National Debt

[Mountain_Mike]

Check out this website to see the up-to-the minute amount of the national debt:

http://www.uwsa.com/uwsa-usdebt.html

What do you think are some of the ramifications of this huge debt toward those of us who aspire to ER? One I can think of is that this means the government will owe some of us for the bonds (and bond funds) we may have purchased, and thus John Q. Public will get the priviledge of paying for part of our retirement! Another possibility is that a huge national debt fuels inflation. Are there any other down sides?

 

[tryan]

What do you think are some of the ramifications of this huge debt

Longterm I have to believe interest rates will be high(er). As our foreign friends refuse to continue finance our excessive debt at low(er) rates.

For the FIRE'd higher rates will help offer competitive low risk investments. Once again the working stiffs - with lots of debt - will be left holding the bag (paying higher rates).

 

[wabmester]

In the best-case scenario, running a large deficit is supposed to be stimulative to the economy in the short-term, but eventually the strategy becomes a drag.

Here's what will happen:

- Interest rates will eventually rise. Today's bonds will lose value. Simple supply and demand as deficits increase the supply of treasury debt.

- Taxes will eventually rise. My guess is that these last few years will be fondly looked upon as the period of lowest taxes in history, and future taxes will have to make up for both the current debt and the increasing debt interest burden. Take your cap gains now.

- The gap between rich and poor will increase (assuming that the rich are benefiting most from deficit spending and low taxation).

- Eventually, government spending will be cut, jobs will be lost, and the economy will be in worse shape than before this "stimulus."

 

[guitarplayer]

the retirement age will probably go up from what 65 to 80 in the future... maybe

 

[Mr._johngalt]

In the best-case scenario, running a large deficit is supposed to be stimulative to the economy in the short-term, but eventually the strategy becomes a drag.

Here's what will happen:

-  Interest rates will eventually rise.   Today's bonds will lose value.   Simple supply and demand as deficits increase the supply of treasury debt.

- Taxes will eventually rise.   My guess is that these last few years will be fondly looked upon as the period of lowest taxes in history, and future taxes will have to make up for both the current debt and the increasing debt interest burden.   Take your cap gains now.

- The gap between rich and poor will increase (assuming that the rich are benefiting most from deficit spending and low taxation).

- Eventually, government spending will be cut, jobs will be lost, and the economy will be in worse shape than before this "stimulus."

Idle twaddle.

 

[wabmester]

Idle twaddle.

On an internet forum? You've got to be joking.

So, which part do you consider twaddle? The laws of supply and demand? The fact that our government is funded by taxes? Or the fact that government spending is a large part of our economy? I didn't even know these things were controversial. Silly me.

 

[charlie]

Wab, I have the same take as you. JG was problably just trying
to run up his post count or was in his cups.

Cheers,

Charlie

 

[Mr._johngalt]

Wab, I have the same take as you.  JG was problably just trying
to run up his post count or was in his cups.

Cheers,

Charlie

No, that was an honest reaction, rapidly formed and broadcast
as usual. I don't really care about post count. "In his cups?"
Well, it was 5:30, and so....................however, I like the phrase
"idle twaddle" and stand by my post.

JG

 

[uncledrz]

Check out this website to see the up-to-the minute amount of the national debt: 

http://www.uwsa.com/uwsa-usdebt.html

  Are there any other down sides?

Potential downside is that to service the debt, the government squeezes out investment by either restricting capital or making it very expensive. Result is that new businesses/activities that would create economic activity to support the retired population would not be as robust and thus insufficient to support those obligations.
Could be a serious problem in the future.
I personally don't thing the sky is falling, just that we'll have to pay more in the future for our present consumption, but that's one of the dire possibilities.
Uncledrz

 

[Michael]

Potential downside is that to service the debt, the government squeezes out investment by either restricting capital or making it very expensive.

For the nonce, there is a surplus of capital world wide. US citizens don't save anything in aggregate, but foreign citizens more than make up for it. US corporations also are saving quite a bit. The US national debt is easily being absorbed by world wide capital.

This world wide surplus is likely to continue, since the rapidly growing nations traditionally have high savings rates.

 

[HFWR]

Nothin' worse than an "idle twaddle"...

 

[dougdo]

Maybe I'm an alarmist but I think the current US policy of "Debt, what's that?" is going to lead to a disaster down the road. One that makes me very skeptical of placing all my investment eggs in the US. It's rather bizarre that we spent how many years trying to solve the debt problem and getting there in the Clinton years and then bingo! it doesn't matter anymore.

Canada (where I live) has been running surpluses for many years now which makes me happier. Except that if the US economy chokes you'll drown us with you....

 

[Michael]

I don't like the debt either, but there is nothing I can do about it. Most Americans like to be in debt. They run their private lives that way, and elect politicians to do the same.

 

[wabmester]

I have no problem with debt -- it's interest payments that I can't stand. The interest on our current debt is over $300B/year. We taxpayers pay that. It's the third largest item in the national budget (behind defense and health/human services). Your tax dollars at work.

 

[sgeeeee]

Nothin' worse than an "idle twaddle"... 

Isn't that cured by Viagra?

 

[Michael]

The interest on our current debt is over $300B/year.

I would certainly like to pay $300 billion per year less in taxes. Cut out the waste, and we could easily lop off another $300 billion plus. Alas, it won't happen.

 

[moghopper]

 

[Mountain_Mike]

I don't understand the notion that there was no national debt during the Clinton years. When I look at the graphs that show the national debt over time, I do not see any time in recent history when there has been no debt.

 

[wabmester]

I don't understand the notion that there was no national debt during the Clinton years.  When I look at the graphs that show the national debt over time, I do not see any time in recent history when there has been no debt.

The debt has been accumulated over the years.   The Clinton administration's budget had annual surpluses, which reduced the debt, while the Bush administration's budget had huge annual deficits, which increased the debt.

 

[unclemick]

Being an old lunch bucket Dem - I love to get my licks in against 'those durn Rep. guys.'

Unfortunately - having watched debt cycles since 1961 - it seems when pols are 'rich' they spend and when 'poor' they panic - due diligence and fiscal prudence seems to escape both parties except when the handwriting is on the wall.

Leverage works in both directions - the lever in low interest environment - can really bop you when the worm turns.

It's not a matter of the chickens coming home to roost - but when.

I expect to buckle up - and take the ride with De Gaul and the Norwegian widow.

I'm too old - to be smart anymore.

 

[Mountain_Mike]

Deficit is not the same as debt. We have never come close to becoming a debt free nation, and the little chart seems misleading. Look at the numbers on this website:

http://www.publicdebt.treas.gov/opd/opdhisto4.htm

 

[dougdo]

The chart is not misleading, it's very telling of the financial responsibility in place in each administration. Just looking at a chart of debt rather than deficits really gives people the idea that deficits don't matter, hey we already have Trillions of debt, what's a few more 100 billion gonna matter? But it does matter. The more new money that is borrowed by the government every year effects debt markets and interest rates for all of us. Plus it's the same as if you thought "well my mortgage is so big and the house value keeps going up, i can just keep adding to it". None of us would've gotten to ER like that.

 

[sgeeeee]

Deficit is not the same as debt. 

No, but if you keep running a deficit you'll never get rid of debt. While if you run a surplus you do reduce debt. It really is that simple.

 

[Michael]

The external debt was reduced during the Clinton years, that is the money owed to private citizens and foreign governments. The money owed to government agencies, such as the Social Security trust fund, increased each year. Under President Bush, the external debt and internal debt are both increasing. This compromises the ability of the government to pay back the money borrowed from the Social Security trust fund.

President Clinton was paying down the external debt so that the Social Security trust fund could be repaid. Draw your own conclusions as to why the Republicans are destroying the ability of the government to reapay trust fund money.

 

[ShokWaveRider]

Canada (where I live) has been running surpluses for many years now which makes me happier. Except that if the US economy chokes you'll drown us with you....

DougDo

We spend on average 6 months in Canada and 6 months in the US. Canada I agree does have a nice surplus, if I remember the accusations from the last election, it is planned that way. It also has a lot of frivolous (SP) government Spending, and it's share of corrupt politicians. As was experienced by the recent advertising scandals. The Politicians are just as shady as in the US. At least IMHO they are.

However, all in all Canada is OK., with one exception, the Taxes one Pays in Canada are a very OTT. Ontario with it's 15% overall sales tax equivelent rate is pretty high. Not as high as Europe, buy pretty high for North America. GST(8%) on New Homes, no tax deduction on mortgages, exorbitant fuel taxes, relatively sky high income taxes, and forever deminishing health care coverages, I should hope they have a surplus. And now they are starting to allow fee for health care that the government provides from independent providers. Ontario health care used to be free, it is not anymore, and a sum has been added to ones taxes for it starting last year, when they also removed the Eye examination benefit. Drugs and Dental are extra.

While IMHO the general concept of health care is still far better than the US', it is deteriorating rapidly, at least in Ontario it is. Waiting times are long, yada.. yada.. yada... My poor sister had heart failure, and was not diagnosed correctly for 4 years, with obvious symptoms that I found in "Blood Pressure for Dummies" at the local library! Not by just one doctor either.

Now if they fixed the health care system, I would say most of the taxes would be worth it though. Simply for the fact and individual does not have to worry about organizing it.

The comparision,is if you can pay for health care in the US, and are actually considered for coverage, basically you need to be healthy to start with. The care is stellar, no waits, no pushing around (in most cases), the system works well.... as long as you, or your insurance company is paying. Or, you are an illegal immigrant, but that is another story. You need an operation, generally it is available in no time. The cost, as many here know could be as high as $10,000 per year before deductables for a couple or family. A healthy couple with Blue Cross, with acceptable deductables is about $358 per month. The government needs to correct the legal system in order to limit liabilities so the doctors and hospitals, do not have to pay so much in insurances. This may help the costs. The lawyers however, will never let that happen.

To add insult to injury the cost of drugs is ludicrous in the US. But when Juries are allowed to award 1/4 Billion Dollars for a sinlge instance of a drug (VIOXX) mishap. They will stay that way. It may sound callous but "**** happens" when you have a population of 250 million people. How many people in comparision as a percentage did VIOXX help?

Now, I did a study last year about Taxes, not really in depth but a general analagy. This was for myself and my wife. It was basically how much tax would we have paid in each of the areas we lived, namely Florida and Ontario Canada. This was before we actually filed and were making the decision.

2004 Taxes.

If we filed taxes in Canada, we would have had to pay over $20k US in Federal and Provincial taxes + any $15% sales taxes we used during our stay, as well as fuel etc. (these we would pay no matter where we filed) It cost $700 for a rider emergency travel insurance for 6 months in the US with a $2m max no deductable all emergencies covered.

If we filed in the USA, we would pay about $1000 in Federal, no State Taxes and 6% Sales taxes. + $358 x 12=$4296 for Medical + $500 for extra personal insurance because of the Sue Happy US mantra, to protect our Nestegg, that would not really be required in Canada, but probably advisable. This totals about $6k.US, far less than the equivelent overall tax burden in Canada. And the quality of health care is generally better. But you have to be 100% healthy to get the health care. Conversly Emergency health coverage is about $100 pm but only covers a stay in the hospital and drugs while there. If you broke your arm and they fixed it in outpatients, you paid. (Some Emergency health coverage ay?)

Currently we rent, and do not own our own home, but I think in general it would be a wash in Canada or the USA, as we would not have a mortgage. Although in the US it is tempting to get one.

Cars other than taxes work out a similar overall cost.

Sorry, I hope I have not digressed too far from the original discussion, but we always do that anyway. Any other experiences or opinions on this matter would be interesting.

SWR