# Is US Federal debt sustainable? **URL:** \ **Category:** Great Debates\ **Created:** [January 27, 2015, 2:44pm UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001 "2015-01-27T14:44:54Z")\ **Posts on this page:** 20\ **Page:** 3
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [January 28, 2015, 5:36pm UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/41 "2015-01-28T17:36:37Z")
> [@Orwell](#): > > Spending grew under W, and then skyrocketed under Obama. > > And the spending increase was much larger than during the Reagan years. > > [http://blogs-images.forbes.com/realspin/files/2012/09/Federal-outlays-as-a-percentage-of-GDP.jpg](http://blogs-images.forbes.com/realspin/files/2012/09/Federal-outlays-as-a-percentage-of-GDP.jpg) No. Your own graph clearly shows spending very high under Reagan compared with Eisenhower-Johnson, dropping dramatically under Clinton, and then skyrcketing under Bush-43, well past the Reagan high. The so-called “skyrocketing” under Obama was directly due to spending, organized under Bush, to combat the 2008 financial crisis. Pointing to such, and blaming Obama shows [checks forum] imperfect understanding. ---
**Author:** ![Deeg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/deeg/32/2955_2.png) [@Deeg](https://boards.straightdope.com/u/Deeg)\ **Post date:** [January 28, 2015, 6:19pm UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/42 "2015-01-28T18:19:01Z")
> [@iamthewalrus\_3](#): > > There is a wealth transfer from poor to rich when we take on debt, but the fact that bondholders are richer isn’t the main component. At the Federal level is this true? Poor people pay little to no Federal taxes. I think your point about transferring money from the future is a better one. ---
**Author:** ![Really\_Not\_All\_That\_Bright](https://avatars.discourse-cdn.com/v4/letter/r/e8c25b/32.png) [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)\ **Post date:** [January 28, 2015, 6:37pm UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/43 "2015-01-28T18:37:02Z")
Poor people pay lots of federal taxes, just not federal _income_ taxes. They still pay federal payroll taxes, excise taxes and other things that add up to 40% or so of federal revenues. ---
**Author:** ![Colibri](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/colibri/32/1841_2.png) [@Colibri](https://boards.straightdope.com/u/Colibri)\ **Post date:** [January 28, 2015, 6:39pm UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/44 "2015-01-28T18:39:14Z")
I think this is outside the scope of GQ. Let’s move it over to Great Debates. Colibri General Questions Moderator ---
**Author:** ![Orwell](https://avatars.discourse-cdn.com/v4/letter/o/dfb087/32.png) [@Orwell](https://boards.straightdope.com/u/Orwell)\ **Post date:** [January 28, 2015, 6:54pm UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/45 "2015-01-28T18:54:46Z")
> [@septimus](#): > > No. Your own graph clearly shows spending very high under Reagan compared with Eisenhower-Johnson, dropping dramatically under Clinton, and then skyrcketing under Bush-43, well past the Reagan high. No, it doesn’t. Spending (as a percent of GDP, which is what the chart shows) went up early in Reagan’s presidency and then dropped down during his presidency - due to economic growth. The chart goes up during W’s term, and drops down a bit his last year. It then skyrockets in 2009 and 2010, Obama’s years. Look closer at the years. ---
**Author:** ![Darth\_Panda](https://avatars.discourse-cdn.com/v4/letter/d/ee7513/32.png) [@Darth\_Panda](https://boards.straightdope.com/u/Darth_Panda)\ **Post date:** [January 28, 2015, 7:05pm UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/46 "2015-01-28T19:05:36Z")
> [@Senegoid](#): > > Taking on debt requires paying interest. (Duh.) That amounts to a transfer of wealth from debtors (all of us taxpayers collectively) to the lenders (the bondholders). And who are those bondholders? Paying interest isn’t primarily a transfer of wealth when both parties are sophisticated and not subject to predatory lending. It is a primarily a transfer of risk. If I sell you a 30 year bond today at 3% and then inflation climbs to 5%, the wealth transfer will be going from you (the lender) to me (the borrower). Conversely, if rates fall, then the borrower truly is sending wealth to the lender. There are many other risks being transfered, but it primarily has to do with desired timings of cash flow and perceived ability to invest at a rate greater than the rate of borrowing or lending (or sufficient ability to deploy capital with sufficient returns). There is a component that most people would consider ‘profit,’ but it too is just a risk measure, and that is the risk of default. Interest rates are typically made up of all of these little factors - time factor, default factor, inflation, maybe currency risk, etc. - when normal people borrow money, the risk of default factor is pretty large and it can make up a significant part of the total interest rate (depending on where inflation sits), but it’s almost zero for the US (which is why our bond rates are so low compared to places like Greece). China isn’t lending money to the US because it thinks it can make a lot of profit by doing it - it needs to buy our bonds as much as we need to sell them - it needs a save haven for its excess cash, to protect against risks like inflation. And people will always need protection against those risks - they just may need it more or less, which will move the rates up and down. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [January 28, 2015, 7:22pm UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/47 "2015-01-28T19:22:23Z")
> [@Orwell](#): > > No, it doesn’t. Spending (as a percent of GDP, which is what the chart shows) went up early in Reagan’s presidency and then dropped down during his presidency - due to economic growth. The chart goes up during W’s term, and drops down a bit his last year. It then skyrockets in 2009 and 2010, Obama’s years. Look closer at the years. 😕 Let’s practice graph-reading. I’ll ask any other Doper to please inspect the referenced graph, and confirm that the graph is clear: _Spending was higher than prior during essentially **every** year of Reagan and Bush-41(_), fell under Clinton, and rose sharply under Bush-43.\* (\* - Yes it declined ca 1986-89, but even at its low was higher than any 1952-80, and higher than under Clinton.) Yes, the spending spurt associated with TARP and other recovery measures agreed by both Bush and Obama in late 2008 shows up as 2009 spending. Is this hard to udnerstand? ---
**Author:** ![Grey](https://avatars.discourse-cdn.com/v4/letter/g/b782af/32.png) [@Grey](https://boards.straightdope.com/u/Grey)\ **Post date:** [January 28, 2015, 7:48pm UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/48 "2015-01-28T19:48:46Z")
Should also note GDP growth went negative in 2008 and 2009 thereby making the denominator smaller and so mucks up the Outlay/GDP when you take everything into account. Actual Federal Outlays from 2001 to 2013 see almost no growth over the 2009 to 2013 period. [http://www.whitehouse.gov/omb/budget/Historicals](http://www.whitehouse.gov/omb/budget/Historicals) Table 3.1—Outlays by Superfunction and Function: 1940–2019 1,862,846 –\> 2001 2,010,894 2,159,899 2,292,841 2,471,957 2,655,050 2,728,686 2,982,544 3,517,677 3,457,079 3,603,059 3,537,127 3,454,605 –\> 2013 ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [January 28, 2015, 8:06pm UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/49 "2015-01-28T20:06:39Z")
Odd how those freaked out about deficits only talk about the spending side, not the income side. [Here is a table of revenue as percent of GDP.](http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=205) It was almost 20% in 2000, a lot bigger than 16.7% it was in 2013 which was an increase from the year before. Looking at the table clearly shows that revenue decreases during economic downturns, so improving the economy is a great way of improving revenue, which is why our deficits have gone down so much. In any case we have an excellent example of what happens when you try austerity. As for China - it is a great case of the adage that if you owe a bank $1,000 it is your problem, but if you owe a bank $1,000,000,000 it is their problem. If China trashes our economy we stop buying their stuff and their economy gets trashed worse. ETA: The table I linked to is quite complementary to Grey’s data. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [January 28, 2015, 8:12pm UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/50 "2015-01-28T20:12:35Z")
> [@septimus](#): > > Yes, the spending spurt associated with TARP and other recovery measures agreed by both Bush and Obama in late 2008 shows up as 2009 spending. Is this hard to udnerstand? I think the problem is: Recession, what recession? Perhaps **Orwell** didn’t have a job at risk, and so doesn’t remember any such thing. Or it may be a case of blaming Obama for the stuff that happened before he was President. Republicans come unstuck in time. Mitch McConnell seems to credit the recovery gaining steam a year ago on the election last November. ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [January 28, 2015, 8:29pm UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/51 "2015-01-28T20:29:24Z")
So, what I hear a lot of countries who are ‘under water’ wrt their debt are doing is basically abandoning the country in the middle of the night after the banks start making noises about foreclosure. I think once you get the 3rd notice is the optimal time to move out. Oh, and it seems that you should take the plumbing (destroying the drywall if possible), appliances and any copper fittings with you when you bolt as well. So, that will leave China with a wreck that it would be easier to just bulldoze down and build a new country on than to try and rebuild this one when we are gone. 😛 ---
**Author:** ![Kearsen](https://avatars.discourse-cdn.com/v4/letter/k/82dd89/32.png) [@Kearsen](https://boards.straightdope.com/u/Kearsen)\ **Post date:** [January 28, 2015, 8:38pm UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/52 "2015-01-28T20:38:02Z")
> [@Really\_Not\_All\_That\_Bright](#): > > It is in line with CBO projections of what will happen if “nothing changes.” Which is like saying that a person will die within seven to 10 days, assuming he never consumes water again. And the confidence you have that spending will decrease or taxation will increase comes from what exactly? ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [January 28, 2015, 10:25pm UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/53 "2015-01-28T22:25:15Z")
> [@septimus](#): > > “Soon”? Cite? The Fed is contemplating raising rates later this year. Personally I think they will pull the trigger too early, but that’s another matter. If you hold the fed funds rate at 0.25% and unemployment continues to decline, eventually the economy will heat and higher inflation will occur. It’s at that point that the federal government and the private sector will have to compete for a pool of savings. Recommended blog for tracking the twists and turns of Fed policy: [http://economistsview.typepad.com/timduy/](http://economistsview.typepad.com/timduy/) ---
**Author:** ![Really\_Not\_All\_That\_Bright](https://avatars.discourse-cdn.com/v4/letter/r/e8c25b/32.png) [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)\ **Post date:** [January 28, 2015, 10:26pm UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/54 "2015-01-28T22:26:52Z")
> [@Kearsen](#): > > And the confidence you have that spending will decrease or taxation will increase comes from what exactly? I didn’t say I had confidence that either would occur. I _am_ confident that something will change, rendering the CBO projection academic. ---
**Author:** ![Capt.Ridley\_s\_Shooting\_Party](https://avatars.discourse-cdn.com/v4/letter/c/cc9497/32.png) [@Capt.Ridley\_s\_Shooting\_Party](https://boards.straightdope.com/u/Capt.Ridley_s_Shooting_Party)\ **Post date:** [January 29, 2015, 10:04am UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/55 "2015-01-29T10:04:15Z")
> [@Really\_Not\_All\_That\_Bright](#): > > AIUI, China depresses yuan prices by buying _currency_ rather than debt. Yeah, but as I understand it by buying currency alone the market is able to correct itself, cancelling out the effect of the attempted currency manipulation. To stop this, they must also buy foreign government debt. At least, that’s my amazingly shallow understanding based on reading Wikipedia a while back on the topic. See [this](https://en.wikipedia.org/wiki/Currency_intervention#Chinese_Yuan), for instance: > [@](#): > > When a U.S. consumer buys a Chinese product, Chinese manufacturers are paid in U.S. dollars. These U.S. dollars are then deposited in a U.S. bank account. At this point, the Chinese exporter needs to convert dollars into yuan. Through its commercial bank it sells the U.S. dollars to the Chinese central bank, the People’s Bank of China. Since the trade between the United States and China does not balance, there is a shortage of yuan and a surplus of U.S. dollars in the Chinese central bank (therefore the Yuan must be “created”). The usual remedy to this situation used in international trade would be for the Chinese central bank to sell its dollars on international currency markets and buy yuan in exchange, resulting in a self-correcting system: the U.S. dollar weakens and the Chinese yuan strengthens, until equilibrium is restored and the trade gap closes. > > However, in order to avoid this situation (which would decrease Chinese exports), the Chinese central bank chooses a different solution: it slows the appreciation of the Yuan, or in some cases effectively pegs the CNY against the USD. The central bank net buys USD, then sterilizes the excess dollar flows by buying dollar-denominated assets, such as U.S. treasuries. This has the effect of keeping the excess dollars out of the currency exchange markets, where they would cause a correction in the exchange rates. Thus, the Chinese central bank manipulates the exchange rates by creating yuan and buying U.S. debt. This “printing” of Chinese Yuan by the central bank is not without consequence, however, since in excess (if yuan are created faster than domestic economic output) it would eventually lead to inflation, causing consumer prices to rise.[8][7] ---
**Author:** ![Budget\_Player\_Cadet](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/budget_player_cadet/32/205_2.png) [@Budget\_Player\_Cadet](https://boards.straightdope.com/u/Budget_Player_Cadet)\ **Post date:** [January 29, 2015, 10:42am UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/56 "2015-01-29T10:42:38Z")
> [@Saint\_Cad](#): > > Yes. Like FemiNazis except it refers to government spending and those that refuse to consider reduced spending under any circumstances whatsoever. Not sure those people actually exist, although the fact that you appear to be using the term “feminazis” may seem to imply that I missed a certain tongue-in-cheekness. > [@vomit\_comet](#): > > Remember 2008??? > > It just gets exonerated and the banks get bailed out. That is what a “CORRECTION” is. The alternative, letting the banks fail, would have caused a far great global market collapse. They literally were “too big to fail”, because if they failed, the economy would be way _more_ fucked, and it was already pretty raw to begin with. Now, obviously we should have done something about the “too big to fail part” (and still should), but just letting them crash at that point it untenable. > [@](#): > > There aren’t enough US dollars in the world to pay off the debt. > > I.E… try to follow along. > > There is no money. > > The Fed Creates 1 (one) dollar and loans it to the US government. > > The interest is 0.5%. > > Where does the half cent come from to pay the interest? > > Welcome to Central Banking. Dude, you _do_ know Zeitgeist is basically a load of crap, right? This isn’t how fractional reserve banking works. ---
**Author:** ![Grey](https://avatars.discourse-cdn.com/v4/letter/g/b782af/32.png) [@Grey](https://boards.straightdope.com/u/Grey)\ **Post date:** [January 29, 2015, 3:38pm UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/57 "2015-01-29T15:38:23Z")
I was curious about the relative % of GPD contributed to revenues by the various tax streams so I took at look at the table here - [Statistics | Tax Policy Center](http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=205) which is based on OMB historical data. I took the average of the relevant data across their respective decades. _A complete aside I’ve never been able to build a decent table in VB so this post will get long. If anyone knows how to fix it feel free to make me look foolish._ 🙂 Overall the biggest change is the drop in Corporate Tax revenues as % of GDP and the 2010\* overall revenue value being roughly a full 2% lower than the historical value of ~17.5. 2% of US GDP would be ~$300 billion. **Individual Income Tax** Decade % of GDP 1940 5.26 1950 7.21 1960 7.57 1970 7.89 1980 8.2 1990 8.12 2000 7.8 2010\* 7.025 **Corporate Tax** Decade % of GDP 1940 4.19 1950 4.63 1960 3.67 1970 2.61 1980 1.64 1990 1.89 2000 1.81 2010\* 1.4 **Individual SI + Retirement** Decade % of GDP 1940 1.55 1950 1.97 1960 3.32 1970 4.87 1980 6.13 1990 6.4 2000 6.25 2010\* 5.525 **Individual Excise & Other** Decade % of GDP 1940 3.08 1950 2.94 1960 2.69 1970 2 1980 1.78 1990 1.51 2000 1.27 2010\* 1.425 **Federal Revenue** Decade % of GDP 1940 14.08 1950 16.74 1960 17.26 1970 17.37 1980 17.76 1990 17.92 2000 17.09 2010\* 15.375 ---
**Author:** ![Really\_Not\_All\_That\_Bright](https://avatars.discourse-cdn.com/v4/letter/r/e8c25b/32.png) [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)\ **Post date:** [January 29, 2015, 3:48pm UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/58 "2015-01-29T15:48:57Z")
> [@Capt.Ridley\_s\_Shooting\_Party](#): > > Yeah, but as I understand it by buying currency alone the market is able to correct itself, cancelling out the effect of the attempted currency manipulation. To stop this, they must also buy foreign government debt. At least, that’s my amazingly shallow understanding based on reading Wikipedia a while back on the topic. See [this](https://en.wikipedia.org/wiki/Currency_intervention#Chinese_Yuan), for instance: That makes sense, now that I think about it. ---
**Author:** ![Elendil\_s\_Heir](https://avatars.discourse-cdn.com/v4/letter/e/7cd45c/32.png) [@Elendil\_s\_Heir](https://boards.straightdope.com/u/Elendil_s_Heir)\ **Post date:** [January 29, 2015, 4:59pm UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/59 "2015-01-29T16:59:56Z")
> [@Measure\_for\_Measure](#): > > The Fed is contemplating raising rates later this year. Personally I think they will pull the trigger too early, but that’s another matter. If you hold the fed funds rate at 0.25% and unemployment continues to decline, eventually the economy will heat and higher inflation will occur. It’s at that point that the federal government and the private sector will have to compete for a pool of savings. > > Recommended blog for tracking the twists and turns of Fed policy: [http://economistsview.typepad.com/timduy/](http://economistsview.typepad.com/timduy/) Arthur Burns liked to say, “The Fed’s job is to take away the punch bowl just as the party is really getting started.” ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [January 29, 2015, 6:04pm UTC](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001/60 "2015-01-29T18:04:36Z")
> [@Deeg](#): > > At the Federal level is this true? Poor people pay little to no Federal taxes. I think your point about transferring money from the future is a better one. Well, not the poorest of the poor, maybe, but in general, bond ownership is more highly correlated with wealth than tax payments are. I don’t know how US Bond ownership is distributed, but if it’s distributed like wealth in general, then government debt does represent a transfer from the (relatively) poor to the (relatively) rich. Of course, it might not be. The very richest people made most of their money in industry, and probably hold a relatively small amount of government debt. Not sure how that ends up shaking out. The transfer from young to old is a much bigger one. [Previous page](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001.md?page=2) [Next page](https://boards.straightdope.com/t/is-us-federal-debt-sustainable/711001.md?page=4)