Hello all. This thread is mostly aimed at Americans but could apply to any nation really so all are welcome to participate and give their opinions. I’m Canadian myself and to sum up my OP simply and crudely, I don’t give a flying fuck at a rolling donut about the national debt or deficit. And I want to know why I should. Or why you should. Or why anyone should.
Ok, here’s the thing. I like Obama. He’s charming, intelligent and he actually seems to care a lot. He’s a vast departure from W.'s style of Presidenting and he seems intent on fixing America’s tattered social fabric. The problem is, fixing stuff costs a lot more than breaking it. Thus, Obama is in an unenviable position. He inherited a lot of debt and in order to get out of it, he’s got to spend more and hope the economy at large follows along. So in the process, the national debt/deficit (I am using both terms interchangeably as the intricacies of one or the other are kind of lost on me) is ballooning. Or skyrocketing. Or et cetera. Folks (mostly of a conservative bent) are starting to notice and starting to shit.
My question is why.
The national debt/deficit should mean nothing to the average Joe or Jane in the abstract. Your country has “borrowed” a lot of money, mostly from China. The ability to pay this money back is a bit laughable under the best of circumstances. But so what? Are you, average citizen, somehow on the hook for this? What exactly is going to happen to you as an average citizen because of this debt? Is the Chinese Repo Man going to come over and hook the USA up and tow it over to China? Less absurdly, are you going to get a bill from the government, due yesterday, for $43,287 or whatever your individual share of the debt is? Is the government just going to start confiscating everything of value for a big yard sale, the proceeds of which will go to the First National Bank of Beijing?
As an average citizen, why should you care how far into debt your government is? A lot of the arguments I’ve seen on here are very understated slippery slopes. They’re more like greased-teflon slopes. If we don’t pay our debts our socialist country will become a fascist dictatorship and private property will become a thing of the past! Mandatory gay marriage and abortions for all!
Seriously though, think about it for a minute:
All the debts aren’t going to come due at the same time
The debtors are smart enough to realize there isn’t enough money in the world to pay them all back at the same time.
Opal owes me a lot of money and I wish she would hurry up and pay me already.
The debt is more valuable to China than paying it would be. At the end of the day, a pile of cash is only a thing you can subtract from. A pile of leverage on the other hand… that allows one to twist testicles left and right.
Now I do realize (from watching California’s fine example) that too much debt eventually becomes a bad thing. Essential services have to be cut, bills pile up and sooner or later no one else will lend you any money because they know they’re never going to get it back. But I’m struggling with how this trickles down to the individual taxpayer.
It’s worthwhile to point out that interest rates right now are pretty close to zero, so anything we’re borrowing we’re getting at a bargain basement price.
Republican opposition to increases in the national debt is highly hypocritical. They did not oppose Republican policies that increased the national debt during the administrations of Ronald Reagan and George W. Bush. They are using the debt issue because they sense that economic growth has come to an end, and they do not want their tax money to be spent helping the unemployed.
Ending Bush’s tax cut for the wealthy would kill 25 to 30 percent of the debt problem. That would be logical. But the rich don’t like to pay for the terrific government services they get.
Explain to me what government services I get as a high-tax paying American who has not lived there in 8 years and why it makes any sense at all that non-residencts have to pay US tax?
I’m not from the US, so I don’t know exactly how the borrowing there works, but I have some thoughts on this. Firstly, is it the case that large sums of money borrowed from China would be at the same low interest rate the US government sets? If so, that rate is unlikely to stay low forever, so when the economy improves and interest rates rise, taxes may have to rise as well, potentially harming the recovery. Secondly, even if the interest rate is low, on hundreds of billions of dollars the payment will not be negligible. Whether or not it will in fact be a problem, it’s certainly something for people to be aware of.
The easiest answer is that by removing debt, you reduce interest payments which allow you to either reduce taxes or allows you to spend more on programs.
Back in In 2003, the Canadian federal government payed 21 cents of every dollar of revenue to paying off interest whereas now it’s around 12 cents.
Then once debt is reduced, taking on new debt when necessary costs less and is easier to digest which gives countries flexibility to react to demographic change, political needs or economic necessity.
Not spending money like drunken sailors would end the debt problem. Raising taxes now will remove investment money. If politicians like Geitner, Rangel and Kerry can’t be trusted to pay their taxes why do you think other wealthy people will? Money will seek out the lowest tax rate every time. Faced with paying millions of additional dollars it’s easier to buy property in places like Panama and change residency.
As to the op’s question, the United States has raised it’s GDP/debt ratio significantly in the last 2 years along with a huge increase in debt. We are dangerously close to a de-rating of our debt which would increase the cost of the debt. It’s no different than private debt where the individual pays a higher interest rate on a charge card due to a decrease in credit rating. The repayment cost goes up which means there are fewer dollars to spend from the budget.
Either taxes will have to be increased, interest rates will necessarily increase, or we will print more money. Extra taxes will be less money available to the private sector…the true engine of growth. The other two options will result in hyperinflation. So we will be paying back the debt by paying higher amounts for all goods and services due to the devaluation of the dollar. I think everyone should care about this since it will inevitably hit all of our pocketbooks.
Please. One thing the rich are very good at is figuring out ways to shield their money from taxes. You are dreaming if you think the rich are going to lay down and just pay whatever the government demands.
My understanding is that low rates are, in part, artificial. No doubt the Fed was keeping interest rates artificially low by creating new money out of thin air. Mortgage interest rates were expected to spike after the federal tax credit expired but then Greece imploded. Now, with a lot of nations in debt trouble, the rates remain low. An improving economy, here or elsewhere, will be the end of cheap credit.
I think the real issue on the deficit and debt are two-fold.
Obama has raised the deficit. Democrats claim he hasn’t which is simply untrue. It is a great starting point for Reps vs Dems or anti-Obama rhetoric. Take your pick.
Fiscal mismanagement. The bailouts were seen by many Americans as a huge mistake and the Reps talk a good game but puss out at the end. Republicans block unemployment extensions [oh yeah, because they want it paid for the billions in unused stimulus funds rather than new money].
So in other words, the reason that the debt/deficit is concrete to Americans is that it is a great way to argue how politically I am right and you are wrong.
A fringe issue like yours has no bearing on the overall tax question, I’d reckon that if they dropped taxes for the rich by 20% you’d still be paying too much.
The US government is “indebted” to Treasury Security holders. These financial instruments have a fixed repayment schedule. It is impossible to call it, however it is possible to sell them on an open market. The majority is held inside the USA. China is the largest foreign holder, but does not have the majority of foreign ownership.
In a sense, this is sort of a Pascal’s Wager. It’s possible that we can go on borrowing money from ourselves, and the Chinese, and the Japanese, and the Germans, and the Saudis, and anyone else who comes into some dough and wants to buy up some secure debt, more or less forever.
After all, the more of our debt they hold, the less likely they are to stop buying more, and hence causing a run on the dollar, and devaluing their own existing holdings.
On the other hand, it’s also possible that we can’t keep doing this forever, in which case we might one day not be able to borrow any more money at all and have to implement rather austere economic measures, or default. Either of these is likely to be very unpleasant.
Essentially, we’ll be okay if we pay down our debt, although it might cost us a bit of growth in the short term and keep us from buying this year’s allocation of fighter planes, and so on. We might or might not be okay if we don’t.
