Author Topic: United States National Debt concern  (Read 57192 times)

socraticmethod

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Re: United States National Debt concern
« Reply #150 on: June 29, 2014, 05:03:32 PM »
I should also add that the original answers to the OP revolved around debt to GDP not deficit to GDP. Debt to GDP is not around historic norms. In fact the only other time in American history it has been as high as it's current level was WWII.
And what disaster, in your own words, consequently happened to the US economy? Keep in mind that your answer had better not contradict reality:


I believe this is the graph you are looking for.



Here is what happened to government spending following WWII.



In the three years from 1945 to 1948 total spending dropped by nearly 50%. At the same time millions of soldiers returned from the war, left the military, and rejoined the productive sector of the economy.

Can we expect a similar cut in federal expenditures this time? If so, where? Or a similar boost in private sector GDP? By 1951 GDP growth was over 10%. Do you expect to see that again in the next few years?

waltworks

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Re: United States National Debt concern
« Reply #151 on: June 29, 2014, 05:04:09 PM »
Doh, I haven't made it that far in the Discworld books yet!! Thanks for RUINING IT....

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warfreak2

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Re: United States National Debt concern
« Reply #152 on: June 29, 2014, 05:10:41 PM »
If you go with the 3.1% figure you have to use the record deficits since the financial crisis in order to skew the average upward by 34.7%. At 4% that represents a 30% increase. If you use the 40 year average prior to 2008 it's a 74% increase. Either way if your annual budget shortfall increased by those percentages I doubt you would claim with a straight face that it was still "around the long term average".

"The long-term homicide rate prior to 2008 was 2.3. If you go with the 3.1 homicides per year figure, the average is biased by a recent spate of killings. Even then, with four homicides this year, there was a 30% increase in the number of homicides."

If you're convinced by that kind of analysis, you might not have ever studied statistics...
  • Using all available data is not "skewing the average". If you want to ignore part of the data because you don't like it, that is biasing the average.
  • The recent peak of 9.8% is nowhere near the record peak of 26.9% in 1943, which was recovered from just fine.
  • Comparing these things multiplicatively with no sense for either the scale or the standard deviation is bound to produce soundbites that are only scary if you're innumerate.
  • Because I'm nice, I downloaded the data and calculated the standard deviation, which is about 4.72 percentage points for all the data, or if you want to be innumerate and exclude the data you don't like (WW2 and the recent financial crash), it's still 1.97 percentage points. So yes, with a straight face, it is well within reasonable bounds of its long-term average; if we use all the data, it's 0.19 standard deviations away, and if we're innumerate, it's 0.87 standard deviations. A very typical value.

Honestly, I could use your argument as an exam question, "Explain the flaws in this analysis." Maybe I will.
« Last Edit: June 29, 2014, 05:22:03 PM by warfreak2 »

warfreak2

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Re: United States National Debt concern
« Reply #153 on: June 29, 2014, 05:15:10 PM »
Wow, you really like citing data that doesn't prove your point, eh? After WW2, the debt-to-GDP ratio immediately zoomed down as fast as could reasonably have been hoped to, and we aren't even projected to reach the same level this time. Catastrophe?

socraticmethod

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Re: United States National Debt concern
« Reply #154 on: June 29, 2014, 05:20:45 PM »
If you go with the 3.1% figure you have to use the record deficits since the financial crisis in order to skew the average upward by 34.7%. At 4% that represents a 30% increase. If you use the 40 year average prior to 2008 it's a 74% increase. Either way if your annual budget shortfall increased by those percentages I doubt you would claim with a straight face that it was still "around the long term average".

"The long-term homicide rate prior to 2008 was 2.3. If you go with the 3.1 homicides per year figure, the average is biased by a recent spate of killings. Even then, with four homicides this year, there was a 30% increase in the number of homicides."

If you're convinced by that kind of analysis, you might not have ever studied statistics...
  • Using all available data is not "skewing the average". If you want to ignore part of the data because you don't like it, that is biasing the average.
  • The recent peak of -9.8% is nowhere near the record peak of -26.9% in 1943, which was recovered from just fine.
  • Comparing these things multiplicatively with no sense for either the scale or the standard deviation is bound to produce soundbites that are only scary if you're innumerate.
  • Because I'm nice, I downloaded the data and calculated the standard deviation, which is about 4.72 percentage points for all the data, or if you want to be innumerate and exclude the data you don't like (WW2 and the recent financial crash), it's still 1.97 percentage points. So yes, with a straight face, it is well within reasonable bounds of its long-term average, being less than half a standard deviation away.

Honestly, I could use your argument as an exam question, "Explain the flaws in this analysis." Maybe I will.

It wasn't only me who made the distinction in the average pre and post 2008, it was the CBO. Someone reading your take on the numbers would come away with a more optimistic view than someone reading the CBO analysis and I'd say even theirs is overly optimistic given all of the assumptions their projections are based and which you have still failed to address.

warfreak2

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Re: United States National Debt concern
« Reply #155 on: June 29, 2014, 05:28:20 PM »
It wasn't only me who made the distinction in the average pre and post 2008, it was the CBO. Someone reading your take on the numbers would come away with a more optimistic view than someone reading the CBO analysis and I'd say even theirs is overly optimistic given all of the assumptions their projections are based and which you have still failed to address.
Honestly, at this point, I'm laughing in your face. YOU cited the CBO's data! I don't have any investment at all in its reliability or not! Why should I be interested in defending how reliable their projections are? If you want to make an argument based on the CBO's data, and I can demolish it without reference to the reliability of the data, that is what I will do. If you want to make an argument based on the CBO systematically projecting underestimates, go ahead, but you haven't made that case beyond waving your hands and proclaiming that it is so. Also, as I said, even if we bias the data by excluding the parts that you don't like, it is still totally within reasonable bounds, as measured by proper analysis rather than "this small, volatile number is so scarily volatile in multiplicative terms!" scaremongering. I am still laughing in your face.

MOD EDIT: Strikethroughs added. That doesn't help the conversation.  Prove your point, don't rub someone's nose in it.
« Last Edit: June 29, 2014, 05:33:58 PM by arebelspy »

arebelspy

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Re: United States National Debt concern
« Reply #156 on: June 29, 2014, 05:33:01 PM »
I believe this is the graph you are looking for.



Here is what happened to government spending following WWII.



SM, WF2's point is that we had a TON of spending at the end of WWII, and no disaster happened. In fact, we enjoyed decades of prosperity.

Why do you think our spending now, which is not nearly as much as after WWII, will cause some economic disaster?

That's what we're missing in your analysis: why would a disaster be coming.
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socraticmethod

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Re: United States National Debt concern
« Reply #157 on: June 29, 2014, 05:43:12 PM »
Wow, you really like citing data that doesn't prove your point, eh? After WW2, the debt-to-GDP ratio immediately zoomed down as fast as could reasonably have been hoped to, and we aren't even projected to reach the same level this time. Catastrophe?

It does prove my point. Debt to GDP plummeted because government spending plummeted. In fact the federal budget went from a massive deficit to a surplus of nearly 6 percent of GDP in 1947. I asked you on what basis you expect that to happen again. You conveniently ignored that question. Show me some projection of debt to GDP plummeting like it did back then that has a realistic basis and I'll readily agree with you that the debt is a much lesser concern than if that doesn't happen. Or to put it another way if something changes to cause debt to GDP to crash through the floor then I'll happily change my tune. My question all along has been what is the basis for believing such a thing is going to happen? The CBO doesn't project it even in their best case scenario. "We owe it to ourselves' just doesn't cut it. Nor does "we can just print it".

The post WWII experience also proves the point that the components of GDP are not the same and Keynesian economics is dead wrong. At the time they predicted the massive spending cuts would result in a depression. GDP dropped initially as people transitioned back into the private sector and then the economy boomed.

socraticmethod

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Re: United States National Debt concern
« Reply #158 on: June 29, 2014, 05:59:22 PM »
WF2 you're really coming unhinged. You say your patience is limited. So is mine so I'll try to spell it out for you one last time and then I'm done repeating myself.

The CBO projections as they are do not support your assertions. They come right out and say in their analysis that the deficits are projected to grow from 2015 through 2024 both nominally and in relation to GDP. In addition they are projected to be well above the long term average whether you go with pre or post 2008 numbers. You still insist that isn't so. Fine. You can insist it but that doesn't change what they say in their analysis.

Secondary to that because their projections are a best case scenario and based on past performance if they are off it is most likely to be to the side of underestimation of the deficits.

That's as clear as I can make it for you. If you still don't get it then it's not my problem.

Thedudeabides

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Re: United States National Debt concern
« Reply #159 on: June 29, 2014, 06:22:18 PM »

WF2 you're really coming unhinged. You say your patience is limited. So is mine so I'll try to spell it out for you one last time and then I'm done repeating myself.

The CBO projections as they are do not support your assertions. They come right out and say in their analysis that the deficits are projected to grow from 2015 through 2024 both nominally and in relation to GDP. In addition they are projected to be well above the long term average whether you go with pre or post 2008 numbers. You still insist that isn't so. Fine. You can insist it but that doesn't change what they say in their analysis.

Secondary to that because their projections are a best case scenario and based on past performance if they are off it is most likely to be to the side of underestimation of the deficits.

That's as clear as I can make it for you. If you still don't get it then it's not my problem.

WF showed that deficit as a percentage of GDP was within 1/5 of a standard deviation of the long term average. I think it is fair to say that 1/5 of a standard deviation, by definition, does not qualify as "well above average"

socraticmethod

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Re: United States National Debt concern
« Reply #160 on: June 29, 2014, 06:26:18 PM »
SM, WF2's point is that we had a TON of spending at the end of WWII, and no disaster happened. In fact, we enjoyed decades of prosperity.

Why do you think our spending now, which is not nearly as much as after WWII, will cause some economic disaster?

That's what we're missing in your analysis: why would a disaster be coming.

Because the spending is going to continue to increase from it's present levels, not get cut in half and return to a budget surplus 2 years later as happened after the war.

If you're carrying a heavy debt load and still spending an additional 20% more than your revenue each year and a growing percentage of your budget is going toward interest payments of course it makes a difference if you make a significant change. Anybody here should know that someone in that circumstance is in trouble if their plan is to just keep up with the increasing interest by assuming increased revenue. If they have an unexpected large expenditure they could be in trouble. If their interest rates rise they could be in trouble. If there is a recession and their income drops they are in trouble. MMM would be screaming at them to slash spending and get their financial house in order. That is what happened after WWII.

Now someone please explain on what basis they expect it to happen now or in the foreseeable future.

Thedudeabides

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Re: United States National Debt concern
« Reply #161 on: June 29, 2014, 07:27:15 PM »
As others have mentioned previously in this thread, it's not fair to compare personal finance with public finance.

Yes, if a person were in that situation, MMM would recommend improvements. A person is not a government.

Paul Krugman has written many articles on this topic. Here is one from 2012 and should address many of the issues you have raised:

http://mobile.nytimes.com/2012/01/02/opinion/krugman-nobody-understands-debt.html


socraticmethod

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Re: United States National Debt concern
« Reply #162 on: June 29, 2014, 11:56:37 PM »
As others have mentioned previously in this thread, it's not fair to compare personal finance with public finance.

Yes, if a person were in that situation, MMM would recommend improvements. A person is not a government.

Paul Krugman has written many articles on this topic. Here is one from 2012 and should address many of the issues you have raised:

http://mobile.nytimes.com/2012/01/02/opinion/krugman-nobody-understands-debt.html

Krugman doesn't exactly have a lot of credibility. After all this is the guy who in 2002 called on Greenspan to create a housing bubble to replace the NASDAQ bubble.

"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."

I disagree that it is an unfair comparison. Are there differences? Yes. A family can't pay their debts by counterfeiting the way a government can.

Krugman gives two reasons he disagrees with the comparison. First he says governments don't have to pay down their debts. They can just continue kicking the can as long as they can continue to make the interest payments. That is true. What is not true is that there is no household scale equivalent that can be used for comparison purposes. Someone who takes out debt as an interest only loan and refinances before the  principal comes due would be comparable. They could at least in theory just keep refinancing and digging themselves deeper into debt in perpetuity as long as they could keep growing their income enough to pay the interest. At what point does that become a problem? Would rising interest rates be a problem? War? Recession? Inflation? Of course they could just monetize the debt. You may think that wouldn't create a problem for the government. I would disagree with that. It would certainly create a problem for you and me.

His second reason is, "we owe it to ourselves". His theory is that since the money is staying in the country it really doesn't have a negative economic impact. I guess he thinks it is like a family paying a debt it owes to itself. But that isn't true. The family in the comparisons is not everyone in the US but the US government. As Krugman correctly points out at least the interest has to be paid and that is a net outflow that ultimately comes from taxation or inflation. Seventy eight percent of the debt is publicly held so at least for that portion his argument simply doesn't apply. For the portion where the government owes itself such as the social security trust fund is that really any different? If so I haven't seen a credible explanation of why. Those bonds still have to be serviced just like the rest unless the plan is to stiff the social security recipients depending on them.

What I find humorous about Krugman is he first uses WWII to prove his case that a high debt to gdp isn't necessarily a problem and then he prescribes the exact opposite of what government did to get their budget in order after WWII. Spend more money! Typical Keynesian. He would have been one of those predicting a coming depression in 1945 just like Alvin Hansen and he would have been wrong then just as he is now.

http://www.cato.org/blog/krugman-vs-cato-cutting-back-spending
« Last Edit: June 30, 2014, 01:07:15 AM by socraticmethod »

arebelspy

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Re: United States National Debt concern
« Reply #163 on: June 30, 2014, 12:06:51 AM »
Krugman doesn't exactly have a lot of credibility. After all this is the guy who in 2002 called on Greenspan to create a housing bubble to replace the NASDAQ bubble.

"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."

Wait a minute.. wasn't he right?

You may not like it, but didn't we hit a low in 2002 and then go roaring up to 2007 because of his prescription?   It was clearly not sustainable, but that's a separate issue.
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socraticmethod

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Re: United States National Debt concern
« Reply #164 on: June 30, 2014, 12:18:04 AM »
Wow, you really like citing data that doesn't prove your point, eh? After WW2, the debt-to-GDP ratio immediately zoomed down as fast as could reasonably have been hoped to, and we aren't even projected to reach the same level this time. Catastrophe?

It does prove my point. Debt to GDP plummeted because government spending plummeted. In fact the federal budget went from a massive deficit to a surplus of nearly 6 percent of GDP in 1947. I asked you on what basis you expect that to happen again. You conveniently ignored that question. Show me some projection of debt to GDP plummeting like it did back then that has a realistic basis and I'll readily agree with you that the debt is a much lesser concern than if that doesn't happen. Or to put it another way if something changes to cause debt to GDP to crash through the floor then I'll happily change my tune. My question all along has been what is the basis for believing such a thing is going to happen? The CBO doesn't project it even in their best case scenario. "We owe it to ourselves' just doesn't cut it. Nor does "we can just print it".

The post WWII experience also proves the point that the components of GDP are not the same and Keynesian economics is dead wrong. At the time they predicted the massive spending cuts would result in a depression. GDP dropped initially as people transitioned back into the private sector and then the economy boomed.

My questions remain unanswered. I'd like to see a stronger case made than we owe it to ourselves or just run the printing presses. The questions have been repeatedly asked and each time are met with silence. How much of an increase in interest rates can the federal government accommodate before it becomes a serious problem? How will the next recession be handled? What is the similarity between post WWII government budgets and current or future budgets? I'm all for optimism but not at the expense of rationality. There comes a point when it ceases to be optimism and becomes naivete and foolhardiness.

fixer-upper

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Re: United States National Debt concern
« Reply #165 on: June 30, 2014, 12:22:14 AM »
Nobody here has addressed the issue of why we NEED a national debt rather than just printing fiat.  What purpose does the debt serve?

socraticmethod

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Re: United States National Debt concern
« Reply #166 on: June 30, 2014, 12:25:17 AM »
Krugman doesn't exactly have a lot of credibility. After all this is the guy who in 2002 called on Greenspan to create a housing bubble to replace the NASDAQ bubble.

"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."

Wait a minute.. wasn't he right?

You may not like it, but didn't we hit a low in 2002 and then go roaring up to 2007 because of his prescription?   It was clearly not sustainable, but that's a separate issue.

It's not a separate issue at all. It is the issue. His prescription provided a short term debt financed boost that led to the bust and the malaise the US economy has been going through since 2008. Do you really think it was good advice to distort interest rates and encourage people to take on more debt? How many times should that be repeated? And as FU asked, what happens when the public and governments are completely maxed out on debt?

fixer-upper

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Re: United States National Debt concern
« Reply #167 on: June 30, 2014, 12:31:47 AM »
[It does prove my point. Debt to GDP plummeted because government spending plummeted. In fact the federal budget went from a massive deficit to a surplus of nearly 6 percent of GDP in 1947....What is the similarity between post WWII government budgets and current or future budgets?

The difference between 1947 and today is the ability to produce manufactured goods.  WWII destroyed much of the world's manufacturing abilities, while the US was left unscathed and ramped up for wartime production.

Today, it's rather the opposite, with a world surplus of manufacturing capability, and the US has lost most of its former ability via off shoring.  We are net consumers now, rather than net producers.

Thedudeabides

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Re: United States National Debt concern
« Reply #168 on: June 30, 2014, 12:43:13 AM »

As others have mentioned previously in this thread, it's not fair to compare personal finance with public finance.

Yes, if a person were in that situation, MMM would recommend improvements. A person is not a government.

Paul Krugman has written many articles on this topic. Here is one from 2012 and should address many of the issues you have raised:

http://mobile.nytimes.com/2012/01/02/opinion/krugman-nobody-understands-debt.html

Krugman doesn't exactly have a lot of credibility. After all this is the guy who in 2002 called on Greenspan to create a housing bubble to replace the NASDAQ bubble.

"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."

I disagree that it is an unfair comparison. Are there differences? Yes. A family can't pay their debts by counterfeiting the way a family can.

Krugman gives two reasons he disagrees with the comparison. First he says governments don't have to pay down their debts. They can just continue kicking the can as long as they can continue to make the interest payments. That is true. What is not true is that there is no household scale equivalent that can be used for comparison purposes. Someone who takes out debt as an interest only loan and refinances before the  principal comes due would be comparable. They could at least in theory just keep refinancing and digging themselves deeper into debt in perpetuity as long as they could keep growing their income enough to pay the interest. At what point does that become a problem? Would rising interest rates be a problem? War? Recession? Inflation? Of course they could just monetize the debt. You may think that wouldn't create a problem for the government. I would disagree with that. It would certainly create a problem for you and me.

His second reason is, "we owe it to ourselves". His theory is that since the money is staying in the country it really doesn't have a negative economic impact. I guess he thinks it is like a family paying a debt it owes to itself. But that isn't true. The family in the comparisons is not everyone in the US but the US government. As Krugman correctly points out at least the interest has to be paid and that is a net outflow that ultimately comes from taxation or inflation. Seventy eight percent of the debt is publicly held so at least for that portion his argument simply doesn't apply. For the portion where the government owes itself such as the social security trust fund is that really any different? If so I haven't seen a credible explanation of why. Those bonds still have to be serviced just like the rest unless the plan is to stiff the social security recipients depending on them.

What I find humorous about Krugman is he first uses WWII to prove his case that a high debt to gdp isn't necessarily a problem and then he prescribes the exact opposite of what government did to get their budget in order after WWII. Spend more money! Typical Keynesian. He would have been one of those predicting a coming depression in 1945 just like Alvin Hansen and he would have been wrong then just as he is now.

http://www.cato.org/blog/krugman-vs-cato-cutting-back-spending

First, you have taken Paul Krugman's quote on the housing bubble out of context. That is  not what he was suggesting when he wrote that and it's obvious if you read the original paper.

Secondly, I would suggest rereading the NYT article again because you have misunderstood the key points of the article.

He wasn't trying to claim that we shouldn't worry about debt. He was suggesting that paying down debt shouldn't be our top priority.

socraticmethod

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Re: United States National Debt concern
« Reply #169 on: June 30, 2014, 12:51:49 AM »
First, you have taken Paul Krugman's quote on the housing bubble out of context. That is  not what he was suggesting when he wrote that and it's obvious if you read the original paper.

Secondly, I would suggest rereading the NYT article again because you have misunderstood the key points of the article.

He wasn't trying to claim that we shouldn't worry about debt. He was suggesting that paying down debt shouldn't be our top priority.

Here is the full editorial so everyone can read it for themselves.

http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html?scp=4&sq=krugman%20mcculley%20bubble&st=cse

His concern was that despite higher consumer spending it might not be enough to plug the gap of reduced business spending and he was concerned Greenspan in his optimism might not go far enough to fuel what he considered a necessary housing bubble. That is the context the editorial and as we all now know his concerns over Greenspan's optimism turned out to be unfounded. Greenspan did exactly what Krugman proposed he should do.

arebelspy

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Re: United States National Debt concern
« Reply #170 on: June 30, 2014, 01:17:02 AM »
Krugman doesn't exactly have a lot of credibility. After all this is the guy who in 2002 called on Greenspan to create a housing bubble to replace the NASDAQ bubble.

"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."

Wait a minute.. wasn't he right?

You may not like it, but didn't we hit a low in 2002 and then go roaring up to 2007 because of his prescription?   It was clearly not sustainable, but that's a separate issue.

It's not a separate issue at all. It is the issue. His prescription provided a short term debt financed boost that led to the bust and the malaise the US economy has been going through since 2008. Do you really think it was good advice to distort interest rates and encourage people to take on more debt? How many times should that be repeated? And as FU asked, what happens when the public and governments are completely maxed out on debt?

I didn't say if it was good or not.  All I said was he was correct.  I don't see how that leaves him without "a lot of credibility," as you put it.
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socraticmethod

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Re: United States National Debt concern
« Reply #171 on: June 30, 2014, 01:26:53 AM »
Krugman doesn't exactly have a lot of credibility. After all this is the guy who in 2002 called on Greenspan to create a housing bubble to replace the NASDAQ bubble.

"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."

Wait a minute.. wasn't he right?

You may not like it, but didn't we hit a low in 2002 and then go roaring up to 2007 because of his prescription?   It was clearly not sustainable, but that's a separate issue.

It's not a separate issue at all. It is the issue. His prescription provided a short term debt financed boost that led to the bust and the malaise the US economy has been going through since 2008. Do you really think it was good advice to distort interest rates and encourage people to take on more debt? How many times should that be repeated? And as FU asked, what happens when the public and governments are completely maxed out on debt?

I didn't say if it was good or not.  All I said was he was correct.  I don't see how that leaves him without "a lot of credibility," as you put it.

I suppose if he had added to his advice the caveat that following it would lead to a far greater recession than the one his advice was intended to remedy you might have a point.

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Re: United States National Debt concern
« Reply #172 on: June 30, 2014, 01:28:06 AM »
Krugman doesn't exactly have a lot of credibility. After all this is the guy who in 2002 called on Greenspan to create a housing bubble to replace the NASDAQ bubble.

"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."

Wait a minute.. wasn't he right?

You may not like it, but didn't we hit a low in 2002 and then go roaring up to 2007 because of his prescription?   It was clearly not sustainable, but that's a separate issue.

It's not a separate issue at all. It is the issue. His prescription provided a short term debt financed boost that led to the bust and the malaise the US economy has been going through since 2008. Do you really think it was good advice to distort interest rates and encourage people to take on more debt? How many times should that be repeated? And as FU asked, what happens when the public and governments are completely maxed out on debt?

I didn't say if it was good or not.  All I said was he was correct.  I don't see how that leaves him without "a lot of credibility," as you put it.

If one of your contractors said the roof needed patched when it really needed replaced, would you consider them to be credible when you were paying to replace the decking and rafters a few years later?

Krugman recommended kicking the can rather than fixing the problem, which leaves him with as little credibility as every other idiot with a short term fix that causes bigger problems down the road.
« Last Edit: June 30, 2014, 01:30:00 AM by fixer-upper »

Thedudeabides

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Re: United States National Debt concern
« Reply #173 on: June 30, 2014, 01:28:28 AM »

First, you have taken Paul Krugman's quote on the housing bubble out of context. That is  not what he was suggesting when he wrote that and it's obvious if you read the original paper.

Secondly, I would suggest rereading the NYT article again because you have misunderstood the key points of the article.

He wasn't trying to claim that we shouldn't worry about debt. He was suggesting that paying down debt shouldn't be our top priority.

Here is the full editorial so everyone can read it for themselves.

http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html?scp=4&sq=krugman%20mcculley%20bubble&st=cse

His concern was that despite higher consumer spending it might not be enough to plug the gap of reduced business spending and he was concerned Greenspan in his optimism might not go far enough to fuel what he considered a necessary housing bubble. That is the context the editorial and as we all now know his concerns over Greenspan's optimism turned out to be unfounded. Greenspan did exactly what Krugman proposed he should do.

The fact that he attributes the quote to Paul McCulley should provide a big hint that he was not suggesting this as a strategy but rather he was mocking Mr. Greenspan's optimism by stating the only way out would be to create another bubble. It was snark.

McCulley's original quote:

"There is room for the Fed to create a bubble in housing prices, if necessary, to sustain American hedonism. And I think the Fed has the will to do so, even though political correctness would demand that Mr. Greenspan deny any such thing."

socraticmethod

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Re: United States National Debt concern
« Reply #174 on: June 30, 2014, 01:50:02 AM »
The fact that he attributes the quote to Paul McCulley should provide a big hint that he was not suggesting this as a strategy but rather he was mocking Mr. Greenspan's optimism by stating the only way out would be to create another bubble. It was snark.

McCulley's original quote:

"There is room for the Fed to create a bubble in housing prices, if necessary, to sustain American hedonism. And I think the Fed has the will to do so, even though political correctness would demand that Mr. Greenspan deny any such thing."

I think you need to go back and read it again. Let's look at an expanded context of what I quoted.

Quote
To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

Judging by Mr. Greenspan's remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman's crystal ball has been cloudy lately; remember how he urged Congress to cut taxes to head off the risk of excessive budget surpluses? And a sober look at recent data is not encouraging.

His reference to Mr McCulley is preceded with the statement that household spending needs to soar in order to fight the recession. Then he says what Greenspan needs to do in order to make that happen. He is citing McCulley in agreement, not disagreement. He then expresses doubt that Greenspan can pull that off and is in agreement with those who warned of a double dip recession. Well as it turns out Greenspan did pull it off. His recipe for economic improvement then as now was to increase spending, even if it had to be done through more debt. That's a decidedly unmustachian message. I'm surprised to find so many here in agreement with it especially since the last bubble popped.

MDM

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Re: United States National Debt concern
« Reply #175 on: June 30, 2014, 02:39:42 AM »
Well as it turns out Greenspan did pull it off. His recipe for economic improvement then as now was to increase spending, even if it had to be done through more debt. That's a decidedly unmustachian message. I'm surprised to find so many here in agreement with it especially since the last bubble popped.
In the bolded text, are you referring to Greenspan or Krugman?  I could guess "Greenspan" because that's the person named immediately prior to "His recipe", but could also guess "Krugman" because your overall argument has been against high federal debt, which Krugman supports.

Also confused by a previous post:
Quote
That is the context the editorial and as we all now know his concerns over Greenspan's optimism turned out to be unfounded. Greenspan did exactly what Krugman proposed he should do.
Are you saying Krugman agreed with Greenspan or disagreed?

Just checking to ensure I understand....

socraticmethod

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Re: United States National Debt concern
« Reply #176 on: June 30, 2014, 02:50:06 AM »
Well as it turns out Greenspan did pull it off. His recipe for economic improvement then as now was to increase spending, even if it had to be done through more debt. That's a decidedly unmustachian message. I'm surprised to find so many here in agreement with it especially since the last bubble popped.
In the bolded text, are you referring to Greenspan or Krugman?  I could guess "Greenspan" because that's the person named immediately prior to "His recipe", but could also guess "Krugman" because your overall argument has been against high federal debt, which Krugman supports.

Also confused by a previous post:
Quote
That is the context the editorial and as we all now know his concerns over Greenspan's optimism turned out to be unfounded. Greenspan did exactly what Krugman proposed he should do.
Are you saying Krugman agreed with Greenspan or disagreed?

Just checking to ensure I understand....

I was referring to Krugman. He thought there needed to be more spending and was doubtful that it would come and thought Greenspan was overly optimistic.

From his conclusion of the editorial:

But wishful thinking aside, I just don't understand the grounds for optimism. Who, exactly, is about to start spending a lot more? At this point it's a lot easier to tell a story about how the recovery will stall than about how it will speed up. And while I like movies with happy endings as much as the next guy, a movie isn't realistic unless the story line makes sense.
« Last Edit: June 30, 2014, 02:51:51 AM by socraticmethod »

Roland of Gilead

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Re: United States National Debt concern
« Reply #177 on: June 30, 2014, 05:43:57 AM »

The difference between 1947 and today is the ability to produce manufactured goods.  WWII destroyed much of the world's manufacturing abilities, while the US was left unscathed and ramped up for wartime production.

Today, it's rather the opposite, with a world surplus of manufacturing capability, and the US has lost most of its former ability via off shoring.  We are net consumers now, rather than net producers.

The difference between today and the past few decades is today we have discovered ways to tap vast oil and natural gas via fracking.  We are entering an era where the USA will be one of the cheapest places to operate an energy intensive manufacturing facility.  Manufacturing is starting to trickle back to the USA for some of these industries.

matchewed

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Re: United States National Debt concern
« Reply #178 on: June 30, 2014, 05:56:36 AM »
I think that through all this debate the one thing I'm not clear on is the position that this is a bad thing. If it is so bad could one of you please outline exactly how it goes down? Since I've seen the claim that the bad things are already happening I'm sure that this will be clear and concise.

socraticmethod

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Re: United States National Debt concern
« Reply #179 on: June 30, 2014, 07:27:00 AM »
I think that through all this debate the one thing I'm not clear on is the position that this is a bad thing. If it is so bad could one of you please outline exactly how it goes down? Since I've seen the claim that the bad things are already happening I'm sure that this will be clear and concise.

As per the CBO:

Quote
In CBO’s baseline projections, federal debt held by the public reaches 78 percent of GDP by 2024, up from 72 percent at the end of 2013 and twice the 39 percent average of the past four decades (see Figure 3 on page 5). As recently as the end of 2007, federal debt equaled just 35 percent of GDP. Such high and rising debt would have serious negative consequences. Federal spending on interest payments would increase considerably when interest rates rose to more typical levels. Moreover, because federal borrowing would eventually raise the cost of investment by businesses and other entities, the capital stock would be smaller, and productivity and wages lower, than if federal borrowing was more limited. In addition, high debt means that lawmakers would have less flexibility than they otherwise would to use tax and spending policies to respond to unexpected challenges. Finally, high debt increases the risk of a fiscal crisis in which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates.


matchewed

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Re: United States National Debt concern
« Reply #180 on: June 30, 2014, 07:45:44 AM »
So let me get this straight.

Something that is not causing a problem right now. Has several methods to address it. A long(ish) time line to address it (not that I'm really optimistic that there will be a long term fix in place, I anticipate more can kicking for the next 25 years the rest of my life). And I'm going to waste my time on it why? All of this hollering and foot stamping just doesn't seem to match up to the attributes of the issue.

https://www.youtube.com/watch?v=qLlUgilKqms

Thedudeabides

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Re: United States National Debt concern
« Reply #181 on: June 30, 2014, 07:49:27 AM »

He is citing McCulley in agreement, not disagreement.

So, if I understand you correctly, you are saying that McCully originally proposed that Mr. Greenspan should create a housing bubble to replace the tech bubble, Krugman agreed with McCully and proposed this as a strategy?

socraticmethod

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Re: United States National Debt concern
« Reply #182 on: June 30, 2014, 08:00:29 AM »
So let me get this straight.

Something that is not causing a problem right now. Has several methods to address it. A long(ish) time line to address it (not that I'm really optimistic that there will be a long term fix in place, I anticipate more can kicking for the next 25 years the rest of my life). And I'm going to waste my time on it why? All of this hollering and foot stamping just doesn't seem to match up to the attributes of the issue.

https://www.youtube.com/watch?v=qLlUgilKqms

A drag on the economy of a few hundred billion a year in interest payments every single year is a problem especially with interest rates well below the norm. Not the end of the world but then nobody claimed that. It wasn't that long ago in 2007 that the projections were that public held debt would fall to 20% by 2017. That picture has changed considerably since then. But no worries, I'm sure it will be nothing but smooth sailing from here on out. Let's revisit this thread in a few years and we'll see what people have to say then.

socraticmethod

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Re: United States National Debt concern
« Reply #183 on: June 30, 2014, 08:03:23 AM »

He is citing McCulley in agreement, not disagreement.

So, if I understand you correctly, you are saying that McCully originally proposed that Mr. Greenspan should create a housing bubble to replace the tech bubble, Krugman agreed with McCully and proposed this as a strategy?

To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

Which part of the above is confusing you?

socraticmethod

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Re: United States National Debt concern
« Reply #184 on: June 30, 2014, 08:06:31 AM »
Wow, you really like citing data that doesn't prove your point, eh? After WW2, the debt-to-GDP ratio immediately zoomed down as fast as could reasonably have been hoped to, and we aren't even projected to reach the same level this time. Catastrophe?

It does prove my point. Debt to GDP plummeted because government spending plummeted. In fact the federal budget went from a massive deficit to a surplus of nearly 6 percent of GDP in 1947. I asked you on what basis you expect that to happen again. You conveniently ignored that question. Show me some projection of debt to GDP plummeting like it did back then that has a realistic basis and I'll readily agree with you that the debt is a much lesser concern than if that doesn't happen. Or to put it another way if something changes to cause debt to GDP to crash through the floor then I'll happily change my tune. My question all along has been what is the basis for believing such a thing is going to happen? The CBO doesn't project it even in their best case scenario. "We owe it to ourselves' just doesn't cut it. Nor does "we can just print it".

The post WWII experience also proves the point that the components of GDP are not the same and Keynesian economics is dead wrong. At the time they predicted the massive spending cuts would result in a depression. GDP dropped initially as people transitioned back into the private sector and then the economy boomed.

My questions remain unanswered. I'd like to see a stronger case made than we owe it to ourselves or just run the printing presses. The questions have been repeatedly asked and each time are met with silence. How much of an increase in interest rates can the federal government accommodate before it becomes a serious problem? How will the next recession be handled? What is the similarity between post WWII government budgets and current or future budgets? I'm all for optimism but not at the expense of rationality. There comes a point when it ceases to be optimism and becomes naivete and foolhardiness.

I've answered the questions. Repeatedly. Now it's my turn to get answers.

brewer12345

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Re: United States National Debt concern
« Reply #185 on: June 30, 2014, 08:14:40 AM »
So let me get this straight.

Something that is not causing a problem right now. Has several methods to address it. A long(ish) time line to address it (not that I'm really optimistic that there will be a long term fix in place, I anticipate more can kicking for the next 25 years the rest of my life). And I'm going to waste my time on it why? All of this hollering and foot stamping just doesn't seem to match up to the attributes of the issue.

https://www.youtube.com/watch?v=qLlUgilKqms

Pretty much the way I see it.  Add to that the fact that what I (or any of us) think about all of this amounts to a fart in a hurricane.  You can see why I am more concerned about the handful of earwigs I discovered under the roof of my beehive last week.
« Last Edit: June 30, 2014, 08:16:37 AM by brewer12345 »

Thedudeabides

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Re: United States National Debt concern
« Reply #186 on: June 30, 2014, 08:32:55 AM »


He is citing McCulley in agreement, not disagreement.

So, if I understand you correctly, you are saying that McCully originally proposed that Mr. Greenspan should create a housing bubble to replace the tech bubble, Krugman agreed with McCully and proposed this as a strategy?

To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

Which part of the above is confusing you?

I've been explaining my argument, so quoting text that I said was being out of context and highlighting the out of context in red is not helpful to our discussion.

Nothing is confusing about that to me when I read the rest of the article and also understand the original quote from McCulley. McCulley, like Krugman, was never proposing a housing bubble. They were predicting that the fed would create one. Those are two very different things.

socraticmethod

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Re: United States National Debt concern
« Reply #187 on: June 30, 2014, 08:40:52 AM »
I've been explaining my argument, so quoting text that I said was being out of context and highlighting the out of context in red is not helpful to our discussion.

Nothing is confusing about that to me when I read the rest of the article and also understand the original quote from McCulley. McCulley, like Krugman, was never proposing a housing bubble. They were predicting that the fed would create one. Those are two very different things.

Krugman was not predicting that. He was predicting Greenspan would fail to create a housing bubble and that the economy would contract into a double dip recession. He turned out to be wrong about that. People bought houses they couldn't afford, took out HELOCs to cash out equity and consumer spending soared like he said needed to happen but didn't believe would.

Thedudeabides

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Re: United States National Debt concern
« Reply #188 on: June 30, 2014, 09:52:09 AM »

I've been explaining my argument, so quoting text that I said was being out of context and highlighting the out of context in red is not helpful to our discussion.

Nothing is confusing about that to me when I read the rest of the article and also understand the original quote from McCulley. McCulley, like Krugman, was never proposing a housing bubble. They were predicting that the fed would create one. Those are two very different things.

Krugman was not predicting that. He was predicting Greenspan would fail to create a housing bubble and that the economy would contract into a double dip recession. He turned out to be wrong about that. People bought houses they couldn't afford, took out HELOCs to cash out equity and consumer spending soared like he said needed to happen but didn't believe would.

The point is that McCulley's quote that was referenced was meant to be critical of Greenspan. If you look at other writings of McCulley, it's pretty easy to draw the conclusion that he wasn't exactly a fan of Greenspan's policies and thought they created bubbles. His quote was critical in saying that he wouldn't put it past Greenspan to create another bubble in housing to lift the economy out of the recession. So for someone to take this critical, borderline satirical quote and then attempt to pass it off as a great idea simply does not make sense to me. If you want to believe otherwise, that is fine. We'll just have to agree to disagree on our interpretation. It's irrelevant to the thread anyway.

Mr Mark

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Re: United States National Debt concern
« Reply #189 on: June 30, 2014, 09:55:14 AM »
So now it's ok to argue ad hominum?

Again, how does this impact decisions going forward for you? Do you recommend gold for example?


(Fix quote)



First, you have taken Paul Krugman's quote on the housing bubble out of context. That is  not what he was suggesting when he wrote that and it's obvious if you read the original paper.

Secondly, I would suggest rereading the NYT article again because you have misunderstood the key points of the article.

He wasn't trying to claim that we shouldn't worry about debt. He was suggesting that paying down debt shouldn't be our top priority.






so now it's ok to argue ad hominum eh?


http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html?scp=4&sq=krugman%20mcculley%20bubble&st=cse

His concern was that despite higher consumer spending it might not be enough to plug the gap of reduced business spending and he was concerned Greenspan in his optimism might not go far enough to fuel what he considered a necessary housing bubble. That is the context the editorial and as we all now know his concerns over Greenspan's optimism turned out to be unfounded. Greenspan did exactly what Krugman proposed he should do.
« Last Edit: June 30, 2014, 09:59:36 AM by Mr Mark »

dragoncar

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Re: United States National Debt concern
« Reply #190 on: June 30, 2014, 09:55:50 AM »
Nobody here has addressed the issue of why we NEED a national debt rather than just printing fiat.  What purpose does the debt serve?

Ahem:

Because the constitution. 


Naturally, you then accused me of being happy to slaughter civilians.  edit: Seriously, weren't you paying attention during the debt ceiling storytime?

DoctorOctagon

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Re: United States National Debt concern
« Reply #191 on: June 30, 2014, 10:57:52 AM »
 Our current ratio of national debt to GDP is on the low side given our current economic conditions.  Not enough debt is just as bad as too much. Google Krugman's explanation of a liquidity trap if you don't know what that is.

In our economic system, having a sizeable amount of debt is important and actually good for the nation's development.  Debt gives the U.S. government more buying power, which means they can do things like finance social security, defense, education, building roads, science grants, etc.  If our level of debt is too low, this type of stuff goes away, which is actually a really bad thing.  If our nation paid off its debts instead of financing more defense/education/welfare/science/roads/etc, we'd actually see an economic collapse and a deflationary spiral.  Both bad things.  A TON of debt is bad too, obviously due to inflation and the increased risk of defaulting on bonds (providing Congress became incompetent enough to not print more dollars).

Food for thought.

warfreak2

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Re: United States National Debt concern
« Reply #192 on: June 30, 2014, 10:59:31 AM »
[...]
The CBO projections as they are do not support your assertions
My questions remain unanswered.
Quoting yourself because I didn't answer you within six hours? When do you expect me to sleep? I don't mind chopping heads off of your hydra, but you are not entitled to have me examine every single claim you make, and I'm not about to try; you are clearly capable of making things up far faster than I can disprove them, even if I actually want to. At this point you're just asking for free maths lessons, and you aren't even saying "please". Plus, I'm not going to agree to be on call between midnight and 6AM, so forget about that.

But you are still standing behind your assertion that the CBO projects the deficit to grow, "as far as the eye can see", when any minimally-competent sighted person can verify that the projected levels in each future year are all less-than-or-equal-to the current level. Who do you think you are kidding? You are not even arguing with me, you are arguing with the dictionary, and I'm just refereeing. If you want to invest in my fund that grows 7%/year for 6 years (after a small 35% front-end fee), though, I accept all currencies which are either Dogecoin or sillier.

fixer-upper

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Re: United States National Debt concern
« Reply #193 on: June 30, 2014, 11:10:47 AM »
Nobody here has addressed the issue of why we NEED a national debt rather than just printing fiat.  What purpose does the debt serve?

Ahem:

Because the constitution. 


Naturally, you then accused me of being happy to slaughter civilians.  edit: Seriously, weren't you paying attention during the debt ceiling storytime?

Your answer was incorrect, as I pointed out earlier.  Now I'll accuse you of being ignorant of the constitution, as well as sentence structure, because the manners.

socraticmethod

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Re: United States National Debt concern
« Reply #194 on: June 30, 2014, 11:22:54 AM »
[...]
The CBO projections as they are do not support your assertions
My questions remain unanswered.
Quoting yourself because I didn't answer you within six hours? When do you expect me to sleep? I don't mind chopping heads off of your hydra, but you are not entitled to have me examine every single claim you make, and I'm not about to try; you are clearly capable of making things up far faster than I can disprove them, even if I actually want to. At this point you're just asking for free maths lessons, and you aren't even saying "please". Plus, I'm not going to agree to be on call between midnight and 6AM, so forget about that.

But you are still standing behind your assertion that the CBO projects the deficit to grow, "as far as the eye can see", when any minimally-competent sighted person can verify that the projected levels in each future year are all less-than-or-equal-to the current level. Who do you think you are kidding? You are not even arguing with me, you are arguing with the dictionary, and I'm just refereeing. If you want to invest in my fund that grows 7%/year for 6 years (after a small 35% front-end fee), though, I accept all currencies which are either Dogecoin or sillier.

Nice rant but you still haven't answered the questions.

warfreak2

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Re: United States National Debt concern
« Reply #195 on: June 30, 2014, 11:29:02 AM »
I don't need to answer any more questions. You are still saying that something is projected to become bigger, when it is easy to check that in fact it is projected to either become smaller or be the same size. If you really, really don't see that you are plainly, objectively wrong, then why should I expect you to understand anything else I say? Good day.

socraticmethod

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Re: United States National Debt concern
« Reply #196 on: June 30, 2014, 11:43:00 AM »
I don't need to answer any more questions. You are still saying that something is projected to become bigger, when it is easy to check that in fact it is projected to either become smaller or be the same size. If you really, really don't see that you are plainly, objectively wrong, then why should I expect you to understand anything else I say? Good day.

That's about what I expected. The deficit projections grow from 2015 through 2024 as per the CBO. I've posted their exact analysis that states such multiple times now. You continue to insist that isn't true. That's your choice and I leave you to it.

I was challenged to answer your questions which I did many times over. You in turn refused to answer mine. Can't say I blame you. Good day to you. :)

fixer-upper

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Re: United States National Debt concern
« Reply #197 on: June 30, 2014, 11:43:19 AM »
I don't need to answer any more questions. You are still saying that something is projected to become bigger, when it is easy to check that in fact it is projected to either become smaller or be the same size. If you really, really don't see that you are plainly, objectively wrong, then why should I expect you to understand anything else I say? Good day.

Is your argument seriously based on government staying on task and under budget?  If so, which flavor of kool-aid did you use in the projections?
« Last Edit: June 30, 2014, 11:45:13 AM by fixer-upper »

dragoncar

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Re: United States National Debt concern
« Reply #198 on: June 30, 2014, 11:54:38 AM »
Nobody here has addressed the issue of why we NEED a national debt rather than just printing fiat.  What purpose does the debt serve?

Ahem:

Because the constitution. 


Naturally, you then accused me of being happy to slaughter civilians.  edit: Seriously, weren't you paying attention during the debt ceiling storytime?

Your answer was incorrect, as I pointed out earlier.  Now I'll accuse you of being ignorant of the constitution, as well as sentence structure, because the manners.

All you said was that the Constitution does not define the dollar as debt, which is completely irrelevant to WHY our system is set up so that the Fed prints the money.  The reason is that debt issuance is an enumerated power, so it's the most viable way create non-coin money.  As I said, we COULD just print the money, but it would be a pain in the ass, and not particularly helpful.  What does sentence structure have to do with manners?  Apparently poor sentence structure is rude, but accusing someone of condoning slaughter is not?  Airtight logic there.

socraticmethod

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Re: United States National Debt concern
« Reply #199 on: June 30, 2014, 11:58:19 AM »
Our current ratio of national debt to GDP is on the low side given our current economic conditions.  Not enough debt is just as bad as too much. Google Krugman's explanation of a liquidity trap if you don't know what that is.

In our economic system, having a sizeable amount of debt is important and actually good for the nation's development.  Debt gives the U.S. government more buying power, which means they can do things like finance social security, defense, education, building roads, science grants, etc.  If our level of debt is too low, this type of stuff goes away, which is actually a really bad thing.  If our nation paid off its debts instead of financing more defense/education/welfare/science/roads/etc, we'd actually see an economic collapse and a deflationary spiral.  Both bad things.  A TON of debt is bad too, obviously due to inflation and the increased risk of defaulting on bonds (providing Congress became incompetent enough to not print more dollars).

Food for thought.

Wow