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View Poll Results: How do you rate this public debt/GDP ratio
We' re cooked, book passage to Mars 24 30.38%
Meaningless, anyway Firecalc went through the great depression, what could be worse? 3 3.80%
I think it matters, but we will find a way to deal with whatever difficulties that may come along 44 55.70%
Too complex; no opinion 8 10.13%
Voters: 79. You may not vote on this poll

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Old 02-10-2013, 11:20 PM   #21
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The timing on this one is interesting. I just finished reading The Aftershock Investor (didn't read the first two books). I didn't vote above as I'm between "we're cooked" and "too complex". I won't pretend to understand economics, but I will say that DH and I saw the tech bubble, housing bubble and personal finance bubble and discussed it many times. We are at the same place with the government debt and spending bubbles and know that the continued printing of money and quantitive easings will lead to inflation and rising interest rates. Will that kill off any economic growth and recovery? I don't know. However, we are 3 years away from retirement and don't want that dream shattered. So, we will be looking to protect our nest egg.
I did search on comments on this site for Aftershock and saw the tin foil hat comments. However, I don't feel comfortable ignoring the signs. I'm still interested in other's comments since it appears that our debt and spending won't be addressed by our current leadership.
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Old 02-11-2013, 05:59 AM   #22
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So what is the appropriate level of government spending and debt? Total government spending (municipal/state/federal) is 6.3 trillion/year. Total government debt is near 19 trillion. How much is enough? And as to the worlds being separate, does frugality and lbym not apply to governments?
No, not at all IMO. A government's financial goals and an individual's or family's financial goals are not even remotely the same.
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Old 02-11-2013, 06:20 AM   #23
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No, not at all IMO. A government's financial goals and an individual's or family's financial goals are not even remotely the same.
Would you elaborate on that a bit? I keep hearing that from many other sources but no one explains why. At least not in a way that I was able to understand.

I've always been adverse to debt because debt and the interest one is then committed to pay on it reduces one's future options and opportunities. Eventually a limit is reached when further borrowing is impossible and one's entire income is then committed to the basics and debt service.

Why is government of any size different?
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Old 02-11-2013, 07:12 AM   #24
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Population demographics are not the same in the US as in Japan. Immigration to the US increases the number of young people as did the ECHO boo from 80-96. Young families need houses, car seats, minivans and baby food, and other stuff that will be the fuel of the next recovery. People are having kids later and the peak of the boom in earning and spending of the biggest part of the boom is only just emerging.
http://www.businessinsider.com/echo-...my-2013-2?op=1
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Old 02-11-2013, 11:21 PM   #25
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Would you elaborate on that a bit? I keep hearing that from many other sources but no one explains why. At least not in a way that I was able to understand.

I've always been adverse to debt because debt and the interest one is then committed to pay on it reduces one's future options and opportunities. Eventually a limit is reached when further borrowing is impossible and one's entire income is then committed to the basics and debt service.

Why is government of any size different?
The difference is that the economy is nothing at all like a household or a business even though it comprises households and businesses. The naive belief that the economy is like a household is an example of "the fallacy of composition", i.e. that the whole logically has the same properties as the parts.

It's easy to see the difference. Saving is good for a household, but if all the economic entities in an economy start saving at once you get a recession/depression. In terms of the history of fiscal policy it's also easy to see, it was Herbert Hoover's cutting of government spending along with the Fed's raising interest rates in 1932 that turned a recession into the Great Depression. The Cameron gov't in the UK similarly squandered the early recovery there (due to being able to devalue a national currency) into a double-dip recession by imposing a fiscal austerity program, i.e. cutting spending.

Rather than seeing the national economy as a big household that ought to follow the prudent husbandry of a single household, a better metaphor is to see it as a human body. Spending money is analogous to flowing blood. Stopping the flow would be disastrous. In 1992 in Japan the corporations were overloaded with debt and stopped spending, trying to repair their balance sheets. This included especially the banks that had lent on overinflated land values. The capital losses to the Japanese economy in the bursting of the housing and stock market bubbles was double the since, scaled to the economy, of the corresponding losses in the US in 1932, i.e. assets lost to bank failure and the stock market crash. However, Japan never experienced anything like the 25% unemployement rates of the 30's in the US. The reason is that the govt kept spending and the economy continued to have a positive trade balance.

It is not true however that debt simply doesn't matter for a government. It is true that during a recession, such as the continuing labor depression, govt spending is the only mechanism that can enable the economy and jobs to grow. And the long-term solution to govt debt is to grow the economy. The postwar US govt debt of 120% of GDP fell to 40% in 20 years. How did the govt pay off all that war spending in 20 years? It didn't. The economy grew, contrary to expectations and partly due to continue support of the economy by the govt in the GI Bill which was 15% of govt spending in 1947.

The time to pay down the debt is later, when the economy has recovered, such as the Clinton years.
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Old 02-12-2013, 01:17 AM   #26
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The postwar US govt debt of 120% of GDP fell to 40% in 20 years. How did the govt pay off all that war spending in 20 years?
I'm not advocating anything with this comment, just making an observation. Personal income tax rates for inflation-adjusted (to 2013 dollars) $50k income during those Depression and WWII debt paydown years were roughly the same as they are today (25-30%). But for inflation adjusted $200k income level they were in the 50-70% range (versus 30-35% recently) and at the $1 million income level they were 60-90% (versus 35-40% recently). So that is part of the story as to how the post WWII debt was paid down...not just growing the economy. One might argue that the high income tax rates hindered the debt paydown rather than helped it, but nonetheless they are part of how the debt was paid down (or the deficit was held down as GDP grew).

U.S. Federal Individual Income Tax Rates History, 1913-2013 (Nominal and Inflation-Adjusted Brackets) | Tax Foundation
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Old 02-12-2013, 06:03 AM   #27
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I suppose that sort of makes sense. Debt adversity is so ingrained in me that it is difficult to see an advantage to it except for big ticket items such as a home or car that will last longer than the debt.

And even that only at an earlier stage of life when a loan was the only way for me to get a home or car.
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Old 02-12-2013, 06:18 AM   #28
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I suppose that sort of makes sense. Debt adversity is so ingrained in me that it is difficult to see an advantage to it except for big ticket items such as a home or car that will last longer than the debt.

And even that only at an earlier stage of life when a loan was the only way for me to get a home or car.
Many of us share this view. Public debt can be especially useful when it is used to soften the harsh blow of a bad economy, but when it is ever present it is not helpful.
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Old 02-12-2013, 06:24 AM   #29
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"Neither a borrower nor a lender be" -Ben Franklin
With today's interest rates the lender portion rings especially true.
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Old 02-12-2013, 07:30 AM   #30
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Not worried about the debt at all. I am worried about an over reaction, austerity will actually worsen the debt problem by reducing tax receipts and increasing entitlement payments. A bit of inflation wouldn't be bad (under 4%), will hasten reducing the debt with "cheaper dollars". Eisenhower had it right, when leaving office, he warned to beware of the military industrial complex. Transitioning our economy from guns to butter will take more than one decade.
You must read Krugman :-)

I disagree completely
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Old 02-12-2013, 09:09 AM   #31
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The difference is that the economy is nothing at all like a household ....
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I suppose that sort of makes sense. ...
"Sort of makes sense" is also about as far as I can go.

Let's look a bit broader, and consider a business and their employees households rather than a single household. If that business hits a rough spot, it is certainly a time to take a closer look at expenditures and see if cuts can be made. I know of several companies that postponed raises, or even cut pay during hard times.

Of course, you don't cut long term investments (like R&D) too far, or you risk the future of the business (and the households that count on a paycheck from that business).

But what if we are not talking about a short term blip? What if this business is facing competition that can cut their prices, or new products/trends are diminishing their importance (think buggy-whips)? You don't keep throwing R&D into an obsolete product line, that will just speed your demise. You have to reinvent yourself, or adjust to a lower revenue stream.

Maybe a better parallel is a two-income household. If one income is lost for a few years, adjustments can be made, it might be fine to dip into savings if there is confidence that they will return to the workforce. But if they are quitting for good, that's very different, and they need to adjust their spending to that single income.

Where is the US today? Do we have any confidence that our political system can distinguish, and make the right moves?

( to scrinch) Also, arguments using marginal tax rates make no impression upon me, tax laws have a huge effect on what those really mean - what were the effective tax rates in those years?

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Old 02-12-2013, 10:01 AM   #32
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No suprise. The book is very dry, it really isn't trying to make any sweeeping statements, but at least to my reading it is all there. The poll offers "we're cooked", but this is hardly scientific language! I guess if I were asked I woihld say tha tit does seem to bea serious situation, adn one which apparently has in the past presaged difficulties.

Japan has reached over 200% debt ratio, and they still are alive. However, they have been in a 20 year slow down, which is pretty much what Ken and Carmen would predict. It is odd that we are in the 6th year post crash, and we still haven't crawled out. This is unusual in our history. Is this related to our debt burden? Who knows, but it is intriguing.

I think a modern industrial economy may take a lot of killing, but IMO the jury hasn't yet come up with a verdict. We'll see in due time.

I try to be proactive, as I have always used varying allocations and I try my best to see around the corners up ahead. I know that this is not a popular approach here, but I'm harmless to others.

Ha
This subject always interests me, and my viewpoint is similar to yours, though my emotions have been whipsawed over the years, based on various readings I have consumed. Although I am of one who would like to see budgetary constraint, I wonder if now is not the time. We have just digested a 2% increase in taxes with the reinstatement of full SS contribution. This certainly has to have an effect on spending this year. Once again, I am under the camp of long term, trying to "respect the dollar", but during this shorter term, I wonder if debt ratio really matters. If I can make a false comparison to family finance, you could confiscate all of my assets, and leave me only with my monthly income and my mortgage debt. My debt ratio would be about 150% and I would continue to live just fine,as I don't use my assets. It could probably go to 200% without changing my life that much. This is under current interest rate levels of course. My major fear long term is change is brought upon us, not by us, in a swift manner.
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Old 02-12-2013, 11:18 AM   #33
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I don't know what to make of this. I give a lot of weight to Ha's message, but remember, there is nothing you or I can do to change things. This may be a good reason to be 50/50 US/other, as I am. Or still working--as I am.

I will be selling Kool-aid on another thread, however. I already own tobacco stocks and I trust that my index funds own armaments companies.
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Old 02-12-2013, 12:03 PM   #34
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Consider your mind blown then. They are separate and distinct. Always have been. Only economic growth will solve the problem, if there is really even a problem. Cutting spending in a fragile economy is a fools errand.
I agree that now may not be the best time to cut spending but we had best get on it as soon as the economy does improve. Not something I think most of our politicians have the stomach for as spending buys votes and secures their lucrative jobs.

I worry about total public spending as a percentage of GDP. I think someone may have posted this elsewhere on the board but can't remember where now. Anyway, chart shows this level at 40% of GDP and steadily rising over time. How healthy can an economy be when government spending is on track to consume over 50% of GDP?

US Government Spending As Percent Of GDP United States 1903-2012 - Federal State Local Data
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Old 02-12-2013, 12:31 PM   #35
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(snip) You honestly think that reigning in expenses will worsen our debt crisis?(snip)
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(snip)The UK followed the advice to reign in governmental expenditures substantially as a response to the events of 2008.(snip)

aaaargh!! I can't stand it any more!!!
Reign is what rulers do over their realms. A rein is a strap on a horse's bridle; to rein in a horse is to pull on the said strap to direct the horse to slow down, and by analogy, to apply a checking force to, in this case, government spending.

Rant over. I now return you to your regularly scheduled thread.
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Old 02-12-2013, 12:53 PM   #36
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aaaargh!! I can't stand it any more!!!


OK, here's my 2 cents. About the public debt, not rein vs. reign, to which I have nothing to add.

No economist here, but I have read that the Japanese public debt is held mostly by its citizens, while the US debt is held mostly by foreigners. If the interest rate rises, the Japanese people may be more willing to forgive their own country's debt, compared to what our own creditor would want.
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Old 02-12-2013, 01:15 PM   #37
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OK, here's my 2 cents. About the public debt, not rein vs. reign, to which I have nothing to add.

No economist here, but I have read that the Japanese public debt is held mostly by its citizens, while the US debt is held mostly by foreigners. If the interest rate rises, the Japanese people may be more willing to forgive their own country's debt, compared to what our own creditor would want.
Don't mean to reign rein rain on the parade, but the debt held by foreigners is ~ 48%...
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Old 02-12-2013, 01:28 PM   #38
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Fine!

I do not know how much y'all have lent to Uncle Sam, but of the 52% held by US citizens, I myself have let him borrow about 2.5 years of my living expenses. But that was because he promised to at least pay me enough interest to match inflation plus a bitty more (I-bond), which may not even be enough to pay for income tax on that interest.

Call me unpatriotic if you will, but no way I would loan him money for 10 or 30 years at the current fixed rates!
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Old 02-12-2013, 06:44 PM   #39
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[QUOTE=NW-Bound;1283178]

OK, here's my 2 cents. About the public debt, not rein vs. reign, to which I have nothing to add.

I always comfort grammar Nazi's by saying: "Their, there, they're".
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Old 02-12-2013, 06:49 PM   #40
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Yeah. The debt markets are running scared, with the effective interest rates for US debt skyrocketing on the perceived new riskiness of the debt.


http://www.treasury.gov/resource-cen...spx?data=yield


(We don't need immediate austerity. We need a concrete plan of action that shows how the US will address it's debt in the future. Good luck getting that...)
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