Why is the debt so important now?

Great Debates
1

I’m hoping for more than a Pit thread here.

Why is the national (US) debt so important? And pray tell, why keep bringing the children into it? I keep hearing about how The Children[sup]TM[/sup] will have to pay for it.

Yes. Yes they will. Maybe.

In the mid-80’s Reagan was all but crucified for the budget deficits. There were reports left and right that America was done for. The budget shortfall was simply too much. The great-great-great grandchildren would have to pay for the tax cuts. We couldn’t afford to pay for the military upgrades to stave off the Soviets. We must, must, must capitulate to the Soviets to keep the peace and balance the budget.

What did Reagan do? He bullied Congress into a tax cut, increased Defense spending and placed faith in the free market.

In case anyone hasn’t heard, it worked out pretty well. Oh, not initially. There were a a number of years that we ran in the red, but we ran over the Reds. It was a pretty big victory when the Wall fell. And all you that grew up knowing that wall know that what the US did was a big part of that. We outspent them.

Fast forward about 15 years from the “crisis”, and we were looking at a surplus. Record surplus!

We’re facing the same thing now. Tax cut to spur the economy (still waiting for cites we’re declining), a war to defeat, in essence, the essence that wishes to destroy us, people saying that our grandchildren will have to pay for this war long after we’re dead. It’s been said before. Often. It doesn’t count anymore than in years past.

We (The US) have an insane amount of money that you know about. Add to that the billions you don’t hear about.

How much money was donated just for Katrina relief? Not the billions from Washington. The money donated from private individuals so far? That’s all private, non-taxed cash, and it’s a a mere slice of cash donated in times that there aren’t telethons.

We have money. We will have money. We can afford to float some loans. We went from life-ending deficits (I saw the Mondale commercials, too) to a surplus in less than 2 decades…

A “shortfall” isn’t something to worry about.

Debate the fallacies in this. I’m willing to listen.

2

Fast forward 15 years and a couple of major tax increases and we were looking at a surplus.

3

Mr. Reagan made this point simply and eloquently, but unfortunately ended up ignoring his own advice. By the end of his presidency, the new wisdom was, “Deficits don’t matter.” Economics is sufficiently complex that there are generally good arguments on both sides of any issue. My opinion is deficits do matter. We have to pay interest on the increased debt forever, or raise taxes and cut spending to obtain a surplus in order to pay it down. Those record surpluses you speak of were the results of huge political fights and sacrifice, and they were mostly hypothetical projections. We never actually ran a surplus long enough to make a dent in the debt built of during the deficit years.

4

Well, for one thing, there’s a limit to how much American debt the rest of the world can buy. Run too large a deficit for too long, and you’ll eventually trigger nasty global economic effects like a large-scale devaluation of the dollar and very high inflation. I certainly don’t have the economic expertise to know if you’re close to that point, though.

5

Yes, but remember how the economy tanked in the 90’s after those tax increases kicked in!

6

“'Our Long National Nightmare Of Peace And Prosperity Is Finally Over”

7

I am no economist, but didn’t the surplus relate the the deficit rather than the national debt?

We’ve continued to have a national debt. It stayed fairly stable from after WWII until about 1970, then it started to go up. In 1980 the national debt was about one trillion dollars. Then it started to spike and it has kept spiking at a greater and greater rate.

It was at about 5.5 trillion when the current President Bush took office. (It actually took a total of six years to go from 5 to 6 trillion.)

To go from 6 to 7 trillion took less than two years. :frowning: It broke the 7 trillion mark on January 15, 2004.

Since then it has almost reach 8 trillion. When I last checked, it was over
7 trillion, 923 billion, 744 million. But that was a few minutes ago. I just couldn’t believe it. I kept clicking on refresh and watching the total change in enormous amounts.

See for yourself.

duffer, I’ve been told that when the debt keeps increasing this quickly, money starts to lose its value (inflation). I already know that it doesn’t buy as many Euros as it did when I went to France in April of 2004. That makes travelling abroad more expensive.

I would hope there are some safeguards in this country against nightmarish scenarios here. In pre-war Germany there were horror stories. I think one of the most famous ones (whether true or not) is of a violinist who was paid for a concert with a wheelbarrow full of money! The next day he took it and brought a sausage with all the money.

In more recent times there has been terrible inflation in some South American countries.

In our own country, savings lost a lot of their value during the Carter Administration because of double digit inflation.

I just wish that Congress would put some of the tight-budgeting older folks in charge of cutting pork – especially the last of the survivors of the Great Depression.

I know a jillion people are going to come in and correct my “economic theory.” (Note: jillion is what comes after octillion.) :wink:

8

Yet another tribute to Saint Ronald. Oh well. Let’s look at the national debt history.

I don’t have a cite that gives the history as of Jan 20 for each president, but we won’t be far off if we use these:

12/31/80 near end of Carter’s term: 930,210,000,000
9/30/88 near end of Reagan’s term: 2,602,337,712,041

In short, the debt nearly tripled on Reagan’s watch. Or put another way, Presidents Washington thru Carter combined only created about half as much debt as Reagan did.

For reference also consider these:
9/30/92 near end of Bush I : 4,064,620,655,521
9/30/00 near end of Clinton: 5,674,178,209,886
Current debt after 5 years + of Bush II 7,918,009,471,434

Debt added during Clinton’s 8 years: 1.61 trillion
Debt added during Bush’s 5 years: 2.24 trillion

Even a fiscal conservative like Clinton added nearly as much debt as did spendthrift Reagan. However, Clinton did not nearly triple the debt as did Reagan. Bush will very likely double the debt in his tenure.

From the White House, actual FY 2002 interest paid was 171 billion. Total non-defense discretionary spending was 385 billion. So the interest costs nearly half as much as all non-defense discretionary spending. And this is only because of historically low interest rates. What the spending of the last generation has done is cripple future generations with massive interest payments.

Let’s bury the misconception that Reagan caused the USSR to fall. At the time of Reagan’s inaugural, the Soviets had a massive arsenal. Its defense buildup had already peaked. If a defense buildup had already peaked, then the claim that they could not keep up with the US falls on its face. The only significant drain on the Soviet military at the time was Afghanistan. One could argue that Osama Bin Laden was more responsible for the Soviet collapse than was Reagan.

9

No “maybe” about it, the children of the 80’s are paying Reagan’s debts today. For the current fiscal year, we are spending an average of **over 29 billion dollars per month** in interest payments to service the public debt. That’s almost six times what we are spending to occupy Iraq. This fiscal year alone, we have already spent over $335 billion just in interest, over 1.5 times the projected cost of rebuilding after Katrina.

What has happened to fiscal conservatism? When did it become more virtuous to spend wildly and run up the public debt, while paying down your debts through taxation is seen as irresponsible and wasteful? It is no wonder consumer debt is at an all time high, and savings are at an all time low; look at the example the government sets.

10

Something like a third of federal tax receipts go simply to service the debt on the deficits of years gone by (some of which aren’t all that far gone by, either). A third. Every deficit budget simply adds that amount, plus interest, to the tax burden on future generations.

No matter what your views on the appropriate size and function of government, just imagine what would become possible, in both the present and the future, without that burden on the economy. Just imagine. Yet duffer’s party is adding onto it at a record pace, all while proclaiming themselves to represent fiscal responsibility.

11

This is exactly why I’ve always been uncomfortable with the deficit and public debt. I’d have thought that Republicans that are always so gung-ho about cutting spending and reducing taxes would love to eliminate or at least reduce this cost to the country, and hence be able to afford more tax cuts.

I used to work with a guy who despised the “tax and spend liberals”, yet thought the gov’t spending this money on interest on the national debt was a vital boost to the economy. I never saw why paying interest (and having to tax for it) was good for the economy, yet “liberal” gov’t programs that did that plus their stated goals were bad for the economy.

12

It is also important to recognize that the deficits that we are in now may be more difficult to get ourselves out of. One reason is the one that Bush came up with: Starting in about 10-15 years, social security will no longer be acting as a piggybank for the rest of the budget…and, in fact, we will have to start paying back the social security trust fund what we borrowed out of it. Of course, Bush being the deceiver that he is, has tried to blame this on social security…which is completely idiotic. (And, in fact, if we avoid paying the trust fund back then what we have effectively done is used taxes collected in a highly regressive manner for social security to fund other aspects of government.) However, what it does mean is that we really have to get the rest of the budget into order unless we want to have high deficits into perpetuity and, as others have noted, pay an increasing fraction of government revenues just to service the debt. (And note that the cost of servicing the debt will tend to go even higher if interest rates begin to rise!)

It is true that running deficits when you control the money supply is potentially more sustainable than running deficits when you don’t. But, it is not infinitely sustainable.

13

To be fair to Clinton, much that increase was the result of digging the country out of the massive deficit pit created by Reagan and Bush I. The deficit was at $290 billion when Clinton entered office and dropped steadily throughout the 90’s.

Here’s a nice graph that shows the recent ups and down of the deficit.

Duffer, are you happy seeing 1/3 of your taxes wasted on interest payments? We’re still paying off Reagan’s spending spree. Here’s another nice graph that illustrates where the money is going.

“You can’t trust Republicans with money.” – Howard Dean

14

Gah! I kind of combined the deficit with the debt. Apologies for not being more focused. What I’m trying to get as is whether or not the debt is bad to begin with, in and of itself. At some point, obviously, it becomes crippling and the nation just collapses on itself.

Part of what I want to know is where is that limit? I know nations carry credit ratings like consumers (sort of). Is it beneficial to carry at least some debt? With consumer debt (and I’m no expert in macroeconomics) a person needs to carry some level of debt to increase their credit rating to be able to borrow further. Would that apply to nations as well?

I can’t recall who I’m referring to, so I can’t give a cite. A few years ago I read a column (might have been RJ Samuelson, but really no idea) that talked about why having no national debt would really mess things up. I can’t recall the specifics, but the points were made that completely wiping out the debt would be far worse than carrying a few billion. I assume it’s some theory known to economists, if anyone can detail that so I’m clear on it I’d appreciate it.

Also (may as well hijack the whole show), what would happen if America filed bankruptcy? Based on not only the economic resources, but sheer volume of debt, I imagine it would cause a global economic meltdown since many nations can’t cover the lost income. Is that close to accurate? Has there been any studies on world economies given this scenario?

15

No. Of course I’m not happy with it. Nor am I happy with Congress at the time writing budgets with so much waste. Reagan didn’t have the checkbook. Everyone was to blame. Just like today.

16

I don’t know the article you’re referring to, but you’re right that most economists agree that having some national debt is a good thing. The basic point is that it provides a vehicle for investors, both domestic and foreign, to invest their money in the US economy. Their money provides capital that boosts economic growth, economic growth makes money that pays them interest on what they loaned us, and everybody’s happy.

It’s like taking out a loan to finance major improvements to your house; the bank will get interest on its loan, you’ll get a sum that will enable you to do the work to increase your house’s value, and things are good.

The problem is when you reach the point of too much debt. If you have to spend too big a chunk of your income just servicing the interest on the debt, then you can’t pay your other necessary expenses, so you have to borrow more and add more debt to your total, which increases the size of the interest you have to pay, which further decreases your ability to pay other expenses, which means you have to borrow more, and so on in a potential downward spiral to ruin.

17

Huh? It’s the President who proposes the annual budget and submits it to Congress for approval. Not the other way around.

18

I don’t know how definitely this question can be answered, but AFAICT it’s suggested that an optimal federal-debt-to-GDP ratio is something like 25%. I believe the current value of that ratio for the US is something like 70%.

19

Except the President doesn’t write the budget. At least not line by line. How else would we know about Congressmen taking home pork? Congress is involved long before it’s ever put up for a vote.

Thanks for the rest of the info.

20

Congress write budget based on what the President requests. In the 1980’s Congress actually approved LESS spending than Reagan asked for.

And it’s not “waste” that’s killing us. It’s the big ticket items like national defense and Medicare.

The American people LIKE the government to spend money. They LIKE scholarships for poor kids, and medicine for old people, and emergency relief when a disaster strikes. This is why the Tax-n-Spend Democrats won so many elections. And this is why Republicans can’t stop spending even as they drive the country into a ditch.

The big vs. small government fight has been over for a LOOOONG time. The Democrats won that fight 70 years ago.

And all the Republican noise to the contrary over the last 25 years has been a BIG LIE. They talk, talk, talk about smaller government. It’s just a smokescreen. The Republican party controls both houses of Congress and the Presidency. If they wanted to cut the federal government in half, they have the power to do so.

They don’t because they know it would be political suicide. The big vs. small government fight is over. They lost. And so they only way they can remain in power is through an increasingly convoluted series of LIES.

This new meme that deficits don’t matter is just the latest BIG LIE. Of course deficits matter. One third of your tax dollar is WASTED because of the national debt.

Why the conservatives aren’t screaming about this I don’t know … .