Bill Clinton claims to have “paid down the debt” by about half a trillion dollars. Offhand, I don’t know if debt was actually repurchased or simply not reissued. But if Clinton literally says he “paid down the debt,” I don’t think we need to get hung up on the semantics of how one phrases the action of reducing the debt.
Here’s a graph of what I think are their top 12 holdings. I could really tell and could only have 12 items.
Generally they do stick to treasuries for the bulk of their purchases, but they also have repos, reverse repos, swaps, and most importantly since the crisis (in red on the graph) MBSs (mortage backed/butt-fucked securities).
In 1988 tax revenues were 20% higher than they were in 1980. That is adjusted for inflation. The deficits were not caused by lack or revenue but by increased spending.
In 2000 federal government revenue was 2 trillion 57 billion dollars. In 2008 federal government revenue was 2.5 trillion dollars. That is an increase of 50 billion dollars every year during the Bush administration. Once again it is increased spending not falling revenue that caused the deficits.
Contrast this with Canada who actually cut spending, kept taxes stable, and cut their government debt from 67% of GDP to 29% of GDP. All the while they kept their economy strong, and the poor from dying in the streets.
But money that’s paid out has to be paid to someone, doesnt it? In other words, if something is an expense to somebody, it has to be income to someone else. So if there’s a hidden extra cost, doesn’t that also mean there’s a hidden extra benefit?
Where does it go? Does it disappear?
Clinton did not lower the debt as most would understand it. He ran a budget surplus and reduced projected debt levels, actual debt never went down under President Clinton.
Actual debt during the years 1990-2000 (inclusive)
1990: $3.233 T
1991: $3.665 T
1992: $4.064 T
1993: $4.411 T
1994: $4.692 T
1995: $4.973 T
1996: $5.224 T
1997: $5.413 T
1998: $5.526 T
1999: $5.656 T
2000: $5.674 T
The last time outstanding debt was lower at the end of one year than the year before (and I’m skimming small numbered tables so I may be off) was 1951. It was $255 B that year and it was $257 B the year before. The last time we had effectively no debt was 1835/1836 during the Jackson Presidency.
I should have also mentioned earlier that the premise of the OP is wrong. The U.S. has ran substantial debts for much of its history. It is true during previous debt spikes, such as the debt spikes in the 1815-1820 era, debt spike following the Civil War and WWII we paid down the debt significantly in the following years. We haven’t done anything like that in a long time. But even many of those spikes were never paid off “nominally.” For example before the Civil War debt was around $90m, at the end it was at $2.6 B. It went down slightly over a long number of years to around $1.9 B before it grew again but was still only nominally around the Civil War debt before WWI. But what did happen is our economy grew, and relative to GDP the debt was a lot smaller than it was at the end of the Civil War.
That’s kind of the same thing that happened with our WWII debt. We did pay it down nominally somewhat, but mostly it shrank as a share of GDP without really decreasing in absolute terms by very much.
Yes, and the US population is roughly 30% larger. Got per capita numbers? If tax revenues are only 20% larger, seems like we’re spending less per person than back then.
Let me ask you first, before responding in more detail: do you know the difference between debt held by the public and intragovernmental debt?
And secondly, as a general issue, are you concerned that the Social Security Trust Fund is projected to be exhausted within the reasonably near future?
Yes. The government still makes coupon payments on intergovernmental debt though, so this idea that it “doesn’t count” is not a correct one (if you plan to make that argument.) That’s real debt the government has to really repay out of future tax revenues.
The SSDI trust fund is in genuine danger of being exhausted in the reasonably near future because claims are far in excess of what contributions have been able to sustain, due to large increases in the disabled population and longer time on the disabled rolls.
The trust fund that covers retirement benefits (the actual Social Security Trust Fund to which you refer) is not in any immediate danger of being exhausted, but either benefits will have to be altered or revenues increased in the long term to keep the program solvent.
This ties in with the intergovernmental debt, which I imagine you know from your comments here. That debt is real for the Treasury, because if we don’t make interest payments on it then we’d basically be stealing from the Social Security Trust Fund. There is a strange claim on the internet that the Social Security Trust Fund “doesn’t exist” because it is just made up of treasury bonds. But that’s specious, the fund buys treasury bonds both because it has to and that it gives return on investment. But just like all treasury bonds, they represent a future promise to pay. The Trust Fund is owed its principal back on those bonds when they mature and coupon payments until then, so that is why intergovernmental debt is very much real debt. If you assert that it isn’t you’re basically agreeing with people who say the Social Security Trust Fund is empty.
You’re using whole numbers which is pointless in this discussion, Martin Hyde. A better is to look at the % debt compared to GDP: Please refer to this chart. Clinton unquestionably lowered the debt from 68% to 58% of GDP during his 8 year term. Afterwards, Bush II was elected and this is what occurred from 2000 - 2010:
2000: 58% of GDP (Clinton)
2001: 58% of GDP (Bush)
2002: 60% of GDP (Bush)
2003: 63% of GDP (Bush)
2004: 64% of GDP (Bush)
2005: 65% of GDP (Bush)
2006: 65% of GDP (Bush)
2007: 66% of GDP (Bush)
2008: 74% of GDP (Bush)
2009: 86% of GDP (Obama)
2010: 95% of GDP (Obama)
To orient yourself, we’re currently standing at 105% debt of GDP - our highest peacetime deficit, ever. If you rewind further, however, you’ll find that Reagan and Bush I are the only Presidents who **did not **contribute to the reduction of debt in the modern era, but instead, added to the debt during peacetime. Bush II himself railed against the government surplus in 2000, literally saying that any surplus should be returned to the American people. This means that the debt accumulated over time cannot possibly be repaid, thus burdening future generations with it.
I want to say more and you have some other points that are wrong, but I have go run some errands, but will come back later this evening to address them.
- Honesty
I addressed that point:
So the money is going somewhere. But it’s going places where it’s least likely to help the overall economy.
Imagine I’m sitting in my room somewhere and I’ve got a million dollars to invest.
So maybe somebody comes to me and says they want to start a chain of pizza restaurants. So I loan them a million dollars. They build their pizza business, customers like the pizza, the business is a success, and the pizza guy pays me back the loan with interest. I made more money. The pizza guy now has his own business. The public has a new place to eat pizza. There’s a lot of benefit there.
Or maybe somebody comes to me and says they want to do medical research. So I loan them a million dollars. The set up a research lab, they discover a cure for some disease, they sell the new medication, people with the disease buy it, and the research guy pays me back the loan with interest. I made more money. The research guy discovered a new drug he can sell. The people with the disease can be cured. Again, there’s widespread benefit.
Or maybe I buy some treasury notes. The government wants to build a bridge but doesn’t want to collect taxes for it right now. So I loan them a million dollars to build the bridge. Then the government collects the taxes anyway to pay me back. And because it was a loan the government has to collect more taxes to pay me the interest. So the government collects $1,300,000 in taxes to pay off the debt instead of $1,000,000 to just pay for the bridge. I make more money. The government and the public has the same bridge they could have had for less money. But people had to pay more taxes and they ended up with less money. It’s impossible to see any widespread benefit here from my investment.
Keep in mind my investment didn’t cause the bridge to be built. It would have been built either way. Borrowing the money instead of collecting it directly in taxes just made the bridge more expensive.
If you read my posts in total you would note I’ve already mentioned debt as a percentage of GDP. Your original post asks why we haven’t paid our debts recently. The point I was making is that we never really have, we nominally lowered our debts a tad from the end of the Civil War up to pre-WWI but since then nominal decreases in total debt are relatively rare, even after WWII. In that same post I do point out that we have, several times, reduced debt as a percentage of GDP.
But it should be understood what that reduction actually entailed. It wasn’t so much “paying down” debt. If I have a $10,000 credit card balance it only goes down by paying it down. If I have 25% of my total assets worth of debt, and I double my assets, I’m not necessarily “paying down” anything. I’ve just become wealthier a lot faster than my debts have grown. That’s a good thing, but it’s not “paying down.” Specifically in the context of Clinton, since he was POTUS and not some omnipotent God, he deserves minimal credit for the GDP growth that reduced debt as a percentage of GDP and moderate to minor credit for balancing the budget.
Exactly. What did Bill Clinton do to fuel the dot com bubble that made the economy hum in the late 90s? What specific policy did he enact that allowed revenue to increase so that we could get (near) a balanced budget? His own numbers didn’t balance the budget for 7 or 10 years. He was just a lucky bastard. The internet came to life while he was President. If I’m President when an earthshaking invention comes to life pouring billions into the treasury, I’m not a fucking genius for sitting at my desk while it happens.
The State of Illinois certainly doesn’t—at least not in anything at all like a timely manner.
When the best criminals in the world are at the controls of trillions of dollars, they are not bashful about stealing money especially when the people that can punish them work up under them.
The US paid down the World War II debt, as a percentage of GNP, in two primary ways in addition to GNP growth.
The first way was to vastly reduce government spending right after the war. This time, that’s impractical, because Iraq/Afghanistan were not anywhere near as expensive as WWII, and because baby boomer retirements are increasing government spending. But we do, in some politically difficult sense, have the possibility of reducing health spending, half of which is governmental, since it is now a far higher percentage of GDP in the US than in all other Westernized nations.
The second way the World War II debt was paid down was financial repression, augmented by inflation. Since the first way – discharge many millions of soldiers – isn’t as open to us as it was in 1946, I think you can bank on the second way being significantly employed.
While it would have been somewhat easier going forward if GW Bush had been more fiscally responsible, it’s the baby boom retirement hump that makes this class of problem unavoidable.
Krugman et. al. are probably right that this isn’t a good time for austerity. But there never will be a great time for it, and eventually it will have to come.
Well, technically that’s true I guess, but there’s always the issue of perspective. Here is a graph of the total public debt with 3 lines all based on the exact same data. The only difference is the base period.
In 1980 the population was 227 million in 1988 it had increased to 244 million and increase of around 7.5%.
I think the biggest factor in Clinton’s economic success was the fall of the Soviet Union and the end of the Cold War. This enabled the Clinton administration to make significant cuts in defense spending.
It’s true that Clinton doesn’t deserve an special praise for creating this situation. He didn’t end the Cold War. But at least he recognized the situation had changed and adjusted government policies to reflect the changed situation. He deserves credit for that.
The subsequent Bush administration showed that economic prosperity is not just an inevitable result of the post-cold war world. The global situation makes prosperity possible but a President still has to follow through on it. Opportunity can knock but you’ve still got to open the door for it.
Ah, the change from 1980 to 1988. I thought you meant from 1988 to today.
I’m still trying to figure out how this isn’t cherry picking of data.
Look at your example from the Bush era. You state that revenues went up $250B if comparing 2000 to 2008 and that this represents an increase of $50B a year. Come again? That’s some funny math. Revenues went down those first couple years (we were coming off a recession) before they came back up. So, why 2000 to 2008, other than the election? 2000 to 2003 (when the recession was more or less over) or 2003 to 2009 seems to make more sense.
Likewise, revenues were down for most of the period from 1980 to 1986. They started coming up after 1986, which not at all coincidentally, coincided with a major bit of tax reform, which did lower the top rates but broadened the base at the same time, i.e. people were paying more in taxes on average. So, why 1988, other than the election? 1980 to 1986 seems to make more sense.
Basically, revenue goes up and down and experiences big swings. Taking revenue at two cherry-picked points and treating that as a general trend is not very good data analysis.