US National Debt hit $19 trillions/Your thoughts on how it is going to affect USD

[Whisper66]

In response to your question, debt is too high when it is unsupported by the assets on the other side of the balance sheet and the cost to carry it is not affordable.

If you're not going to include assets and income in the discussion, how then can you judge debt levels?

Agreed. Was curious what others thought was a reasonable limit using whatever measure they felt appropriate. I wasn't specific on measures because I didn't want to push any particular type of answer.

When I think of this topic, I tend to consider Debt to GDP ratio. I note some others in this thread also look at this but I didn't note a trend in thinking of a quantifiable level of that measure which would be of significant concern to the group.

I also have no specific Debt / GDP value for concern. The only quantifying criteria I'm personally aware of is the critieria used for countries to adopt the Euro as their currency....I believe they use ~60% Debt/GDP and some very low deficit/GDP as a couple of the criteria of a good economy.

As plotted in ( https://en.wikipedia.org/wiki/File:...Debt_as_Percent_of_Gross_Domestic_Product.pdf ), our Debt to GDP values are hovering around 100% which is near the our values post WWII. As Gone4Good points out in post 18, the CBO estimates this will get much higher. I'm concerned that our economy as measured by this particular ratio isn't much better than that time period and looking to get much worse. I'd also be less concerned if our debt/GDP was strongly trending downward but don't see that at this point and don't see any stomach in our country today for addressing the debt side of the equation.

I recognize others see things differently and thus asked my questions just to test if others had more specific ideas on when they would be concerned vs not concerned.

 

[Gone4Good]

We've added something like 70% to the debt over the last 8 years or so. ($11T-ish to $19T). I don't have the exact figure but for sure the GDP didn't grow like that.

That for sure is not sustainable . . .

No, it wouldn't be. And it's important to recognize that level of debt accumulation isn't continuing. And also that it was pretty specific to the financial crisis.

In 2008 the economy fell off a cliff, and Federal tax revenues went with it. Federal receipts declined from 17.9% of GDP in 2007 to 14.6% in 2009 (the lowest level of revenue since 1950.) Along with a collapse in revenues, federal spending increased dramatically due to higher unemployment claims and welfare benefits. All of that reverses as the economy recovers.

In 2009, the first full year of the financial crisis, the Federal deficit exploded to 9.8% of GDP. This year it is projected to be 2.5%, which is far lower than was typical during the boom years of the 1980's and early 90's.

That's still not good enough considering demographic trends, but all else being equal 2.5% deficits are pretty much sustainable indefinitely.

 

[Gone4Good]

I recognize others see things differently and thus asked my questions just to test if others had more specific ideas on when they would be concerned vs not concerned.

The Federal government can currently borrow across the yield curve at real interest rates of less than 1%. At that cost of capital, any spending that yields any positive value basically pays for itself.

Short of piling up stacks of cash and setting it on fire, the federal government should be showering money on any project that has even a modest return on investment. And they should keep doing that until there are no more sub 1% return investments to fund or the bond market tells them to stop by raising the cost of capital.

 

[Gatordoc50]

The lack of stability in the dollar and deficit spending benefits some at the expense of others. It rewards those early in the cycle to the detriment of those that come later. The addition of leverage exacerbates the problem. It creates inequality and bubbles.

 

[GTFan]

The Federal government can currently borrow across the yield curve at real interest rates of less than 1%. At that cost of capital, any spending that yields any positive value basically pays for itself.

Short of piling up stacks of cash and setting it on fire, the federal government should be showering money on any project that has even a modest return on investment. And they should keep doing that until there are no more sub 1% return investments to fund or the bond market tells them to stop by raising the cost of capital.

This, 100% this. And austerity causes WAY more issues than it helps, at least for economically responsible countries.

But this whole argument is really kind of irrelevant when you realize that Congress has a vested interest in spreading money around as much as possible to buy votes. All you have to do is look at the fighter planes etc. that are bought, with money spread across multiple contractors in multiple states (that the Pentagon repeatedly says we don't need). That alone makes deficit spending inevitable regardless of what one wing of the spectrum wants.

Getting the debt and spending under control is an academic exercise in other words, not supported by real-world behaviors. You might have some short-term measures such as sequestering but they'll never last.

 

[marko]

The lack of stability in the dollar and deficit spending benefits some at the expense of others. It rewards those early in the cycle to the detriment of those that come later. The addition of leverage exacerbates the problem. It creates inequality and bubbles.

Now, to just figure out how to be on the right side of that inequality!