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

[Gone4Good]

I'm going to need some help with this one. Real GDP went up?

Yes, but when talking about things like debt / gdp as we are in this tread all the values are nominal.

So here's what nominal GDP did from 1940-1980 according to the Saint Louis Fed. That's the period when debt to GDP declined.

And the attached file shows what U.S. debt outstanding looks like over the same period according to the White House historic tables ( https://www.whitehouse.gov/omb/budget/Historicals )

Both went up. GDP went up more so the debt / GDP ratio declined.

 

[audreyh1]

I'm not quite sure what you all are trying to figure out, but GDP is real.

 

[Jerry1]

I've always found the site below interesting:

U.S. National Debt Clock : Real Time

A few things come to mind:

I remember Ross Perot and his graphs and I don't think we've done anything to address the debt since then. I think it was about $8T then.

I don't recall when the SS fund was combined with the General fund, but I think that was a mistake.

The $19T is nothing compared to the unfunded liabilities that the Federal government has for SS and Medicare and that doesn't even include the unfunded pensions of local and state governments that are underfunded.

Signed,

Looking for a safe harbor but thinking there's none to be had.

 

[sengsational]

Yes, but when talking about things like debt / gdp as we are in this tread all the values are nominal.

I'm kind of a simpleton in that I can't get my head around two (or more) things at once, especially when it's exponential and especially something exponential plotted linearly. That's why I try to look at stuff in real, rather than inflated, currencies.

 

[Gone4Good]

I'm kind of a simpleton in that I can't get my head around two (or more) things at once, especially when it's exponential and especially something exponential plotted linearly. That's why I try to look at stuff in real, rather than inflated, currencies.

That's fine. You just want to make sure you're comparing apples to apples. If you want to use real gdp to calculate a debt to gdp ratio you need to make sure you're adjusting the debt balance for inflation as well.

 

[Winemaker]

The denominator went up. The numerator didn't go down.



Over the last 12 months, the all items CPI index increased 0.7 percent before seasonal adjustment.

The interest paid to bondholders includes compensation for expected inflation. For at least the last decade the amount paid to bondholder for inflation has exceeded the actual amount of inflation we've experienced. This is no longer the 1970's.

Recall that in August 1971, the US formally removed all ties to the US dollar and gold. At the rate the US was sending dollars overseas at the time, I believe I read, the US had previously "owned" 55% of the world's gold, and had been reduced to 22%.

 

[Dwhit]

My largest concern is rampant inflation. If we get to a stretch where the markets do not keep on with inflation, then the net worth takes a real hit. A pension with no COLA is seriously devalued.

If that happens with large debt, the Feds have a problem, since interest rate hikes to fight inflation really ramps up the debt problem. it takes away flexibility.

 

[Gone4Good]

If that happens with large debt, the Feds have a problem, since interest rate hikes to fight inflation really ramps up the debt problem. it takes away flexibility.

Except inflation depreciates the real value of the outstanding debt burden. And it should also increase nominal tax revenue, meaning higher interest costs aren't such a burden for the treasury.

Deflation is more of a problem for debtors.

 

[VFK57]

Recall that in August 1971, the US formally removed all ties to the US dollar and gold. At the rate the US was sending dollars overseas at the time, I believe I read, the US had previously "owned" 55% of the world's gold, and had been reduced to 22%.

Good point. The problem is that we are not sure if our Gold vaults still have 22% of world Gold. Germany wants a large portion of their Gold returned back from New York and could organize entire transportation of 300 Tons (agreed with the Feds) within a week but since Jan 2013 when Bundesbank announced the plan only around 100 Tons were returned. German Bundesbank foresee the Financial instability and that is why they are eager to repatriate their Gold while we point out on "technical difficulties" to return it right away. Total current German Gold what has to be in US vaults=1,450Tons.

 

[GTFan]

Looks like I'm contrary to most folks here. National debt concerns me more than any other national topic; including terrorism, our wars overseas, pollution and certainly climate change. I see no logical basis to support that unfettered spending, grossly rising debt and copious printing of money to support it all can remotely be considered acceptable, sustainable fiscal policy. My guess is that the economy will eventually take a far-worse-than-2008 nose dive, most likely when one of the other large economies (Eurozone, China...who knows) takes off and the world decides it is a better place to invest than the U.S.

The problem is that folks equate national debt with personal debt and spending habits and thereby say the sky is falling because we spend too much so everyone else owns us. As others have mentioned, there is no issue with the debt that can't be solved by printing more money as long as we're the world's gold standard currency. Buying off debt with play money isn't really an issue, the Feds just concluded QE a couple of years ago with no impact to inflation.

And global economic issues really have little to do with how much debt we're carrying, IMO. Most economists agree that government spending plays a vital role in GDP and the austerity measures implemented in other countries have hurt more than they've helped. But we're not Greece either.

 

[Whisper66]

I am curious from hearing from those of you that feel printing money (or doing whatever budgetary actions that has the equivalent effect) is an acceptable fiscal policy to address national debt......

- What, if any, debt level would the US have to reach before it concerned you? And why would you be concerned then?
- If you don't have any debt level that concerns you, is there a rate of escalation of the debt that would concern you? And why would it be of concern then?

 

[Nemo2]

I am curious from hearing from those of you that feel printing money (or doing whatever budgetary actions that has the equivalent effect) is an acceptable fiscal policy to address national debt......

Well...it worked for the Weimar Republic.......oh, wait....

 

[Winemaker]

The problem is that folks equate national debt with personal debt and spending habits and thereby say the sky is falling because we spend too much so everyone else owns us. As others have mentioned, there is no issue with the debt that can't be solved by printing more money as long as we're the world's gold standard currency. Buying off debt with play money isn't really an issue, the Feds just concluded QE a couple of years ago with no impact to inflation.

I personally feel that the QE repercussions have not been felt yet, just saying. The goal of QE was to raise the price of assets(it did), make people feel richer so they would buy and borrow again (it almost did). Those assets are now down 10% now.

If the Fed thought QE was so great, meaning a greater national debt without really paying it off, then let's take the lid off the jar. Stop all taxation at the federal level; if we outspend all federal revenues and the fed pays for it with funnier money, why tax at all?

 

[dallas27]

The problem is that folks equate national debt with personal debt and spending habits and thereby say the sky is falling because we spend too much so everyone else owns us. As others have mentioned, there is no issue with the debt that can't be solved by printing more money as long as we're the world's gold standard currency. Buying off debt with play money isn't really an issue, the Feds just concluded QE a couple of years ago with no impact to inflation.

And global economic issues really have little to do with how much debt we're carrying, IMO. Most economists agree that government spending plays a vital role in GDP and the austerity measures implemented in other countries have hurt more than they've helped. But we're not Greece either.

Agreed, most people who complain about debt don't have a fundamental understanding of macroeconimcs and just what money really is.


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[Senator]

I am curious from hearing from those of you that feel printing money (or doing whatever budgetary actions that has the equivalent effect) is an acceptable fiscal policy to address national debt......

- What, if any, debt level would the US have to reach before it concerned you? And why would you be concerned then?
- If you don't have any debt level that concerns you, is there a rate of escalation of the debt that would concern you? And why would it be of concern then?

"I'd rather owe you, than cheat you out of it"

All governments print money. That is the nature of the beast. I used to be one that wanted a balanced budget, but once I figured out it would be impossible, I gave up on it.

As long as all the major currencies are being printed at equal rates, the strength of the currencies is relative. If one country doesn't print, their currency gets too strong and jobs are lost.

The currency needs to be on par with the strength of other countries. Can you imagine if everyone in the USA had the power to be a multi-millionaire in Europe? Things would seem cheap at first, then no additional wealth would be created. The money would all flow out.

 

[Gone4Good]

I personally feel that the QE repercussions have not been felt yet, just saying. The goal of QE was to raise the price of assets(it did), make people feel richer so they would buy and borrow again (it almost did). Those assets are now down 10% now.

If the Fed thought QE was so great, meaning a greater national debt without really paying it off, then let's take the lid off the jar. Stop all taxation at the federal level; if we outspend all federal revenues and the fed pays for it with funnier money, why tax at all?

QE ended in 2014. I know monetary policy works with a lag, but not 18+ months of a lag.

Meanwhile the intention wasn't to inflate assets to make people richer or to finance federal deficits. The intention was to try to drive real interest rates down to a market clearing level. If you look at a Talyor Rule estimate of the appropriate Fed Funds rate it dropped below zero in 2009 . . .

Source Ben Bernanke

Seeing as how the Fed can't lower rates (much) below zero, it engaged in "unconventional" monetary policy that included not just QE but also dovish forward guidance. Both were an an attempt to raise inflation expectations and drive real interest rates sufficiently negative so that the market would clear and the economy would move back to full employment.

That policy is now over, as evidenced not just by an end to the Fed's asset purchase program but also it's recent rate increase and guidance about additional increases in the quarters ahead.

 

[Whisper66]

Agreed, most people who complain about debt don't have a fundamental understanding of macroeconimcs and just what money really is.

Fine - then answer my question posed just a couple posts above. So far I find the "macroeconomics" comments not credible. So help us understand by providing some answers to our questions.

 

[Gone4Good]

Fine - then answer my question posed just a couple posts above. So far I find the "macroeconomics" comments not credible. So help us understand by providing some answers to our questions.

We're trying

 

[Mulligan]

QE ended in 2014. I know monetary policy works with a lag, but not 18+ months of a lag.

Meanwhile the intention wasn't to inflate assets to make people richer or to finance federal deficits. The intention was to try to drive real interest rates down to a market clearing level. If you look at a Talyor Rule estimate of the appropriate Fed Funds rate it dropped below zero in 2009 . . .

Source Ben Bernanke

Seeing as how the Fed can't lower rates (much) below zero, it engaged in "unconventional" monetary policy that included not just QE but also dovish forward guidance. Both were an an attempt to raise inflation expectations and drive real interest rates sufficiently negative so that the market would clear and the economy would move back to full employment.

That policy is now over, as evidenced not just by an end to the Fed's asset purchase program but also it's recent rate increase and guidance about additional increases in the quarters ahead.

The long end stuff the Feds purchased has a yield lower today than when they bought it. I say take advantage of the real low long end rates and dump it on the market and snag a nice little capital gain for the treasury.


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[MichaelB]

I am curious from hearing from those of you that feel printing money (or doing whatever budgetary actions that has the equivalent effect) is an acceptable fiscal policy to address national debt......

- What, if any, debt level would the US have to reach before it concerned you? And why would you be concerned then?
- If you don't have any debt level that concerns you, is there a rate of escalation of the debt that would concern you? And why would it be of concern then?

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?

 

[Theseus]

Agreed, most people who complain about debt don't have a fundamental understanding of macroeconimcs and just what money really is.

+1

I find the comparison made between personal and governmental finances regarding the value of debt elimination to be ignoring a major difference, that being: we as individuals have a finite span of existence, and therefore plan our finances accordingly in order to retire - something most everyone here can surely relate to. Governments (and businesses, for the most part) do not plan to retire, they do not plan for a finite existence and do not need to follow the same path of accumulation, debt reduction/elimination, and planned deccumulation. The governmental goals become a complicated mix of controlling inflation, investment behavior, interaction with other competing governments; well the list goes on and on, just like debates regarding the relative importance of each factor.

 

[marko]

National debt concerns me more than any other national topic; including terrorism, our wars overseas, pollution and certainly climate change. .

As long as they leave my SS and soon-to-arrive Medicare alone, I'm not losing sleep about anything else this country does.

I just have to make it through the next 25 years...I don't see anyone in DC who'd SERIOUSLY take on those third rails.

 

[Theseus]

I don't play the part of an economist on TV, and haven't been to a Holiday Inn for a while, but I do think more data provides perspective. The event list offers notes on possible causation, and the chart below includes 1929-2015 data with inflation and interest rates added.

What I do know for sure is that entering the workforce in the 70's I thought inflation was cool, as I was getting raises frequently and had not yet mired myself in debt. High interest rates in the early 80's benefited me as I'd just sold my first house and had money to put in the bank. Low inflation now benefits me as it is keeping my non-COLA pension viable, for now at least. Everything is relative, and the correlation of interest rates, inflation, and debt do give me pause as the method(s) selected to manage debt may have disproportionate impact. As in, how long can I keep being lucky?

• 1929 Hoover maintained high wage controls. Fed raised discount rate to defend gold standard, creating deflation. Combination forces bankruptcies on businesses.
• 1930 Stock Market Crash of 1929. Congress passed*Smoot-Hawley Tariffs.
• 1932 Hoover worsened depression by raising taxes to balance budget.
• 1933 Roosevelt took office, New Deal signed. Unemployment peaked at 25%.
• 1934 World trade is down 66% from start of Depression.
• 1941 Attack on Pearl Harbor, US entered WWII, ending the*Great Depression.
• 1945 1945 recession due to end of WWII. War cost $296 billion.
• 1946 GDP fell 11%.
• 1949 1949 recession.
• 1950 Korean War starts.
• 1953 Korean War ends, total the war cost $30 billion.
• 1954 Recession follows end of Korean War.
• 1958 GDP fell 4.2% in Q4 '57, and another 10.4% in Q1 '58. Unemployment peaked at 7.1% in Sep '58.
• 1959 Fed raised rates to combat 7.25% growth rate.
• 1960 1960 recession started in April.*GDP fell 4.2% in Q4 '60.
• 1961 JFK became President. *Bay of Pigs. Unemployment peaked at 6.1% in Dec.
• 1962 Cuban Missile Crisis.
• 1963 Military coup in Vietnam, aided by 16,000 U.S. advisers.*Kennedy assassinated.
• 1964 LBJ announces War on Poverty.
• 1965 Johnson funds Great Society, creating Medicare, Medicaid and HUD. Sends 100,000 troops to Vietnam. War's total cost will be $111 billion.
• 1966 Fed raised interest rates to 5.76% to fight *a mild 3.5% inflation.
• 1967 LBJ created PBS, Product Safety Commission and Air Quality Act.
• 1968 Johnson*sent 500,000 troops to Vietnam.
• 1969 Nixon became President.
• 1970 GDP down 4.2% in Q4 '70. *Arthur Burns becomes Fed Chair.
• 1971 Nixon imposed wage price controls and suspended gold standard.*Unemployment from 1970 recession peaked at 6.1% in December
• 1972 Nixon won re-election in a landslide.
• 1973 OPEC*with the*oil embargo.*Nixon*went off*gold standard, tripling inflation to 9.7%. Fed doubled interest rates. Vietnam War ended.
• 1974 Fed raised rates to 13% to fight inflation. Nixon resigned over Watergate.
• 1975 Unemployment from 1973-75 recession peaked at 9% in May, GDP was down 4.8% in Q1 '75.
• 1979 Volcker became Fed Chair, increasing Fed funds rate to 20% to combat inflation.
• 1980 1980 recession, Iran oil embargo, GDP fell 7.9% in Q2 '80.
• 1981 Beginning of 1982 recession.
• 1982 1982 recession, GDP fell 6.4% in Q1 '82.
• 1983 Unemployment from the 1982 recession peaked at 10.8%.
• 1986 President Reagan*lowered tax rates.
• 1987 Alan Greenspan become Fed Chair.
• 1989 Savings and Loan Crisis*cost $125 billion.
• 1990 Desert Storm.
• 1991 1991 recession.
• 1993 Bill Clinton*passed*Omnibus Budget Reconciliation Act
• 2001 9/11 attacks*worsened the 2011 recession.**Bush tax cuts*further reduced revenue.
• 2002 War on Terror added $33.8 billion.
• 2003 Unemployment at 6%. War on Terror cost $53 billion.
• 2004 War on Terror was $94 billion.
• 2005 War on Terror cost $107.6 billion.
• 2006 Katrina clean-up*was $24.7 billion,*swine flu*added $6 billion, War on Terror cost $120.4 billion.*Ben Bernanke*became Fed Chair.
• 2007 Iraq War cost*$131.6 billion.
• 2008 Economy contracted 3.7% in Q3 '08, 1.8% in Q1 '08. War on Terror cost $197.6 billion,*Bank Bailout Bill*cost $350 billion.*
• 2009 Economy contracted 8.9% in Q4 '08, 6.7% in Q1 '09, lowering tax revenues. ARRA spent $241.9 billion. War on Terror cost $79 billion. Fed funds rate lowered to 0%.*The debt exceeded $11 trillion on March 16, 2009, and $12 trillion on November 16, 2009.
• 2010 ARRA budgeted $400 billion. For more, see*National Debt Under Obama.*The debt exceeded $13 trillion on June 1, 2010, and $14 trillion on December 31, 2010.
• 2011 Obama Stimulus Act*(ARRA) spent $120 billion. The debt exceeded $15 trillion on November 15, 2011.
• 2012 Obama extended Bush tax cuts, combined with*$900 billion in defense spending.*The debt exceeded $16 trillion on August 31, 2012.*
• 2013 Sequestration*reduced government spending, at the same time the end of Obama's payroll tax holiday raised revenue. The U.S. debt hit $17 trillion on October 17, a few days after the end of the fiscal year.
• 2014 The debt exceed*$18 trillion on December 15, 2014.*The*Fed*owned nearly*$2.5 trillion of U.S. debt, thanks to*Quantitative Easing. This kept interest rates low. Many accused the Fed of simply*monetizing the debt.*
• 2015 The economy is growing slightly faster than the debt.

 

[Closet_Gamer]

Good thing we won't have to do that.

And that's OK. The giant WWII debt balances are positively trivial in size compared to today's economy. So too will $19 trillion be in the not too distant future.

I agree it will never be paid off -- in fact given current interest rates we should probably be creating 100 year debt instruments right now -- but it only doesn't become a problem if the economy grows at the same pace or better as the debt.

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 as the interest consumes an ever greater fraction of the economy. Either you move productive capacity to paying the growing burden or you take it in the teeth with inflation. The Fed may be able to do some ***** pocus with a modified QE and crazy reserve ratios to keep the cash out of the real economy but I wouldn't count on that working out.

We need to get control of our structural deficit at some point IMO.

 

[dallas27]

Fine - then answer my question posed just a couple posts above. So far I find the "macroeconomics" comments not credible. So help us understand by providing some answers to our questions.

No, i choose not to debate with a post like this. You may want to look into a formal class on macroeconomics and financial markets, maybe that is setting where you could accept the information being presented. Most of the ivy leagues offer excellent online courses at reasonable prices.


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