I would say it’s something we should be concerned with. But it’s not a crisis. Currently, the net federal debt held by the public is 78% of GDP, and it’s projected to be 96% of GDP in a decade. That’s not exactly an imminent crisis. Also, 10-year US Treasuries have a 2.87% yield. If we were in a debt crisis, or about to enter a debt crisis, then markets wouldn’t lend the US government money for less than 3% yield. Instead, they would demand much more.
I think over time, we should try to bring the debt down to 60% or so. It would give us a little more space in case we enter another recession. And all things being equal, I think more debt load is associated with lower growth if it gets too large.
So, we should raise taxes, and lower spending some. Now is a decent time to do that, since the economy is fairly strong. Pay down debt in good times and borrow more when things go bad.
The short answer is: “It’s not a problem … until it is.”
I don’t think it’s obvious which debt figure to focus on. By gross government debt as a percent of GDP, the U.S. is in fifth place among OECD countries, behind Japan (with more than double the U.S.’ figure), Greece, Italy, and Portugal. So, should U.S. be compared to fiscally sound Japan, or to three countries in trouble: Greece, Italy, Portugal?
A relevant question is: To whom is the debt owed? Or, more generally: Do we have a lien on foreign assets, or do foreigners own us?
If you examine Net Int’l Investment Position (NIIP) you see the U.S. has a whopping $8.1 Trillion deficit compared with Japan’s $3.1 Trillion surplus. Germany, China, Taiwan, U.K. also have large NIIP surpluses. The Eurozone collectively has less than $0.7 Tril investment deficit compared with U.S.’ $8.1 Tril. As a percent of GDP, several countries have bigger NIIP ratios than U.S. including Iceland, Ireland, Greece, Portugal, Spain and New Zealand.
Twenty-five years ago Bill Clinton and the Democrats followed your advice, and pushed the government budget into surplus. Look how that ended: When the GOP regained the White House they reversed this vigorously, deliberately pushing the debt to record levels in pursuit of their ‘Starve the Beast’ agenda.
Assuming you don’t want to claim that Germany has a bigger debt problem than Lebanon, you have to compare debt with something. Do you have an alternative to GDP that’s preferable? The “total wealth” of the country might make sense but I think that’s exceedingly hard to define, let alone measure. Gross production seems like the obvious proxy.
Assuming a fixed interest rate, the debt-to-GDP ratio tells you exactly what percent of total production must be given to the bondholders as interest. (But interest rates are not fixed; they may rise rapidly while debt also continues to rise. The total annual interest on federal debt is less than half a Trillion now, but our children will call these the “good old days.”)
As for comparing personal income and mortgage, didn’t there use to be a rule-of-thumb: You should buy a house that costs 2½ times your annual income? (* - this “2½” was a very old rule of thumb!)
If we were investing it properly, getting a loan at under 3%, as T-bonds do, is a net positive for our country. We could invest that money to turn into economic growth greater than 3%, increasing our net gain. But we don’t, of course. We’re throwing a ton of it at subidies for big businesses, a bloated military budget, etc. The US is in a unique position where the world confidence in our stability and our currency gets us better borrowing rates than any other country. Running a debt while investing that money in our future would be capitalizing on that advantage. But, again, we’re not really doing that.
Although this highlights the absolute insanity of the debt ceiling hostage situations the Republicans like to create. Threatening to default on our debt, if considered seriously, would be a huge shock to world markets. It would crash the world economy by itself. The amazing amount of trust built on the reputation of the US as the world’s most stable currency and economy would collapse. Not only that, but it would be counterproductive in as far as the debt goes. Our debt is essentially a rolling debt - as some entities cash in their t-bills, new ones are issued out to cover it. Which means that a sudden shock to confidence in our T-bills would mean that we wouldn’t get the very cheap payback rates we get now - suddenly, unsure of the value of our debt, we’d be paying a much higher interest rate on the new debt. Which means that our existing debt - not even considering new debt - would suddenly cost much more to service as the rolling debt went from a 2.5% interest rate to something like 8%+. It’s absolute insanity on their part and is basically the Republicans walking into a room with dynamite on their chest saying “give us what we want or we blow us all up” - the problem is that it can shake the world’s confidence in our ability to govern even if we give in to their demands.
Anyway, there’s one thing that’s pretty clear, though. When we’re in the middle of an economic boom, the deficit should be trending downwards. When the next recession or depression hits, the deficit could easily spike a trillion or more dollars. We ran huge deficits after 2008 because revenues were down due to the crash, but we managed to recover well after that and reduce the deficits by a huge amount every year. But we’re doing the opposite now. We’re in an economic boom - an artificially propped up economic boom by stock buy-backs due to a giveaway to corporations and the rich. And we just voluntarily increased the deficit by leaps and bounds even in the middle of a boom. So what happens when we have the inevitable crash which we’ve ensured will be harsher because of all the artificial propping up we’ve done? What do you do when you’re suddeningly running 4 trillion dollar deficits in the middle of a recession?
The GOP answer is going to be austerity. Sorry, we wrecked the economy on purpose, so you’re no longer going to get social security or medicaid or medicare or highway funds or a hundred other things. Which then actually digs us deeper into a depression because of the disruption to our economy such a drastic cutting back would cause.
An outside observer would probably say that the GOP is looting the rest of the country to give our wealth to a handful of people at the cost of what will likely be a severe harm to the quality of our life. But much like climate change, they don’t even care if everyone else burns - hell, a lot of them are probably looking forward to it - if they feel like they’re sufficiently insulated from it or they’ll die before the consequences get here, as long as it makes them a few extra bucks.
It’s been a few months since I looked, but I believe that we’re at a level where we have been before - and came back alright. The difficulty, however, is that we were there before because we had spent a bunch fighting a war. Our current debt load is entirely a function of day-to-day, normal operation and that’s causing an expanding debt load (as percentage of GDP). And, moreover, neither of our two political parties has any desire to reduce spending on the military, only one party has any desire to reduce health care spending, neither party has any idea of how to reduce health care spending except by letting people die, and all of the political incentives are for the status quo.
Fundamentally, the issue is less about the debt as it is about the quality of our representatives and the freedom they have to legislate wisely. With both of those being in a poor state, a rising debt is only one of a variety of possible ailments to come.
I believe you’re referring to a time when American citizens owned many billions in war bonds — Now we owe trillions to foreign central banks. Then foreign countries owed huge sums to the American government and American companies — Now we are, by far, the world’s biggest debtor. Then America’s manufacturing power was the envy of the world — Now laid-off workers, like Germans during the Depression, have turned in despair to a populist demagogue. Then America was so flush with wealth it could spend more than 4 times as much on the Marshall Plan to help Europe recover from the War as it spent on the Manhattan Project to ensure victory — Now we have a President who insists he’s owed money for NATO. Then the country had two political parties working together toward common goals — Now the political impasse is so extreme that government shutdowns are more common-place than on-time spending authorizations. Then repaying the debt was a political goal (and astronomical tax rates were installed to ensure it) — Now one party actively encourages debt to serve its ‘Starve the Beast’ agenda.
I’m not strongly inclined to disagree with your statements individually, but I would hold by my point that I don’t believe that we’re doomed economically, but we may be doomed economically for non-economic reasons. And granted, I don’t have the depth of economic knowledge to strongly commentate on the size of the debt, but I do note that the CBO is not issuing dire reports of famine and horror, not are there any politicians issuing denialistic statements against them like the USGCRP. The experts don’t seem to be crapping their pants.
I would be inclined to believe that your analysis shows that we could not pay down the debt so quickly and easily as we did after WWII, not that we can’t pay it down eventually. That’s true. But good leadership could get us on that path and good leadership could get us turned around on some of the metrics you enumerate.
I think it’s a huge problem, arguably in my mind the biggest problem in America today. I think this is true for a number or reasons:
The fed borrows money essentially for free, at least historically. And even with that, interest on the debt is between 9-10% of the federal budget. When we consider that entitlements make up two-thirds of the budget, that is a big problem. I remember locking in on a mortgage at 16% in the 1980’s and thinking I did a good job. If we ever see interest rates like that again and we actually have to pay real money to service the debt, that 9-10% will sound like the good old days.
Many state government are in a similar situation, which only compounds this problem.
No one seems to care that that debt in skyrocketing. In the 1980s when I became an adult, some were talking about the debt, but it’s a non-issue now with both parties and that’s problematic to say the least.
-To pay this off, we’ll have to cut entitlements and good luck with that in our society today. It’s too large to tax our way out of it, and the 1/3 left over isn’t enough to cut our way out of it.
We know that the cost of health care can be halved without affecting the level of health in the country (in fact, it can be guaranteed universally and still come in at half the rate). That knowledge offers a pretty bright ray of sunshine. But it’s a ray of sunshine through the steel bars of a very small window in a jail cell on death row.
Well, we apparently have enough money to give people already oozing with money huge tax cuts, so it must not be a problem at all. I find that interesting because, as soon as we get a Democratic administration, the Republicans start screaming about the national debt and how they should be in power because they are so much more fiscally responsible.
Of course, they have a “solution”, and that is to cut anything that benefits the common American, like Social Security, Medicare, etc.
“The problem has never been feeding the poor, it’s been satisfying the rich.”
I think we should raise taxes myself, and I wasn’t a fan of the recent tax cuts. Having said that, and I know this will go over like a lead balloon, but the top 1% pay 40% of all income taxes - while the bottom 50% pay less than 4%. I don’t know where the balance is, but having “The Rich” pay all the taxes will not solve the problem.
I can’t disagree with that.
Understand the benefits of all of those programs. But it still doesn’t mean they’re affordable.
I think that our situation might be more comparable to Japan than to Greece, Portugal & Italy. Like Japan, we have our own central bank and borrow in our own currency. Debt loads are more difficult for the European PIIGS countries to manage because they don’t have control of their own monetary policy. Essentially, Germany is in charge in that regard. This is one of the problems that came about from the Euro.
Japan has a very large debt to GDP ratio, much higher than the US (on a gross basis, it’s over 200%). And they can borrow for essentially zero. This tells me that we can withstand a much higher debt/gdp in the US without a crisis situation. See the below link on the likelihood of a debt crisis and lessons from Japan:
Why do you put “The Rich” in scare quotes? Are the rich not real people? Are those people who you say are paying 40% of income taxes not the richest people in the history of the world?
Do you know why “THE RICH” pay the majority of income taxes? Because the top 1% in this country have more wealth than the bottom 90%. Does the 40% they pay in taxes seem so egregious now? Whenever I hear someone say “the rich already pay X” in taxes, I have to wonder - okay, what percentage of the money do they have? If they have the vast majority of the money, and pay half the taxes, well, they’re not even paying their own share, let alone being so burdened that we couldn’t possibly ask more of them.
Secondly, yes, it literally would solve the problem. You could, today, simply increase tax rates on the rich until there was no deficit. Why is that impossible? They have the money. It’s only when we treat them as some sort of gods who will withhold their blessings from us if we ask too much that you get this attitude. The vast majority of deficit increases we’ve seen this year were from the disastrous tax cuts to people who are already sitting on record amounts of cash. If we reversed those, and added some more on for good measure, why wouldn’t that solve the issue?
The rich aren’t going to flee anywhere. Where are they going to go? France? Germany? Any other first world nation? Those countries aren’t afraid to tax their rich people.
So yes, we need money, they have it, literally, boom, solution. The idea that America is too broke to do anything - when it is literally, and by far, the richest country in the history of the world - is a myth made up entirely by the rich so that they can continue screwing us.
Austerity, in general, is not a great solution to curing debt. The sort of things that get cut, like transfer payments to people who desperately need them to stay alive on a daily basis, tend to get re-injected into the economy with quite a lot of velocity. To use an extreme example, if we stopped out sending social security checks, it ultimately would likely not save the government any money because the sudden removal of the spending power, meager as it may be, of tens of millions of people would crash the economy and reduce income.
More than any time in history we are in a peaceful, prosperous, productive, resource-rich, open global market. The money is there. It’s just being hoarded like a bunch of Eboneezer Scrooges who want to increase their high score while the rest of us scrape by.
That’s really only true in the slimmest of definitions of ‘pay’ and ‘taxes’. When one calculates the true cost of taxation the poor pay much, much more than 4%. You need to factor in state taxes, sales tax, property tax and so forth.
Not to mention that the top quintile received 53% of all income while the bottom quintile received 5% of all income.
And the trouble is, that argument has worked for them. The voters don’t care about and don’t remember history. All they know is that when Democrats are in power, the deficit becomes a big fucking deal and when Republicans are in power it is completely forgotten.
The Bush tax cuts were a huge mistake. The GOP tax cuts of 2017 were an even bigger one. You can make an argument for cutting taxes to stimulate a flagging economy. You can’t make that same argument for the 2017 tax cuts, it was simply a matter of appeasing the rich GOP donor class. Want to fix it? Raise taxes, particularly the estate tax. Close loopholes for corporations. Cut military spending. None of this will get done, the deficit will never go down.
The US is more like Japan in that particular regard. However that would be more fundamentally reassuring if there was any apparent way for Japan out of the its economic stagnation and continued growth of the debt burden. Although, there are also other pretty important differences between Japan and the US (US economy more dynamic, Japanese society more cohesive, etc).
The Japan example is valid IMO in indicating that a US debt crisis probably isn’t just around the corner, but not as much that there won’t be one eventually.
Also aside from other differences, the examples in Europe and Japan show how this is a global rich country problem not just a US problem. And it’s not limited to countries with relatively slightly lower taxes in the developed world (such as the US and Japan both). Also the more highly taxed countries do not tax more progressively than the US, they tax less progressively if anything, a lot of the extra revenue is via flat/regressive VAT’s, fuel taxes etc. In which context BTW it’s ridiculous to compare only US federal taxation to other countries which basically only tax at a national level. For example in a recent Economist that ‘paper’ (as it quaintly calls itself) pointed out new academic evidence that revenue doesn’t start decreasing (from disincentives to work and produce) till you raise marginal tax rates to around 44%. And the US one is well below that it pointed out…wrongly because it’s over 44% state+federal already in a lot of the states where high earners are concentrated.
The reality is the US would have to institute broad consumption taxes like a VAT if it didn’t greatly lower the future growth (not ‘cut’, from now’s level) of entitlement spending. Only the US left thinks it can finance the whole govt from rich people. The left/right consensus in Europe isn’t under that delusion. There’s somewhat (it’s often exaggerated how much more) more social welfare spending there, everyone pays through the nose for it, and a lot of those countries are still on unsustainable fiscal paths like the US is. The Euro is a reason the shit might hit the fan sooner there, it’s not the basic reason it will eventually.
Unfortunately, we’ve reached a point where the things you want to do, cut military spending, and taxing the rich won’t get us out of this without taking a bite out of entitlements. Won’t come close. The debt is $21 trillion; DOD’s budget is ~$750 billion.
And our corporate taxes are already the highest in the world. So you can’t increase jobs in America to a large degree while increasing those taxes.
Not insurmountable in the sense that you won’t go bankrupt. But if you are using the money you borrowed to consume rather than to invest, it’s not good policy.
If your sample household paid back that 22K by paying $100 a month (probably a hardship for this family that is below the poverty line) at even a modest 3% interest, it would take 27 years to pay off with total payments of $32,400. This household paid a premium on its desire to consume what they couldn’t afford.
My concern about the debt is not the level of debt per se but the cost of servicing the debt. In the 1970s my econ professor spent an entire lecture trying to prove to us that we shouldn’t care how big the debt it because the interest was just paid to US bond holders, pumping it back into the US economy. That is no longer true. Foreign investors, mostly governments, hold more than 40 percent of the total. We are just giving money away.