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:
2019 deficits topped a trillion link here:
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.
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?
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?
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.
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.
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.
Not to worry; as soon as Republicans are in the minority, the deficit (rising or falling) will become a crisis again.
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.
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! :smack:
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:
[ul][li]“liquidating the deficit ranks as one of the supreme budgetary accomplishments in American history.”[/li][li]“Without question, the 1993 Budget Reconciliation Bill has been remarkably successful in its goal of reducing the federal budget deficit.”[/ul][/li]
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! :smack:
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.
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.
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.
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.
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.
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? :smack:) 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.
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.
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.
I honestly don’t know. I decided to google it because I was interested and found this.
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.
