretty OK.
U.S. Public Debt vs. GDP - Data Showcase

 

[Texas Proud]

First... a few wrong statements on this short thread...

The US gvmt does not give away much money compared with total spending... have not checked, but I think it is less than 1% of the total budget.. so even if we stopped it completely it would not make a dent in our debt... here is a quick search article about how little it really is..

Bush Foreign Aid Budget Called Way Too Low

Also, we are talking about the NATIONAL debt.... this is due to spending here in the good ole USA (well, except for that war thingy going on).. It is SS and medicare and interest on the huge debt... those are the big items.. and then defense is up there... about $1,450 of the $2,200 billion is non-discretionary (ie, they are because of current law and as such can not be cut.. but in truth they can if someone had the balls to do it).. so MOST of the budget is on autopilot... and then of the rest, most of that is on autopilot also as you have to fund congress, the courts, the military (yes, in the small number that is not auto, but not much you can do as you have to pay all the people and contracts)... so in truth, there is not much that can be done without a lot of people squealing like a stuck pig...

Where the Money Comes From — and Where it Goes

(hey, someone else can look up newer numbers... you wanted it simple)..

NOW, to your question about how 'big' the debt is... well, not very when you consider how many people there are in the country.... that number is debt per capita... the chart below shows we are 16th... and pretty low compared to some like Ireland, Switzerland or the UK...

#1 Monaco: $550,947.32
#2 Ireland: $338,761.47
#3 Switzerland: $142,561.00
#4 United Kingdom: $136,237.45
#5 Netherlands: $114,600.47
#6 Belgium: $101,325.74
#7 Norway: $75,692.65
#8 Denmark: $74,065.68
#9 Austria: $72,477.53
#10 Hong Kong: $67,746.72
#11 Sweden: $66,237.87
#12 Finland: $48,086.65
#13 Germany: $47,378.07
#14 Spain: $39,334.27
#15 Italy: $33,655.65
#16 United States: $33,339.98



So, now with your new knowledge, do you still think it is a problem


Well, I do because of the 'off the books' debt that is not in the numbers... We have made promises for SS, medicare and now the drug program which increases the true debt to about $49 TRILLION... and I just read one that says $65 trillion...

So in truth we owe a lot more than what is told due to future payments that are promised... and it is almost all due to SS, medicare and other wealth transfer programs of the gvmt...

 

[wcv56]

Think the government has more people retired than working.
Hence the reason they are adopting contract workers.
More up fron cost but when they don't need you in a couple years
that is the end. I think this beats keeping people on the payroll
with benefits for the rest of their life. You would be surprised what
a floor sweeper gets paid on the government payroll.

 

[chinaco]

Thanks to the Bush Clan for 3 wars in 20 odd years in the ME. GH bumbled the first one and through diplomatic incompetence green-lighted the invasion of Kuwait. Then Junior couldn't wait to kill Saddam. Now they want to invade Iran. That family has too much of a vested interest in status quo oil based energy. I believe it affects their judgment (they tend to rationalize decisions rather than look at alternative solutions).

If someone in the whitehouse doesn't start using their head... we are going to be up sh!t creek. Energy is a strategic problem. It is a large source of our trade imbalance. We are bleeding money out of this country for energy... yet we have some extremely large energy resources. The US is one of the largest Coal reserves in the world. We have technology. We could begin in earnest to us ethanol as a solution for the next 10 - 15 years... yet the government continues to sit on its hands.

Sorry for the rant... but some of the issues are inter-linked.

 

[Delawaredave5]

As in earlier replies:
1. We don't give away that much (as a percent of our wealth)
2. Our National Debt isn't bad (on a per capita basis)

There's an academic economics argument that a certain level of government debt is a stimulus for the economy and good (kind of like the business argument that a company's capital structure should include both equity and debt).

But what I really think is bad is the Trade Deficit with China and the rest of the world. I think this is squandering our wealth and devaluing our currency.

It's like someone living on a 10,000 acre farm and "selling off acres in the back" every year to live off of - you don't notice what you sold off in the beginning - but sooner or later you wake up and say "where'd all the land (wealth) go ?"

Buffett (Warren, not Jimmy) wrote an article in Fortune a few years ago with a simple analogy on "what's going on" by running these high and persistent trade deficits - see below link:

Squanderville versus Thriftville (Warren Buffet)

 

[DJRR]

As long as other people are stupid enough to give us real goods for pieces of paper I think we should get as much as we can One day they may realize it is not such a good deal

FWIW, debt is meaningless in itself. You need to know your income and assets. If Bill Gates has $500M in debt, who cares?? Theoretically, if the economy grows by more than the net interest rate we can borrow forever with no consequence. Think UK gilt bonds.

Also interesting to note that there is a strong correlation between budget surplus and recessions.

As others have noted I personally think we have a long way to go before we need to sell the Lincoln memorial to make the next mortgage payment.

 

[LeatherneckPA]

Ok, other countries wanted to buy our treasuries so we kept selling and selling and selling them. So now we owe trillions, mostly to Japan and China.

So, if i understand this right, we keep printing more paper without having the reserves in Ft Knox to back it?

Looks at the gdp vs debt graph over the years. I think we doing pretty OK.

OK, that graph looks like we're winning, not going deeper and deeper into the black abyss.

we are talking about the NATIONAL debt....NOW, to your question about how 'big' the debt is... well, not very when you consider how many people there are in the country.... that number is debt per capita... the chart below shows we are 16th... and pretty low compared to some like Ireland, Switzerland or the UK...So, now with your new knowledge, do you still think it is a problem

OK, another DNG question. what's the difference between "national debt" and whatever other kind there is?

Wouldn't it be more realistic to somehow look at it in terms of the number of paid workers versus debt? I mean, using welfare bums to bring the per capita down seems like cheating to me.

Was never really sure it was a problem, since I didn't know what the heck it really was anyway. And you guys sure don't seem terribly concerned.

this beats keeping people on the payroll
with benefits for the rest of their life. You would be surprised what
a floor sweeper gets paid on the government payroll.

HEY easy on us lazy, overpaid government workers there bub!

But what I really think is bad is the Trade Deficit with China and the rest of the world. I think this is squandering our wealth and devaluing our currency...It's like someone living on a 10,000 acre farm and "selling off acres in the back" every year to live off of - you don't notice what you sold off in the beginning - but sooner or later you wake up and say "where'd all the land (wealth) go ?"

Not sure I understand this one either, but what I gather is that we buy more than we sell, and therefore our economy is getting weaker while "theirs" is getting stronger?

 

[mb]

I mean, how can we owe ANYBODY any money when all we keep doing is giving away bushels full of money to other countries who burn our flags and effigies of our leaders?

This is a misconception

These are some very old numbers (I'm to lazy to look up new ones) but I think that the conclusions derived from them are still valid

(1) We give away about 1/10 of what Norway does on a GDP basis
(2) About 80% of foreign aid was going to fiver coutries: Israel, Turkey, Pakistan, Philippines and Egypt. (This was during the late 80s or early 90s)

So we don't give away that much money and most of the money that we do give away is for political/military not humanitarian purposes.

MB

 

[Texas Proud]

lthrnckpa

OK... the debt that you were talking about is what the federal gvmt owes to whoever has Treasury securities in whatever form... that is the $9 trillion number....

What the other number that was mentioned is the future promises that the federal gvmt has made to people... SS and medicare is an example... they have told you they will pay you $X per month when you reach 66 or less if you chose to at 62... Well, that promise is not in 'debt' form as there is no bond outstanding for that future payment.. only a promise to pay.. see the difference??

Now, the other one that is mentioned is the 'trade deficit'... this is a tougher one in that it is debated by people who know a LOT more than me... but it is the difference between imports and exports... when we buy more things from other countries than we sell outside of ours we have a negative trade deficit... well, those dollars stack up overseas and they have to do something with them... so they usually invest them... right now, a lot of that is buying the fed debt... but also different companies...

One of the problems is that it does not include services and there are people who say that this comes close to balancing out the deficit...

But a correction for a trade deficit is that your currency is devalued (well, guess what is happening to the dollar) and that eventually it will reach a point that your production becomes more valuable since your currency is so low that your exports will increase and you can not buy those imports because they become so expensive... well, I think this is happening slowly..

As I had mentioned... it does not include services... I worked in the UK back when the pound was 1.35 and the euro was 90 ish... Europeans did not want to come here because it was to expensive... but now I have heard of some of my old workers taking a 'shopping trip' to NY.. they can get a cheap flight to NY, go to Macy's and the other shops and buy lots of stuff and half price, take in a show and their savings from their purchases paid for the flight, hotel and show.... and I don't think that those sales are in our 'exports'...

A long post... but hope it helped...

 

[MasterBlaster]

Lets keep the debt in perspective. Yes $9 trillion is a big number. But with a $14 trillion economy I believe that the debt is affordable. that's less than 65% of one years economy. People where I live often take out 30 year mortgages for houses that are 300 to 500 % of their annual income. So relatively speaking the federal debt is nuthin'.

Per the high cost of the Iraq war... As I recall we are spending around $200 billion a year to be in Iraq and Afghanistan or about 4 percent of the annual federal outlays. Or another way to look at it being in Iraq and Afghanistan (absent increased taxes) causes the deficit to go up about 2 percent a year. Is it a lot of money for Iraq - you bet. However it can't be said that it is causing our economy to crumble.

Per the SS and medicare long term "off the table" debts. It is my opinion that higher taxes and medical care restructuring will take care of most of this problem. They are inevitable.

- Keep it in perspective, It's just not that bad

 

[Texas Proud]

Lets keep the debt in perspective. Yes $9 trillion is a big number. But with a $14 trillion economy I believe that the debt is affordable. that's less than 65% of one years economy. People where I live often take out 30 year mortgages for houses that are 300 to 500 % of their annual income. So relatively speaking the federal debt is nuthin'.

Per the high cost of the Iraq war... As I recall we are spending around $200 billion a year to be in Iraq and Afghanistan or about 4 percent of the annual federal outlays. Or another way to look at it being in Iraq and Afghanistan (absent increased taxes) causes the deficit to go up about 2 percent a year. Is it a lot of money for Iraq - you bet. However it can't be said that it is causing our economy to crumble.

Per the SS and medicare long term "off the table" debts. It is my opinion that higher taxes and medical care restructuring will take care of most of this problem. They are inevitable.

- Keep it in perspective, It's just not that bad

Master...

I see it different than you... the $9 trillion is our credit card debt... not a mortgage... 3


I remember seeing someone who had done the federal books under GAAP a long time ago... but can not for the life of me remembe what it looked like...

Think of all the assets the gvmt owns... lots of land, lots of buildings, ships, planes etc... so we do have a big asset base... but then we have depreciation etc. to increase our expenses... and the big number is the unfunded pension.

Any corporation who kept the books like the fed gvmt does would be off any exchange and someone likely would be going to jail...

 

[ERD50]

Master...

I see it different than you... the $9 trillion is our credit card debt... not a mortgage...

Maybe not all of it. Just a simple example, i assume the govt went into debt to build Hoover Dam, but then it provides power for decades. Was that money 'spent' or a wise investment?

I didn't research the specifics of Hoover Dam financing, but I think you get my point. I have no idea how much of the current debt could be considered 'invested', but surely some of it?

-ERD50

 

[Zoocat]

Lets keep the debt in perspective. Yes $9 trillion is a big number. But with a $14 trillion economy I believe that the debt is affordable. that's less than 65% of one years economy. People where I live often take out 30 year mortgages for houses that are 300 to 500 % of their annual income. So relatively speaking the federal debt is nuthin'.

Per the high cost of the Iraq war... As I recall we are spending around $200 billion a year to be in Iraq and Afghanistan or about 4 percent of the annual federal outlays. Or another way to look at it being in Iraq and Afghanistan (absent increased taxes) causes the deficit to go up about 2 percent a year. Is it a lot of money for Iraq - you bet. However it can't be said that it is causing our economy to crumble.

Per the SS and medicare long term "off the table" debts. It is my opinion that higher taxes and medical care restructuring will take care of most of this problem. They are inevitable.

- Keep it in perspective, It's just not that bad

Another perspective is that we must pay interest on our national debt. In 2007 interest cost us $233 billion, 8% of the federal budget. As our interest increases, because we must continue to borrow more, the less we can spend on other things that are national priorities. This from an article from the Heritage Foundation (a conservative think tank). This article explains the coming danger to our economy from the entitlements of Social Security and Medicare. Increasing the National Debt Limit Should Spur Congress to Tackle Entitlements.

I agree that future taxes will likely take most of the pressure off social security, but what that means is that people who have other income will not be receiving much from social security, ditto medicare.

 

[ziggy29]

Per capita our debt isn't nearly as bad as many other countries, but when you add in unfunded liabilities from Social Security, Medicare, government pensions and such...it starts to border on the frightening.

 

[Zoocat]

Another assumption that most make is that our government will always be able to borrow. Maybe so, but it looks to me like it's going to be pricey. With the dollar falling, Treasury rates will have to go up. We will pay more interest to attract lenders. The whole thing is extremely dynamic, especially with the price of oil going up.

 

[LeatherneckPA]

oldbabe, you are SCARING me! Unsupported pensions, no social security for people with other incomes, reductions in medicare. All I wanted to know was if "national debt" was something I should directly be worried about. I've come to the conclusion that I was right, I can't impact, so why worry. Now I'm questioning my planned Fed pension and it's security.

I was happier ignorant.

 

[ziggy29]

Now I'm questioning my planned Fed pension and it's security.

I don't think a federal pension is in jeopardy. Unlike the U.S. automakers and other businesses who can't just raise prices in the face of competition to pay for retiree benefits, they can just raise taxes on those of us not fortunate enough to get a pension.

 

[jnojr]

So, if i understand this right, we keep printing more paper without having the reserves in Ft Knox to back it?

None of our money is "backed" by anything in Fort Knox. The only thing that makes our fiat money "worth" anything is the belief that it can be exchanged for other valuable goods and services in the future.

 

[jnojr]

Maybe not all of it. Just a simple example, i assume the govt went into debt to build Hoover Dam, but then it provides power for decades. Was that money 'spent' or a wise investment?

Much of our present debt, and almost all of our future debt, is for entitlement spending. There is zero return from writing checks to a bunch of people in the future.

We would need well over $50 trillion "in the bank" today to pay all of the Social Security and Medicare/Medicaid promises we;ve made for the next 75 years. Since we don't, varying degrees of two things will happen... higher taxes and reduced benefits. Higher taxes will drag our economy down. Lower benefits will turn millions of angry, voting people out into the streets looking for heads.

This country has a problem coming. It is so serious, there is no way to overstate it. And our elected representatives are doing nothing about it... they know that the symptoms of this problem will not manifest themselves until long after the current folks are out of office, so why should they expend their political capital today to solve some future guy's problem? especially when the voters and taxpayers of today are far more concerned with grabbing up more goodies for themselves now than with how those goodies are going to be paid for.

 

[jnojr]

Another perspective is that we must pay interest on our national debt. In 2007 interest cost us $233 billion, 8% of the federal budget. As our interest increases, because we must continue to borrow more, the less we can spend on other things that are national priorities.

...except spending never goes down. "Spending cuts" mean spending doesn't increase quite as much as it was projected or planned to. We simply keep borrowing and printing money, even while debt service and current financial obligations mount.