Poll:US Public Debt Surpasses Established Danger Point

[scrinch]

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

 

[Walt34]

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.

 

[MichaelB]

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.

 

[foxfirev5]

"Neither a borrower nor a lender be" -Ben Franklin
With today's interest rates the lender portion rings especially true.

 

[mickj]

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

 

[ERD50]

The difference is that the economy is nothing at all like a household ....

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?

-ERD50

 

[Mulligan]

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.

 

[Ed_The_Gypsy]

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.

 

[BTravlin]

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

 

[kyounge1956]

(snip) You honestly think that reigning in expenses will worsen our debt crisis?(snip)

(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.

 

[NW-Bound]

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.

 

[HFWR]

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%...

 

[NW-Bound]

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!

 

[heeyy_joe]

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".

 

[M Paquette]

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-ce...interest-rates/Pages/TextView.aspx?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...)

 

[MichaelB]

Yeah. The debt markets are running scared, with the effective interest rates for US debt skyrocketing on the perceived new riskiness of the debt.


Daily Treasury Yield Curve Rates


(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...)

Aw, you're just raining on the reign because they won't rein in spending.

 

[NW-Bound]

Wow, would you lend money out to 30 years for 3.2%? Not this guy!

I remember that bankers used to trip over each other to lend money to anybody for "no doc" mortgages, even to illegal immigrants in California!

And I bet Greece did not have to pay much for its bond before the current fiasco.

Crazy things have a way of going on for a long time, until something finally happens. I do not wish for bad things to happen to Uncle Sam, hey he's my uncle too, but I am just sayin'...