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Old 01-26-2020, 10:08 AM
survinga is offline
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How important is the debt?


The CBO projects that in 2029, debt/gdp will be 95%. It's now 79%.

Last year, the deficit was a trillion dollars.

And yet, very few to no politicians talk much about it. Should we care? Or maybe as a country with our own currency and central bank, we have a lot more room to hold debt than we used to think. I'm trying to get a better framework for deciding when debt becomes a real problem, hanging around our necks.

CBO 2019-2029 projections here:

https://www.cbo.gov/publication/55551

2019 deficits topped a trillion link here:

https://www.nytimes.com/2020/01/13/b...ion-trump.html
  #2  
Old 01-26-2020, 12:57 PM
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It’s not talked about much because there’s little to be done about it. Dealing with it would either require much higher taxes or draconian cuts in spending across the board. Either would be extremely recessionary.

Mmm. Or simply inflating the currency to the point where it becomes easier to pay off. This would also have extremely negative consequences.

Right now our deficit spending is propped up by the dollar being the worlds reserve currency. That means purchases of our debt - t-bills and the like - are artificially increased. Absent that our debt would have to be more competitive on the market - read that as having a higher interest rate and therefore more expensive - and that would become prohibitive.

So long as others buy our debt no politician will have the balls to try to either cut the deficit or pay down the debt. Note that last time we were in a position to do so the Bush administration chose to cut taxes instead.

Fiscal conservatism should not only mean low taxes. It means making your spending match your revenue. That’s where they’re cowards. Water runs downhill, sure, but eventually it reaches the bottom.

Last edited by Jonathan Chance; 01-26-2020 at 12:59 PM.
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Old 01-26-2020, 01:27 PM
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The main reason the debt persists is because the two-party, 4-year system perversely punishes any party (D or R) that tries to fix it. Fixing it requires a combination of big spending cuts and big tax increases. That'll sink your popularity low........just in time for your rivals to criticize you and defeat you at the polls and then get back in power, at which point they can spend recklessly and please the public with the temporary economic boost.

Why on earth would you want to fall on your own sword so that your opponent can have a good time?
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Old 01-26-2020, 02:34 PM
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It’s not talked about much because there’s little to be done about it. Dealing with it would either require much higher taxes or draconian cuts in spending across the board. Either would be extremely recessionary.

Mmm. Or simply inflating the currency to the point where it becomes easier to pay off. This would also have extremely negative consequences.

Right now our deficit spending is propped up by the dollar being the worlds reserve currency. That means purchases of our debt - t-bills and the like - are artificially increased. Absent that our debt would have to be more competitive on the market - read that as having a higher interest rate and therefore more expensive - and that would become prohibitive.

So long as others buy our debt no politician will have the balls to try to either cut the deficit or pay down the debt. Note that last time we were in a position to do so the Bush administration chose to cut taxes instead.

Fiscal conservatism should not only mean low taxes. It means making your spending match your revenue. That’s where they’re cowards. Water runs downhill, sure, but eventually it reaches the bottom.
You get into an area that's a good point about the cost of our debt. Today, 10-year treasuries have a yield of roughly 1.7%. So, our government can borrow for very low rates. Does that mean that it's OK to run higher deficits right now, because markets want to buy our debt? This would seem to suggest that we shouldn't be worried about borrowing right now, or at least for the near future (say, the next 10 years).

At what point does it become a weight on the economy?
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Old 01-26-2020, 02:41 PM
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You can fix the debt by cutting spending or increasing taxes.

Under the last 2 democratic presidents, the debt slowed down while under the last 4 or so GOP presidents, the debt has increased. Democrats increase social welfare spending, but in general they also increase progressive taxes while cutting military spending.

The deficit was only a little over $400 billion as of 2015. That was manageable with spending cuts and tax hikes. The recent increases in military spending and tax cuts have made the deficit bigger.
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Old 01-26-2020, 03:19 PM
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It’s not talked about much because there’s little to be done about it. Dealing with it would either require much higher taxes or draconian cuts in spending across the board. Either would be extremely recessionary.
The real reason no one talks about it is that the party who brayed the most about the deficit is responsible for the increase in it. I doubt that eliminating the business tax cuts and the tax cuts on the wealthiest would be recessionary, especially if some of the increase was given to the middle and lower class.
After all, the tax cut was supposed to cause much higher growth, and it didn't.

The market might go down as companies can no longer buy back stock, but a correction is long overdue anyway.

The biggest problem is that when we do have a recession, the big current deficits will make it harder to stimulate the economy.
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Old 01-26-2020, 04:35 PM
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The real reason no one talks about it is that the party who brayed the most about the deficit is responsible for the increase in it. I doubt that eliminating the business tax cuts and the tax cuts on the wealthiest would be recessionary, especially if some of the increase was given to the middle and lower class.
After all, the tax cut was supposed to cause much higher growth, and it didn't.

The market might go down as companies can no longer buy back stock, but a correction is long overdue anyway.

The biggest problem is that when we do have a recession, the big current deficits will make it harder to stimulate the economy.
I'm wondering how we'd cut the deficit and improve the debt trajectory. I'm thinking we raise taxes basically to what we had during the Clinton era, cut back on military spending, and allow the government to negotiate drug prices for Medicare. Better trade policy could cut back on things like the farm bailout. SNAP enrollment continues to drop, as it has since 2013. This lowers spending and raises revenue.

I think we could impact the deficit materially without causing a recession.
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Old 01-26-2020, 06:07 PM
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Perhaps a question that I hope can have a non-political answer. When the Boomers mostly die off here in about 30 years, will Medicare and Social Security expenditures go down significantly? Are there any projections based upon that? It seems like we are in a unique point in history where we have a very large generation of oldsters.
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Old 01-26-2020, 08:09 PM
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And yet, very few to no politicians talk much about it.
Not to worry; as soon as Republicans are in the minority, the deficit (rising or falling) will become a crisis again.
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Old 01-27-2020, 01:47 AM
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Perhaps a question that I hope can have a non-political answer. When the Boomers mostly die off here in about 30 years, will Medicare and Social Security expenditures go down significantly? Are there any projections based upon that? It seems like we are in a unique point in history where we have a very large generation of oldsters.
It's going to be longer than that, given better outcomes from medical advances. I believe the reduction in lifespan we are seeing are from people dying before they reach Medicare age, and so doesn't really reflect any likely improvement (except they aren't around to collect.)
We probably need some revisions to the current system. If it can be done like Reagan did it, we'll be in good shape.
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Old 01-27-2020, 05:19 AM
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Let's clear up some misconceptions. Start by examining this graph. Half a century ago deficits were modest, less than 3% at the height of the Vietnam War. You can see that deficits fluctuated sharply over time. For example, beginning in 1993 they began a sharp downward trajectory and the federal budget was in surplus by the height of the "Dotcom Boom."

Since "popular wisdom" is that "politicians cannot balance the budget," let's relate the story of the 1993 Deficit Reduction Act One.More.Time. (The budget planned for four years, so dollar figures following need to be divided by 4 to get annual averages.)
At the time of Clinton's election, the federal debt had grown to alarming proportions. Clinton's 1993 budget cut spending by $250 billion, perhaps the largest spending cut in all of history. (This was offset by such things as interest on the ever-mounting debt, and $150 billion in new investments.) The 1993 budget achieved a further $250 billion in deficit reduction by raising taxes; the most controversial tax hike was that of the maximum marginal income tax rate (the rate payed by Bill Gates, George Soros, etc.) which was increased from 31% to 39.6%. As high as this might seem, 39% was still less than the rate during most of the Reagan Administration, and certainly less than under Eisenhower, when the rate was 91%.

What were the results of the 1993 budget? The deficit did fall: from $255 billion annually when Clinton took office, to almost nothing in 1997; and by Clinton's last year there was a surplus of $236 billion. Moreover, from 1993 to 2000 U.S. unemployment fell from over 7% to 4%; constant-dollar GDP rose by 33% over the same period; and of course stock prices soared.

Contrary to right-wing dogma, U.S. entrepreneurs kept on entrepreneuring (and at an unprecedented rate) despite the 39.6% income tax. The 1993 Budget led directly to one of the most prosperous periods in American history. At the beginning of Clinton's term, the federal debt was seen as a most important problem; by the end of the term the U.S. Treasury was redeeming its bonds at an unprecedented rate and there was concern that this would cause trouble! (Many contracts were tied to the price of Treasury debt instruments which were disappearing.)

Now who should get credit for the 1993 Budget? Let us review voting on the Omnibus Budget Reconciliation Bill of 1993.

This Bill passed in the U.S. House of Representatives by a vote of 218 to 217. Every single Republican in the House voted against the Bill. The Bill went to the U.S. Senate where the vote was 50-50. Every single Republican Senator voted against the Bill. The Vice President ascended the dais of the Senate chamber and broke the tie; William Jefferson Clinton signed the Bill into Law; the biggest spending cuts in U.S. history were passed; and this budget ushered in an era of prosperity almost unmatched in modern U.S. history. Let me repeat: Not even one single Republican Congressman voted for this Budget. Republicans natter about spending cuts, but on the biggest cut ever, every single Republican stood up and said "Nay". Of course they would: Raising taxes on the rich (to a level still less than they were under Reagan!) was "class warfare" and would doom America!

It is said that this was the very first time in all of history that major legislation passed without one single vote from the "opposition" party. Republicans led by Newt Gingrich appeared on TV, predicted a recession, and declared that the Democrats must accept complete responsibility for the consequences of their Budget. As we now know this Budget was central in rejuvenating America's economy; and America never came remotely close to recession throughout the entire Clinton double term. The Democrats should be proud to accept "complete responsibility" for this.

Perhaps I should apologize for reciting this well-known story at great length ... but I'm not sure it is well known at all.

The quotes I've found by professional economists all praise Clinton's 1993 Budget:
  • "liquidating the deficit ranks as one of the supreme budgetary accomplishments in American history."
  • "Without question, the 1993 Budget Reconciliation Bill has been remarkably successful in its goal of reducing the federal budget deficit."
As you can see from the graph, the Republicans quickly threw the budget back into deficit when they regained control, with Dick Cheney famously saying "Reagan proved that deficits don't matter." By the end of the Cheney-Bush Administration, the anti-regulation kleptocratic atmosphere had caused a financial crisis that pushed necessary federal spending to levels not seen since World War II. Yet Obama fought the deficit down and by 2016 it was lower than at any point during the Reagan Administration. Again this Democratic effort was wasted: with the "Starve the Beast" Party back in control, the deficit is now projected soon to rise to levels not seen since World War II. In a period of prosperity, no less!

I'm sorry if you're bored by this story, since I've told it before. I intend to repeat it every time we hear the canard that the federal deficit is a bipartisan problem.

I have more to say on OP's interesting topic, but I think I'll just click Submit for now and let this much soak in.

Last edited by septimus; 01-27-2020 at 05:23 AM.
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Old 01-27-2020, 09:58 AM
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The biggest problem is that when we do have a recession, the big current deficits will make it harder to stimulate the economy.
I think thats intentional, because then they can use the deficits as an excuse to cut social security, medicare or medicaid. Or they can hope the democrats are in charge and then blame everything on them. Its a scorched earth policy and its win-win for them. If they're in charge, they can cut social welfare. If democrats are in charge they can watch them flounder and blame everything on them.

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Originally Posted by UltraVires View Post
Perhaps a question that I hope can have a non-political answer. When the Boomers mostly die off here in about 30 years, will Medicare and Social Security expenditures go down significantly? Are there any projections based upon that? It seems like we are in a unique point in history where we have a very large generation of oldsters.
According to things like this, its a fairly linear growth in spending on health care and social security.

https://www.mercatus.org/sites/defau...or_Seniors.jpg

Most of the boomers will be dead by 2084 (actually most of the boomers will be dead by 2050 seeing how the oldest boomers were born in 1964), but spending is still growing. However almost all the growth is from medicare, not social security.
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Old 01-27-2020, 10:26 AM
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I think thats intentional, because then they can use the deficits as an excuse to cut social security, medicare or medicaid. Or they can hope the democrats are in charge and then blame everything on them. Its a scorched earth policy and its win-win for them. If they're in charge, they can cut social welfare. If democrats are in charge they can watch them flounder and blame everything on them.



According to things like this, its a fairly linear growth in spending on health care and social security.

https://www.mercatus.org/sites/defau...or_Seniors.jpg

Most of the boomers will be dead by 2084 (actually most of the boomers will be dead by 2050 seeing how the oldest boomers were born in 1964), but spending is still growing. However almost all the growth is from medicare, not social security.
I understand the Republicans use the debt as a hammer on Democrats when they're out of power. It was transparently fake concern during the Obama years.

But setting that aside, is there a point where debt becomes a real concern on the economy? If so, when is that point and what should be done to avoid it? Over the last decade, I've begun to think that it's not as important as I used to think it was. However, I don't think it's of no consequence....there has to be a point where it becomes problematic.

Ultimately, I think both parties are going to have to give in on something they like to lower our debt/gdp trajectory. But I'm not sure there's anything to be all that concerned about for the next 10 years, even under the current path.
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Old 01-27-2020, 01:19 PM
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I think thats intentional, because then they can use the deficits as an excuse to cut social security, medicare or medicaid. Or they can hope the democrats are in charge and then blame everything on them. Its a scorched earth policy and its win-win for them. If they're in charge, they can cut social welfare. If democrats are in charge they can watch them flounder and blame everything on them.
That's the case without a recession. Trump already muttered something about cutting Medicare to ease the deficit, then too it back. I hope he runs on that platform.
During a recession, I don't think even Republicans are stupid enough to cut unemployment benefit as the number of unemployed grow. But I could be wrong.
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Old 01-27-2020, 02:01 PM
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But setting that aside, is there a point where debt becomes a real concern on the economy?
At a certain point, more and more of the federal budget gets spent on interest payments. That begins to really pinch other parts of the budget. And the higher the debt, the less confidence people will have in the US government - should it get to to a certain level, a default is no longer "unthinkable" but somewhat plausible.


And despite all the "Your fault!" "No, your fault!" finger-pointing - it is a real thing. It's not just enough to say "It's the D's" or "it's the R's" - the larger debt is bad.
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Old 01-27-2020, 02:59 PM
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Ultimately, I think both parties are going to have to give in on something they like to lower our debt/gdp trajectory.
Oh my. I'm not going to repost #11 in a larger font. Go back and re-read it using the Zoom function of your Browser.

Every single penny that might be scrimped or saved by the Democrats will be given away to the rich, or wasted on foolish military boondoggles as soon as the Republicans regain control. Only the masochistic or gullible might seek to balance the budget in this political environment. Until the present Party of Kleptocrats is extinctified, any effort by American humans to balance the federal budget is a fools' game. As Paul Krugman implies, targeting the deficit must wait until the GOP no longer exists in its present wicked form.

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But setting that aside, is there a point where debt becomes a real concern on the economy? If so, when is that point ...? Over the last decade, I've begun to think that it's not as important as I used to think it was. However, ...there has to be a point where it becomes problematic.
There is no magic threshold. (Debt 95% of GDP is OK, but 105% isn't? ) And there are countries in worse shape than the U.S. Moreover, federal debt is just part of a general problem: Corporate debt is at record highs; consumer debt is high; U.S. current international accounts are heavily in the red. This rising debt is fueled by exceptionally low interest rates. (Interest rates are even lower elsewhere: that U.S. rates, while low, are higher than Europe's or Japan's is a key reason why the Dollar is strong and the U.S. economy booming.)

Just as a junkie is anguished when his heroin is cut off, the U.S. economy will be jolted if the interest on corporate debt rises (whether due to shortages, wage hikes or other inflationary pressure; or just due to ratings downgrades on specific corporations.) The corporate and consumer debt is a bigger risk, at least in the short term, than federal debt.

But the federal debt is not a trivial problem! In FY 2019, $575 billion was spent by the Treasury just on interest, and this will rise in FY 2020. That's with interest rates at record lows; imagine the absurd size of the interest paid if interest rates rise!

The fragile economy, both in the U.S. and around the world, could easily contract due to a slight supply shock, central bank miscalculation, or loss of either business or consumer confidence. The remedies to cope with recession are already used up. A big drop (more than 4% or 5%) in nominal interest rates — the usual and most important response to recession — is impossible: nominal rates are now well under 2%. The economy is already brimming with cash: much of it fiat money conjured up by QE (cf. "Modern Monetary Theory"). The GOP now delivers to the kleptocrats a trillion annually in good times — do we want them to borrow two trillion in recession?

But it isn't federal borrowing that will ignite the powder-keg. The first glimpse of disaster will probably come from over-leveraged corporations which cannot cope with adverse conditions and falling credit scores. We may be damned even if the world avoids recession: a rising world economy may lead to price hikes on imported materials; and inflation may force banks to raise rates.

As always, debtors hope for inflation. At some point the U.S.G. — the world's biggest debtor — may moot devaluation as a remedy to "China cheating at trade," or target a higher inflation rate as the only way to bring real interest rates negative.

How will this play out? I don't know. Nobody does.
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Old 01-27-2020, 04:04 PM
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What were the results of the 1993 budget? The deficit did fall: from $255 billion annually when Clinton took office, to almost nothing in 1997; and by Clinton's last year there was a surplus of $236 billion. Moreover, from 1993 to 2000 U.S. unemployment fell from over 7% to 4%; constant-dollar GDP rose by 33% over the same period; and of course stock prices soared.
There is no rational way to justify claiming that what happened in 1997 or 2000 was a result of the 1993 budget. Your are an intelligent person and you surely know that a federal budget gets passed each year, along with a great deal of other legislation that has an impact on government finances. You surely also know that in 1994 the Republicans won a huge electoral victory and took control of both houses of Congress. Therefore you surely know that there's no basis for claiming that the strong economic growth and balanced budget of the late 90's should be credited entirely to the Democrats.
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Old 01-27-2020, 04:12 PM
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But the federal debt is not a trivial problem! In FY 2019, $575 billion was spent by the Treasury just on interest, and this will rise in FY 2020. That's with interest rates at record lows; imagine the absurd size of the interest paid if interest rates rise!
Isn't US debt sold at fixed rate?
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Old 01-27-2020, 06:04 PM
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Isn't US debt sold at fixed rate?
There are various maturities for U.S. Treasury Bills, Notes, and Bonds, ranging from four weeks to 30 years. If interest rates ever do shoot upwards, then some portion of the debt will be locked into low interest rates because it's covered by the long-term bonds. But as time goes on, the government will have to pay high interest on larger and larger portions of the debt.
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Old 01-27-2020, 08:42 PM
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I understand the Republicans use the debt as a hammer on Democrats when they're out of power. It was transparently fake concern during the Obama years.

But setting that aside, is there a point where debt becomes a real concern on the economy? If so, when is that point and what should be done to avoid it? Over the last decade, I've begun to think that it's not as important as I used to think it was. However, I don't think it's of no consequence....there has to be a point where it becomes problematic.

Ultimately, I think both parties are going to have to give in on something they like to lower our debt/gdp trajectory. But I'm not sure there's anything to be all that concerned about for the next 10 years, even under the current path.
I honestly don't know. I decided to google it because I was interested and found this.

https://www.investopedia.com/terms/d/debtgdpratio.asp

Quote:
A study by the World Bank found that countries whose debt-to-GDP ratios exceeds 77% for prolonged periods, experience significant slowdowns in economic growth. Pointedly: every percentage point of debt above this level costs countries 1.7% in economic growth. This phenomenon is even more pronounced in emerging markets, where each additional percentage point of debt over 64%, annually slows growth by 2%.
However I don't know if those nations are in the same position the US is where we print our own currency and the world is dependent on our economy so they want our economy to do well. Our ratio is over 100% and our interest rates are still very low.
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Old 01-28-2020, 01:22 AM
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Isn't US debt sold at fixed rate?
Interest rates are set by auction. One type of security (TIPS) has an observed inflation rate added to its principal and interest.

If your point is that the interest payable on a 10-year Treasury Note sold yesterday will have yesterday's auction rate locked in for the next ten years, that is correct. However a large majority of U.S. Treasury debt comes due in much less than ten years. (Should be easy to Google the distribution of maturity dates, but I've not drunk my daily coffee quota yet!)

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There is no rational way to justify claiming that what happened in 1997 or 2000 was a result of the 1993 budget. Your are an intelligent person and you surely know that a federal budget gets passed each year, along with a great deal of other legislation that has an impact on government finances. You surely also know that in 1994 the Republicans won a huge electoral victory and took control of both houses of Congress. Therefore you surely know that there's no basis for claiming that the strong economic growth and balanced budget of the late 90's should be credited entirely to the Democrats.
The tax hikes in 1993 were permanent(*). I hope you're not pretending that the GOP of 1995 or 1997 would have passed tax hikes if the Dems hadn't done so in 1993. (Or do you disagree that tax hikes were an essential part of the deficit reduction?)

In my post you quoted, you deleted
"liquidating the deficit ranks as one of the supreme budgetary accomplishments in American history"
This quote was from Allen Schick.
Quote:
Allen Schick was a nonresident senior fellow in Governance Studies at the Brookings Institution. Currently, he is a research professor of public policy at the University of Maryland. His work and writings cover government finance, budget policy and process, comparative political institutions, and international development.
I don't claim to be more knowledgeable on this topic than Allen Schick. Do you?

You write "there's no basis for claiming that the strong economic growth and balanced budget of the late 90's should be credited entirely to the Democrats." What does "entirely" mean? 100%. I didn't give them "100% credit." If I give them 99% credit would you withdraw your objection?

And what is your cite, if any, for your "no basis" claim? We already know that taking credit for the 1990's is a shrill Republican talking-point. Heck, half of the people in this thread never heard of the important and famous 1993 Deficit Reduction Act — it's been drowned out by the shrill half-truths coming from Glen Beck, Sean Hannity, etc.

Last edited by septimus; 01-28-2020 at 01:24 AM.
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Old 01-28-2020, 06:48 AM
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Oh my. I'm not going to repost #11 in a larger font. Go back and re-read it using the Zoom function of your Browser.

Every single penny that might be scrimped or saved by the Democrats will be given away to the rich, or wasted on foolish military boondoggles as soon as the Republicans regain control. Only the masochistic or gullible might seek to balance the budget in this political environment. Until the present Party of Kleptocrats is extinctified, any effort by American humans to balance the federal budget is a fools' game. As Paul Krugman implies, targeting the deficit must wait until the GOP no longer exists in its present wicked form.



There is no magic threshold. (Debt 95% of GDP is OK, but 105% isn't? ) And there are countries in worse shape than the U.S. Moreover, federal debt is just part of a general problem: Corporate debt is at record highs; consumer debt is high; U.S. current international accounts are heavily in the red. This rising debt is fueled by exceptionally low interest rates. (Interest rates are even lower elsewhere: that U.S. rates, while low, are higher than Europe's or Japan's is a key reason why the Dollar is strong and the U.S. economy booming.)

Just as a junkie is anguished when his heroin is cut off, the U.S. economy will be jolted if the interest on corporate debt rises (whether due to shortages, wage hikes or other inflationary pressure; or just due to ratings downgrades on specific corporations.) The corporate and consumer debt is a bigger risk, at least in the short term, than federal debt.

But the federal debt is not a trivial problem! In FY 2019, $575 billion was spent by the Treasury just on interest, and this will rise in FY 2020. That's with interest rates at record lows; imagine the absurd size of the interest paid if interest rates rise!

The fragile economy, both in the U.S. and around the world, could easily contract due to a slight supply shock, central bank miscalculation, or loss of either business or consumer confidence. The remedies to cope with recession are already used up. A big drop (more than 4% or 5%) in nominal interest rates — the usual and most important response to recession — is impossible: nominal rates are now well under 2%. The economy is already brimming with cash: much of it fiat money conjured up by QE (cf. "Modern Monetary Theory"). The GOP now delivers to the kleptocrats a trillion annually in good times — do we want them to borrow two trillion in recession?

But it isn't federal borrowing that will ignite the powder-keg. The first glimpse of disaster will probably come from over-leveraged corporations which cannot cope with adverse conditions and falling credit scores. We may be damned even if the world avoids recession: a rising world economy may lead to price hikes on imported materials; and inflation may force banks to raise rates.

As always, debtors hope for inflation. At some point the U.S.G. — the world's biggest debtor — may moot devaluation as a remedy to "China cheating at trade," or target a higher inflation rate as the only way to bring real interest rates negative.

How will this play out? I don't know. Nobody does.
I agree with you about Republicans being dishonest around the debt (and in other issues, too). But my point was that if we're to do something that lowers debt/deficits, it will likely have to include tax hikes - which Pubs will hate - and spending cuts - which Dems might dislike, depending on what is cut. My post wasn't a prediction of the two sides getting together and dealing in good faith. I don't think the Pubs are currently cut out for that. But even if budget-balancing is done strictly by Dems, I think they'll likely have to cut something they like.
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Old 01-28-2020, 06:59 AM
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I honestly don't know. I decided to google it because I was interested and found this.

https://www.investopedia.com/terms/d/debtgdpratio.asp



However I don't know if those nations are in the same position the US is where we print our own currency and the world is dependent on our economy so they want our economy to do well. Our ratio is over 100% and our interest rates are still very low.
Thanks. Back in 2010, Ken Rogoff and Carmen Reinhart published an influential paper that said that when debt reaches 90%, it starts to drag on economic growth. Researchers found a spreadsheet error in their stuff - embarrassing - and they had to back off slightly. But their conclusion is still that lower growth is associated with debt above 90% of gdp.

https://www.ft.com/content/433778c4-...a-00144feabdc0

https://www.nytimes.com/2013/04/26/o...e.html?hp&_r=0

http://scholar.harvard.edu/files/rog...e_debt_aer.pdf

I wonder if the whole worry about debt is overblown. Maybe the concern should mostly be about growth, and finding ways to grow, which would naturally lower the debt load over time. It's an interesting question, IMO. It has big policy implications.

Look at Japan. They have debt around 200% of gdp, and have negative interest rates. That tells me that markets don't care about their debt level, but they have huge growth concerns.

https://www.marketwatch.com/story/he...sis-2018-05-14
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Old 01-28-2020, 07:50 AM
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We all know what must be done. Taxes for most if not all need to be raised, and spending virtually across the board needs to be reduced. None of the bumper sticker solutions will work. Taxing the 1% won't get us out of this, and cutting DoD, which only accounts for 15% of the budget won't do it.

And we are all to blame for this. Politicians don't campaign for fiscal constraint because no one will vote for them if they do.

At some point we'll have to spend real money (over the 10% we do now) to service the debt and it will crowd out programs. Then we'll feel it, and God knows what we can do then.
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Old 01-28-2020, 10:18 AM
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We all know what must be done. Taxes for most if not all need to be raised, and spending virtually across the board needs to be reduced. None of the bumper sticker solutions will work. Taxing the 1% won't get us out of this, and cutting DoD, which only accounts for 15% of the budget won't do it.

And we are all to blame for this. Politicians don't campaign for fiscal constraint because no one will vote for them if they do.

At some point we'll have to spend real money (over the 10% we do now) to service the debt and it will crowd out programs. Then we'll feel it, and God knows what we can do then.
Making the health care system more efficient would go very far in making the US debt go down. Medicare and medicaid cost less than private insurance, but our health care system still costs twice as much as any other nation. If our health care becomes more cost efficient, then medicare and medicaid spend less on medical care.

Towards the end of Obama's second term, the deficit was down to 2% of GDP. That is very manageable with tax hikes and a few spending cuts.
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Old 01-28-2020, 02:43 PM
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But my point was that if we're to do something that lowers debt/deficits, it will likely have to include tax hikes - which Pubs will hate - and spending cuts - which Dems might dislike, depending on what is cut.
Spending cuts? Programs for humans have already been cut to the bone. Much of the spending hikes under Trump and his GOP have been for the military and para-military. We'll need a cite for your claim that Dems are opposed to cutting the massive Trumpist spending on Homeland Security, Pentagon, etc.
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Old 01-28-2020, 03:35 PM
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Spending cuts? Programs for humans have already been cut to the bone. Much of the spending hikes under Trump and his GOP have been for the military and para-military. We'll need a cite for your claim that Dems are opposed to cutting the massive Trumpist spending on Homeland Security, Pentagon, etc.
Meh. The devil's in the details. There have been spending hikes to the military recently. But DoD's budget was actually reduced each and every year from FY10 to FY15 no matter how you calculate it, constant dollars, percent GDP etc. I'd be interested in your site to show a social program undergoing similar reductions.

But it's not a news flash - Dems favor some programs over others, as do Republicans. But all are going to have to remain flat or be reduced if we are going to get out of this mess.
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Old 01-28-2020, 03:53 PM
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I read somewhere that, as a global conglomerate, we are 217 trillion dollars in debt. It seems to be business as usual every day, so it doesn't seem to make much difference.
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Old 01-29-2020, 01:53 AM
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It would be nice to find a source that shows itemized federal spending today and, say, 5 years ago. But my Googling failed. cbo.gov wanted me to start Excel — I'm not so masochistic. Wikipedia used to have such charts, perhaps, but I can't find them anymore. I just see Wiki editors droning on and on and on about their opinions of spending, but no actual data except crude useless summaries and links to Cbo.gov's Excels.

Help! Can a better Googler link to such charts?

Obviously the numbers will need to be interpreted. SocSec spending is up? That's not Democratic profligacy; that's the famous demographic Boom of the Boom-er generation. Medicare spending is up? Let's talk about GOP's gift to Big Pharma. Spending on debt interest is up? Trump talks of defaulting but cooler heads have prevailed. VA Medical costs are up? Yes, Democrats want to help veterans who have PTSD and other problems — we just want future Republicans to stop foolishly sending our soldiers into harm's way. Homeland security costs are up? From what I read, many of those pseudo-police should be fired.

And the government is now run by crooks, and Republicans whose perverse ideology literally makes flushing money down the toilet a worthy aim.

No; we'll need a cite from anyone claiming that discretionary social spending hasn't been cut to the bone.

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... DoD's budget was actually reduced each and every year from FY10 to FY15 no matter how you calculate it, constant dollars, percent GDP etc. I'd be interested in your site to show a social program undergoing similar reductions.
Reductions in military spending under Obama rather supports my side of the argument, no?
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Old 01-29-2020, 02:49 AM
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I read somewhere that, as a global conglomerate, we are 217 trillion dollars in debt. It seems to be business as usual every day, so it doesn't seem to make much difference.
A lot of that might be circular, negating debt, though.

Like, if Bob owes John $10, and John owes David $10, and David owes Sally $10, and Sally owes Marty $10, and Marty owes Kevin $10, and so forth, on and on......then you could have a whole village that is a "cumulative" $10,000 in debt.

But all it takes to pay of that $10,000 in debt is........a mere $10. Because as soon as Bob gets ahold of an extra ten bucks, he can then pay John what he owes, and John can pay off his debt to David, etc. etc. down the chain...........and before long (in theory,) the entire village is now debt-free.
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Old 01-29-2020, 04:11 AM
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Velocity's point is valid. (But also note that if Bob never gets the $10 he was expecting, his default can ripple through and cause a lot more than $10 in defaults.)

And much debt is NOT circular. Industrial corporations owe trillions to pension funds, not vice versa. U.S. entities owe huge sums to Japanese entities, not vice versa. (Japan's own huge debt is owed to other Japanese.)

With record low interest rates, U.S. corporations have been borrowing heavily, often not using the proceeds to invest in the future, but for dividends and stock buybacks. (Buybacks — a device to prop up stock prices in the short-term — are approaching a phenomenal trillion dollars per year!) Total U.S. corporate debt is over $15 trillion, much of that below investment grade. (Other countries have similar issues: this is not just a U.S. problem.)

The high leverage makes corporations vulnerable to even slight slowdowns. When recession comes, some corporations will default. Even corporations able (barely) to make their payments will see their bonds demoted to "junk" status. (In the low-interest euphoria, B-Junk is now yielding just 6%, sharply down from 8.5% a year ago, but this euphoria will evaporate when default rates rise.) Many institutional investors have rules prohibiting them from buying low-rated bonds: Imagine hundreds of billions in corporate debt needing to be rolled-over, with no buyers even at bargain-basement prices! (Not hypothetical: very recently Rite Aid Corporation offered to buy-back its 7.7% Senior Notes for 61 cents on the dollar.)

One ominous sign: BBB bonds in the U.S. — the lowest rating considered "investment grade" — now account for over half the total investment grade bonds. Are ratings agencies playing games again, not further demoting bonds that have already fallen to BBB? Either way this bond bubble will exacerbate the next slowdown. Central banks will want to open the easy-money spigots ... but discover that the reservoirs have already been drained. Pundits aren't making the following claim, but I think devaluations and inflation targeting may become the desperate solutions of last resort.
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Old 01-29-2020, 06:49 AM
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Spending cuts? Programs for humans have already been cut to the bone. Much of the spending hikes under Trump and his GOP have been for the military and para-military. We'll need a cite for your claim that Dems are opposed to cutting the massive Trumpist spending on Homeland Security, Pentagon, etc.
I didn't make that specific claim. I think I was pretty clear in what I said and what I meant.
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Old 01-29-2020, 08:09 AM
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Reductions in military spending under Obama rather supports my side of the argument, no?
I interpreted your comment that Trumps increase was unjustified and uncalled for. If I misinterpreted that, my apologies.

My main worry is this outlook:

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It’s not talked about much because there’s little to be done about it. Dealing with it would either require much higher taxes or draconian cuts in spending across the board. Either would be extremely recessionary.
Once we give up on trying to get this under control, we're doomed. And increasingly, I read that "we can't do anything about it any longer because it's gotten so big, so what the hell, let's SPEND!!"
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Old 01-29-2020, 11:49 AM
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This Bill passed in the U.S. House of Representatives by a vote of 218 to 217. Every single Republican in the House voted against the Bill.
It's no coincidence that this tax hike passed the House by a single vote. Representatives whose re-election was in jeopardy were allowed to vote 'Nay.' Only sure seats and volunteers were required to "walk the plank," as voting "Yea" was termed.

Even so, many Representatives who voted for the tax hike were booted out in the next election by ignorant voters; Newt Gingrich and his evil band took control of Congress in 1995.

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Once we give up on trying to get this under control, we're doomed. And increasingly, I read that "we can't do anything about it any longer because it's gotten so big, so what the hell, let's SPEND!!"
No Republican will ever vote for any tax increase. If the Ds vote for a tax increase in 2021, the Rs will be back in power in 2023 to reverse any good the Ds have done.

A hyper-modern theory is that "deficits and debt don't matter." Is this idea correct? It seems far-fetched, but we'd better hope so.
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Old 01-29-2020, 12:10 PM
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A lot of that might be circular, negating debt, though.

Like, if Bob owes John $10, and John owes David $10, and David owes Sally $10, and Sally owes Marty $10, and Marty owes Kevin $10, and so forth, on and on......then you could have a whole village that is a "cumulative" $10,000 in debt.

But all it takes to pay of that $10,000 in debt is........a mere $10. Because as soon as Bob gets ahold of an extra ten bucks, he can then pay John what he owes, and John can pay off his debt to David, etc. etc. down the chain...........and before long (in theory,) the entire village is now debt-free.
That seems like pretty poor accounting then to say that the village (I assume a population of 1,000 with everyone owing another $10??) is $10,000 in debt. Let's take David, for example. He owes Sally $10, but he is owed $10 by John. Any decent accounting should say that he has a $0 net worth/balance. By my two semesters of undergrad accounting, the village is only $10 in debt, not $10,000.

Last edited by UltraVires; 01-29-2020 at 12:12 PM.
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Old 01-29-2020, 05:02 PM
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Let me start out by saying that I agree totally with Septimus. I recall that just 20 years ago, learned economists were discussing what should be done with the surplus. Pay down the debt? Increase services? Cut taxes? Well Bush/Cheney solved that problem: cut taxes and start two wars.

I still recall the days at the end of WW II when the marginal rate was 91%. So the economy went into negative growth because no one figured it was worth investing, right? Wrong. It was followed by 20 years of unrestrained growth in which real wages rose and the CEOs were paid modest salaries because there was no point in outlandish salaries, much of which would simply go to the government. The accumulated debt went from something 125% of GNP (what they called GDP in those days) to under 50%. Then Kennedy lowered the marginal rate to 70% IIRC and it went to 39% under Reagan.

I think that when interest rates rise, debt service can become a drag on the economy and the current deficits are outrageous. It's not so much that an outlandish amount goes to the military as that so much that goes to the military is corporate welfare, not defense.
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Old 01-29-2020, 10:42 PM
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Let's clear up some misconceptions. Start by examining this graph...
This is a great post. You've summarized the recent history of dueling economic policies much better than I could have.

I'll just add that in the early 2000s, with a surplus for the first time in decades, what did the Republicans do when they got back in power? Answer: cut taxes, because it was supposedly wrong to take in more money than we were spending (ignoring the fact that the national debt had not been magically erased at the same time that the deficit was).

I occurred to me then that the Republicans, despite their supposed concern about the national debt, really just cared about cutting taxes. Times are good? Cut taxes. Times are bad? Cut taxes.

They've never truly cared about reducing the national debt. They just bring it up as an excuse to vote against any spending they don't like.
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Old 01-29-2020, 11:29 PM
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That seems like pretty poor accounting then to say that the village (I assume a population of 1,000 with everyone owing another $10??) is $10,000 in debt. Let's take David, for example. He owes Sally $10, but he is owed $10 by John. Any decent accounting should say that he has a $0 net worth/balance. By my two semesters of undergrad accounting, the village is only $10 in debt, not $10,000.
Right, but since Jasmine mentioned the claim that the world is a cumulative $217 trillion in debt (which is about $27,000 per human on the planet,) I figured the only way that claim/cite could be correct would be if it weren't by the accounting method you mention, but rather, someone tallying up every single outstanding debt in its own right.

It doesn't seem quite possible that the world could have a negative $217 trillion net worth/balance by the undergrad accounting method.
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Old 01-30-2020, 12:08 AM
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[Republicans have] never truly cared about reducing the national debt. They just bring it up as an excuse to vote against any spending they don't like.
Yes. And increasing the debt serves their interest because of that excuse. Trillions for foolish wars and for defense-contractor graft? No problem? But we can't afford millions to improve public schools!

They don't oppose improving schools because of the paltry sums needed. Their opposition to improving schools is because their agenda is served when Americans lack critical thinking skill.
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Old 01-31-2020, 02:35 PM
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Right, but since Jasmine mentioned the claim that the world is a cumulative $217 trillion in debt (which is about $27,000 per human on the planet,) I figured the only way that claim/cite could be correct would be if it weren't by the accounting method you mention, but rather, someone tallying up every single outstanding debt in its own right.
Considering that the debt per person in the US is around $67,000, China's is a bit under $4,000, the UK around $36000, Italy around $42,000, I'm not sure why you find the $27,000 number so absurd.
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Old 01-31-2020, 10:09 PM
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Right, but since Jasmine mentioned the claim that the world is a cumulative $217 trillion in debt (which is about $27,000 per human on the planet,) I figured the only way that claim/cite could be correct would be if it weren't by the accounting method you mention, but rather, someone tallying up every single outstanding debt in its own right.

It doesn't seem quite possible that the world could have a negative $217 trillion net worth/balance by the undergrad accounting method.
I agree. Shouldn't the world's debt be zero? For every debtor, there is a corresponding creditor, or am I missing something?
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Old 02-01-2020, 03:12 AM
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After the Obama years, I am firmly of the mind that at least *politically,* no, the debt/deficits do not matter at all, and I would love it if we could have the next Democratic president publicly pledge to never give two f's about the deficit. And when the Republicans inevitably feign deficit hysteria again, the Democrats must swiftly tell the GOP to screw off.

Maybe there might be some far off space brain future where the deficit may become an issue, but we'll just deal with that problem at that time. But for now, nah, deficits are superfluous.
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Old 02-01-2020, 03:20 AM
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I agree. Shouldn't the world's debt be zero? For every debtor, there is a corresponding creditor, or am I missing something?
Books balance. The sky is blue. The Pope is Catholic. And Generalissimo Franco is still dead. Start a thread in Thread Games if these truisms amuse you.

If you owed me a half million dollars I wouldn't be pleased to hear you say that "debt is zero."
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Old 02-01-2020, 04:37 AM
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My last post was MUCH too snarky. I apologize.

It's childish of me, but I get irritated when my posts are ignored. Of course NET debt can be defined to be zero, but I'd thought I'd already disposed of this, in the context of OP's question, at least in regard to corporate debt, with
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Velocity's point is valid ... [but] much debt is NOT circular. Industrial corporations owe trillions to pension funds, not vice versa. U.S. entities owe huge sums to Japanese entities, not vice versa. (Japan's own huge debt is owed to other Japanese.)

With record low interest rates, U.S. corporations have been borrowing heavily, often not using the proceeds to invest in the future, but for dividends and stock buybacks.

The high leverage makes corporations vulnerable to even slight slowdowns. When recession comes, some corporations will default....
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Old 02-01-2020, 09:29 AM
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Contrary to right-wing dogma, U.S. entrepreneurs kept on entrepreneuring (and at an unprecedented rate) despite the 39.6% income tax. The 1993 Budget led directly to one of the most prosperous periods in American history. At the beginning of Clinton's term, the federal debt was seen as a most important problem; by the end of the term the U.S. Treasury was redeeming its bonds at an unprecedented rate and there was concern that this would cause trouble! (Many contracts were tied to the price of Treasury debt instruments which were disappearing.)
And the difference between the economic growth of the 1990s is that we were in better shape to deal with a sharp recession. The growth of the 1990s was fueled on debt but not to the extent that it was in the 2000s and now, with consistently low interest rates, stock buybacks, and other financial tricks. We're due for a recession and the longer this energy drink-like fake growth continues, the worse the recession will be when it arrives.
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Old 02-01-2020, 11:10 AM
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And the difference between the economic growth of the 1990s is that we were in better shape to deal with a sharp recession. The growth of the 1990s was fueled on debt but not to the extent that it was in the 2000s and now, with consistently low interest rates, stock buybacks, and other financial tricks. We're due for a recession and the longer this energy drink-like fake growth continues, the worse the recession will be when it arrives.

What do you mean by "fake growth"? Are you saying the economy is built on another bubble, like the housing bubble in 2007/2008? Or something else? I think current growth is real, and has been a continuation of the recovery that begin in 2010 after the financial crash.

I do worry about having too much debt, the effect on growth of debt service, and having less fiscal room to maneuver when we have the next recession. But I don't see today's growth as "fake".
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Old 02-01-2020, 11:14 AM
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I agree. Shouldn't the world's debt be zero? For every debtor, there is a corresponding creditor, or am I missing something?
Interest.

If I loan you $10 at 0 interest, then you can pay that back with the $10 that John owes you that he got back from Peter.

If I charge you interest, then you need to come up with more money, which means you need to charge John more money, which means that he has the charge Peter more money. That money can never be fully paid back without increasing the money supply, which you cannot do without issuing more debt.
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Old 02-01-2020, 11:19 AM
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What do you mean by "fake growth"? Are you saying the economy is built on another bubble, like the housing bubble in 2007/2008? Or something else? I think current growth is real, and has been a continuation of the recovery that begin in 2010 after the financial crash.

I do worry about having too much debt, the effect on growth of debt service, and having less fiscal room to maneuver when we have the next recession. But I don't see today's growth as "fake".
Yes, the economy is in a bubble that is financed by federal debt. That trillion dollar give away in the tax bill translated into hundreds of billions of dollars of growth in the valuation of companies. Executives paid themselves more, and more money was divested to stockholders. All this money worked to stimulate the economy. Unfortunately, this stimulus if very inefficient and certainly not sustainable.

If you think that the current growth is real, can you point to the factor that allows us to have a longer period of growth than any other in a modern economy that is not based on increasing deficit spending?
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Old 02-01-2020, 12:49 PM
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Books balance. The sky is blue. The Pope is Catholic. And Generalissimo Franco is still dead. Start a thread in Thread Games if these truisms amuse you.

If you owed me a half million dollars I wouldn't be pleased to hear you say that "debt is zero."
I was responding to another poster's contention that the entire world was $217 trillion in debt. I was simply trying to confirm that such a thing would be impossible unless we are loaning money to Martians or something.
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Old 02-01-2020, 01:18 PM
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What do you mean by "fake growth"? Are you saying the economy is built on another bubble, like the housing bubble in 2007/2008? Or something else? I think current growth is real, and has been a continuation of the recovery that begin in 2010 after the financial crash.

I do worry about having too much debt, the effect on growth of debt service, and having less fiscal room to maneuver when we have the next recession. But I don't see today's growth as "fake".
Sure, there's seemingly real economic activity going on. The profits are real, but the stock valuation isn't necessarily real. Consumer demand is real but it's increasingly satisfied with consumer debt. A related problem is that there is real competition to satisfy the appetite for growing consumption, which itself leads to riskier lending practices. But beyond competition, the flat interest rates makes it hard for traditional lenders to make money on traditional banking services, which makes it tempting to get involved in derivatives and other types of financial instruments, some of which aren't that well understood or regulated.
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