How will the US debt be resolved?

[wmfellows]

@Sam_Stone

Huge difference between the debt of WWII and today’s debt.

In WWII, the bulk of government spending was discretionary and easily reduced. Mainly, through cutting the military budget.

Stone I think your ideological blinkers are spinning your presentation.

As I recall, military budgets were not easily reduced, and in fact ramped up with the Korean War, and did not decline significantly thereafter for the US. Quite the contrary, as I recall, escalating Guns & Butter spending got the US into trouble for the 1970s.

Today, the bulk of spending is in the form of mandatory entitlements. And they are getting worse with every passing year. Another huge budget item is interest on the debt itself, and this is also mandatory spending.

For this I read, Spending Mr. Stone Disapproves Of.

It does not strike me that Military Spending is easier to cut in the USA than other spending, if it were the case, they would have rationalised their military expenditure ten years ago.

There is no possible way you can conclude that eliminating the current deficit will be remotely as easy as it was to reduce the WWII deficit.

I think there is no possible way you are not letting your rather ideological view of the world get in the way of a clear analysis, in fact an unspun analysis.

BTw, you never did acknowledge your ideological spin on the mortgage lending issue. I find it troublesome.

The U.S. debt problem was solved by massive economic growth, but that growth was the result of a major shift in economics as the wealth of the rest of the world rapidly grew and the U.S. stood as the sole free superpower with an untouched industrial infrastructure, which caused a huge expansion in foreign trade, to America’s benefit.

This I very much agree with, and is in fact a serious problem for the US, replicating the 1950-1960 growth era is impossible as such.

On the other hand, the slower, but relatively similar claw out of EU members from similar debt loads under mature economic circumstances stands as an example that pure Doom and Gloom is not the sole story to be sold.

Another one-time boost came as a social shift moved women into the workforce, nearly doubling the productive manpower of the U.S. economy.

Eh, come now mate, this is borderline dishonest. As I recall for US, and the Anglo world in general, the major entry of women into the workforce was in the 1970s and 1980s. It’s bloody amaizing you’re counting that into a post WWII debt pay down analysis.

This and the baby boom led to a period of unprecedented productivity growth during a period of low social spending. That’s how the U.S. escaped the WWII debt.

Eh???

Baby boom?

Low Social spending?

Am I mistaken in observing the American Great Society (I believe that was the political name for it) was launched in the 1960s? Yes or no?

Before we start spinning Government Debt Is Doom tales, I think we need to lay out figures on evolution of Gov expenditure as percent of GDP over time. Analytically you have a story, but my little experience just now with mortgage makes me doubt your view, given your ideological blinders and tendency to relate those items that fit them. A number of other items I fully agree with, such as number of workers to support non-working population (although productivity offsets) and more competitive global market place.

[Dick_Dastardly]

@Sam_Stone

Huge difference between the debt of WWII and today’s debt.

In WWII, the bulk of government spending was discretionary and easily reduced. Mainly, through cutting the military budget.

Today, the bulk of spending is in the form of mandatory entitlements. And they are getting worse with every passing year. Another huge budget item is interest on the debt itself, and this is also mandatory spending.

There is no possible way you can conclude that eliminating the current deficit will be remotely as easy as it was to reduce the WWII deficit.

The U.S. debt problem was solved by massive economic growth, but that growth was the result of a major shift in economics as the wealth of the rest of the world rapidly grew and the U.S. stood as the sole free superpower with an untouched industrial infrastructure, which caused a huge expansion in foreign trade, to America’s benefit.

Another one-time boost came as a social shift moved women into the workforce, nearly doubling the productive manpower of the U.S. economy. This and the baby boom led to a period of unprecedented productivity growth during a period of low social spending. That’s how the U.S. escaped the WWII debt.

Nothing remotely like that exists today. All the trend lines that were up in 1946 are down today. Social spending is increasing. The population is aging instead of getting younger. The number of workers available to provide for the elderly and the non-working poor is declining. The U.S. is losing competitive advantage against the world rather than gaining it. Government spending is increasing rapidly. Instead of the rest of the world increasingly being a source of new markets and new wealth, major markets are declining as the populations of the major economies age even faster than they are aging in the U.S.

This is not 1945. This deficit and debt are the biggest threats the U.S. faces, and it needs to be taken extremely seriously. You need major entitlement reform, a major scaling back of government services, and probably some additional tax increases, so long as they go to debt service.

Another way in which this is not 1945: The rich and their wealth have much greater international mobility. Your ability to tax them with impugnity is much lower now than it was in 1945, where America was really the only game in town. Set tax rates of 70% on the rich, and watch as your most productive, wealthiest citizens pack up and move to Canada, Australia, and Europe.

The high levels of U.S. debt (both government and personal) have been sustained in large part by the rapid increase in wealth in Asia. At some point, when growth in Asia slows down and Asian countries move from policies of savings to policies of local investment and maybe even run their own deficits, the pool of available capital will collapse. Eventually a U.S. treasury auction will fail. Then look out.

In 1950, debt was 80% of GDP. By 1960, it was down to 46%. During this time period spending as a percntage of GDP actually increased (Cold War, Korean war etc.) And the drop in debt:GDP was all down to economic growth. There’s no reason we can’t see something similar in the next decade. It’s unlikely we’ll see a return to the levels of economic growth we saw in the high-tax 1950s but we should easily our way out of the current elevated debt levels without any real problems.

There was nothing to stop Americans leaving in the fifties, sixties etc. What did stop them leaving was that they lived in the richest country on earht, one with the biggest possible potential for growth, and of course they lived there so it was home. None of that has changed. The idea people run away due to taxes is highly exaggerated. Almost without exception America’s billionaires live in high-tax coastal states and eschew the ability to move within America to zero income tax states.

The US is having no problem financing its debt at very low interest rates. 30 years bond are massivle yoversubscribed when they’re auctioned and have you seen what they’re paying. Certainly long-term investors have no worries over the long-term US financial solvency.As long as grownups remain in charge

[Try2B_Comprehensive]

Sorry it takes me so long to get back sometimes, I am very busy. I think I can respond to this point now however:

@wmfellows

No. No it does not. The government raising revenues is dependent on the economic health of the country (which a trade deficit is not a bad thing as such, although the size of the current US deficit is not sustainable). Japan runs massive surpluses, and the Government runs massive deficits, and the domestic economy is moribund - has been for 15 years. There is your answerr.

In the Sept/Oct 2009 issue of Foreign Policy Magazine, Clyde Prestowitz, President of the Economic Strategy Institute in DC (with which I’m not familiar- are they some kind of think tank?) writes:

With its false, debt-driven growth subtracted, U.S. performance over the last 20 or 30 years is revealed as inferior to that of all Asian countries including Japan, with its much-mourned ‘lost decade’.

How fair is it to characterize U.S. growth as ‘false’ and ‘debt-driven’?