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!)
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.
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.
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.
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.
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.
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.
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.
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.
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.
Reductions in military spending under Obama rather supports my side of the argument, no?
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.
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.
I interpreted your comment that Trumps increase was unjustified and uncalled for. If I misinterpreted that, my apologies.
My main worry is this outlook:
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!!”
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.
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.
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.
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.
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.
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.
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.
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.
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?)