Author Topic: United States National Debt concern  (Read 57180 times)

brewer12345

  • Handlebar Stache
  • *****
  • Posts: 1386
Re: United States National Debt concern
« Reply #50 on: June 28, 2014, 08:45:52 AM »
This thread is one to bookmark and revisit in 5 or 10 years. Some folks here are in for a rude awakening. In economics there is no free lunch, not even for governments.


Whatever you say, sport.


Aside from stocking up on tinfoil and moving into a bunker, what exactly are you doing to prepare for your chosen doom scenario?

That isn't relevant to the topic of this thread. If some of the comments made here were correct then there would be no reason for government to tax or borrow at all. Just run the printing presses to fund their activities not to mention the trillions in unfunded liabilities. I guess Zimbabwe, Argentina, and the Weimar Republic just didn't know how to do it right.

matchewed

  • Magnum Stache
  • ******
  • Posts: 4340
  • Location: CT
Re: United States National Debt concern
« Reply #51 on: June 28, 2014, 08:54:39 AM »
This thread is one to bookmark and revisit in 5 or 10 years. Some folks here are in for a rude awakening. In economics there is no free lunch, not even for governments.

Aside from stocking up on tinfoil and moving into a bunker, what exactly are you doing to prepare for your chosen doom scenario?

That isn't relevant to the topic of this thread. If some of the comments made here were correct then there would be no reason for government to tax or borrow at all. Just run the printing presses to fund their activities not to mention the trillions in unfunded liabilities. I guess Zimbabwe, Argentina, and the Weimar Republic just didn't know how to do it right.

It is totally relevant. The OP asked if people were increasing international holdings due to debt concerns. People are answering what they are doing due to debt concerns. Some are saying nothing because they do not have those concerns. You are saying you have concerns. So what are you doing to prepare for your concerns that you seem quite certain to see in 5-10 years?

socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #52 on: June 28, 2014, 09:26:49 AM »
If debt to gdp is the metric that tells you if a country is in trouble why is Argentina having trouble servicing their debt when their debt to gdp ratio is less than half that of the US and they have inflation of 25% per annum?

And with respect to the US debt how exactly are the books going to end up balanced when you have unfunded liabilities and growing deficits as far as the eye can see? In the coming years millions of baby boomers are going to retire and go from tax payers to tax consumers. No problem. Just print more money right? So inflation rises. Volcker raised interest rates in the 80's to get inflation under control. If that is done now how will government pay the higher interest on the debt? More borrowing? More printing? Eventually something has to give. And if the rest of the world loses confidence and moves away from the dollar as they already are it just makes the problem worse. What exactly makes the US exempt from basic math and economics that every other country around the world is subject to and if it is so why does the American economy continue to struggle?

Some here are way off on their understanding of basic macroeconomics. Like I said, believe whatever you want but do save this thread and revisit it a few years down the line. Maybe the can will be kicked for much longer. That wouldn't surprise me. Japan has a debt to gdp of more than 200% and is still limping along. But this idea that the debt doesn't matter because "we owe it to ourselves" or many of the other reasons given here simply isn't true. It's a problem and is only going to get worse according to the governments own estimates which always turn out to be overly optimistic. The government budget is on an unsustainable path and any mustachian should be able to see that plain as day.

Also the US isn't exactly the only country with a debt problem so comparisons to other countries don't really prove much. It would be like saying it's not a problem that your household is up to it's eyeballs in debt because your neighbor is up to their eyebrows in debt.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28228
  • Age: -999
  • Location: Seattle, WA
Re: United States National Debt concern
« Reply #53 on: June 28, 2014, 09:32:34 AM »
This thread is one to bookmark and revisit in 5 or 10 years. Some folks here are in for a rude awakening. In economics there is no free lunch, not even for governments.

Aside from stocking up on tinfoil and moving into a bunker, what exactly are you doing to prepare for your chosen doom scenario?

That isn't relevant to the topic of this thread.

I think asking for a practical solution or suggestion to a problem being discussed is on topic and relevant.

EDIT: There was apparently a second page, and matchewed already said as much.  Of course, your subsequent reply still didn't give an answer, so I guess I'll leave this here.  If what you're saying is true, and we're more or less (doomed/screwed/whatever), what exact, specific steps are you taking to put yourself in a good position to deal with it?
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Eric

  • Magnum Stache
  • ******
  • Posts: 4061
  • Location: On my bike
Re: United States National Debt concern
« Reply #54 on: June 28, 2014, 10:04:17 AM »
And with respect to the US debt how exactly are the books going to end up balanced when you have unfunded liabilities and growing deficits as far as the eye can see?

Would it make you feel any better if you knew that the deficits have been shrinking every year since 2009?  I'm not saying it's pretty, but it's not getting worse as you're claiming.


waltworks

  • Magnum Stache
  • ******
  • Posts: 3431
Re: United States National Debt concern
« Reply #55 on: June 28, 2014, 10:17:50 AM »
Some men just want to watch the world burn. Others want to talk about it on the internet.

Luckily I don't think we're in any danger of 5-posts-all-about-the-national-debt here being right.

GLOD!!

-Walt

If what you're saying is true, and we're more or less (doomed/screwed/whatever), what exact, specific steps are you taking to put yourself in a good position to deal with it?
« Last Edit: June 28, 2014, 10:19:22 AM by waltworks »

brewer12345

  • Handlebar Stache
  • *****
  • Posts: 1386
Re: United States National Debt concern
« Reply #56 on: June 28, 2014, 10:19:01 AM »
Yup.


socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #57 on: June 28, 2014, 10:26:08 AM »
Eric take a look at the deficit projections of the CBO and get back to me.

socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #58 on: June 28, 2014, 10:33:14 AM »
I'm more interested in a response to the points raised than personal attacks. Shooting the messenger doesn't accomplish much. ;)

warfreak2

  • Handlebar Stache
  • *****
  • Posts: 1140
  • Location: UK
    • Music by me
Re: United States National Debt concern
« Reply #59 on: June 28, 2014, 10:34:03 AM »
Eric take a look at the deficit projections of the CBO and get back to me.
Leaving aside the difference between "growing" and "projected to grow", why not actually include the projections you're referencing?



Perhaps because they appear to show the deficit/GDP ratio staying around its long-term average, rather than returning to anywhere near its 2009 peak? I guess that wouldn't really support your argument.
« Last Edit: June 28, 2014, 10:35:48 AM by warfreak2 »

waltworks

  • Magnum Stache
  • ******
  • Posts: 3431
Re: United States National Debt concern
« Reply #60 on: June 28, 2014, 10:34:34 AM »
And you can spend that time likewise studying the graphs (especially the first one) that Warfreak posted.

I think you might have more fun over at Zerohedge. I mean, to be honest, most people here are optimists. Relatively rich, smart optimists, at that. Deficit scaremongering isn't an easy sell here. And you still haven't said anything about what you plan to do based on the presumed debasement of the currency/collapse of the government, so it's sort of hard to take you seriously. I mean, maybe you're right and we're all screwed and the US dollar will be bumwipe in 10 years. So... you are doing what, exactly? You still haven't said. Which tells me you just like to worry about stuff. Too bad for you.

-W

Eric take a look at the deficit projections of the CBO and get back to me.
« Last Edit: June 28, 2014, 10:39:07 AM by waltworks »

brewer12345

  • Handlebar Stache
  • *****
  • Posts: 1386
Re: United States National Debt concern
« Reply #61 on: June 28, 2014, 10:40:24 AM »
I'm more interested in a response to the points raised than personal attacks. Shooting the messenger doesn't accomplish much. ;)

You have been asked several times politely to tell us what actionable responses ne might have to the doom and gloom.  You have remained silent.  You are surprised that the mocking has started?

socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #62 on: June 28, 2014, 10:44:56 AM »
Thanks for posting warfreak. That makes my point that the deficit is projected to increase in future years. There is no projected balancing of the budget. That means the debt and the interest that goes with it will continue to increase. So the response is it doesn't matter because gdp will grow sufficiently to accommodate it right? Ok let's see that demonstrated along with the assumptions of private sector gdp growth those projections are based on. It's a poor metric to use.

socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #63 on: June 28, 2014, 10:52:50 AM »
I'm more interested in a response to the points raised than personal attacks. Shooting the messenger doesn't accomplish much. ;)

You have been asked several times politely to tell us what actionable responses ne might have to the doom and gloom.  You have remained silent.  You are surprised that the mocking has started?

Politely? I don't think the lead off about tin foil was polite. I have answered that my own personal financial decisions are my business. I'm not entitled to share that with any one nor are my finances relevant. Steps one might take would include the standard mustachian advice for financial health as well as diversication into international assets amd hard assets.

brewer12345

  • Handlebar Stache
  • *****
  • Posts: 1386
Re: United States National Debt concern
« Reply #64 on: June 28, 2014, 10:59:22 AM »
I'm more interested in a response to the points raised than personal attacks. Shooting the messenger doesn't accomplish much. ;)

You have been asked several times politely to tell us what actionable responses ne might have to the doom and gloom.  You have remained silent.  You are surprised that the mocking has started?

Politely? I don't think the lead off about tin foil was polite. I have answered that my own personal financial decisions are my business. I'm not entitled to share that with any one nor are my finances relevant. Steps one might take would include the standard mustachian advice for financial health as well as diversication into international assets amd hard assets.

I don't care what you do.  I was asking what the hypothetical tinfoil-newbie might do.  Well, enjoy your MREs.  Perhaps I should revisit that Alcoa stock purchase idea given the many uses for the foil...

socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #65 on: June 28, 2014, 11:01:18 AM »
Walt, I'm optimistic about the future. Just not on the federal budget and its impact on the dollar. The reasons are well founded. Like I said. There is no such thing as a free lunch, not even for Uncle Sam. It's not the end of the world. But it is something people need to be cognizant of.

I look forward to coming back to this thread in the future. ;)

warfreak2

  • Handlebar Stache
  • *****
  • Posts: 1140
  • Location: UK
    • Music by me
Re: United States National Debt concern
« Reply #66 on: June 28, 2014, 11:02:27 AM »
Thanks for posting warfreak. That makes my point that the deficit is projected to increase in future years.
No, it doesn't. None of the projected deficit/GDP ratios for the next ten years are below the current level. If you were looking for people who won't find and understand the data to check your claims, then you are on the wrong forum.

Quote
There is no projected balancing of the budget.
Nor does there particularly need to be. Pretty much every stable government on the planet has been running small, manageable deficits for rather a long time, and the world hasn't ended yet. OOC, which government with a long-running surplus/balanced budget would you like the US to emulate?

socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #67 on: June 28, 2014, 11:11:40 AM »
Warfreak,

Since increased government spending increases gdp and thus lower the debt to gdp ratio would you say that more government spending makes the debt more manageable? Also what is the assumed gdp growth for those ratio projections and when was the last time? Where is gdp today relative to where the cbo predicted it would be 5 years ago?

socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #68 on: June 28, 2014, 11:14:35 AM »
Sorry I'm on my phone. Meant to ask when was the last time CBO GDP predictions turned out to not be overly optimistic.

warfreak2

  • Handlebar Stache
  • *****
  • Posts: 1140
  • Location: UK
    • Music by me
Re: United States National Debt concern
« Reply #69 on: June 28, 2014, 11:19:00 AM »
Warfreak,

Since increased government spending increases gdp and thus lower the debt to gdp ratio would you say that more government spending makes the debt more manageable? Also what is the assumed gdp growth for those ratio projections and when was the last time [CBO GDP predictions turned out to not be overly optimistic]? Where is gdp today relative to where the cbo predicted it would be 5 years ago?
Now you are arguing against the reliability of the data that you brought into the discussion. Smooth!

waltworks

  • Magnum Stache
  • ******
  • Posts: 3431
Re: United States National Debt concern
« Reply #70 on: June 28, 2014, 11:31:01 AM »

GLOD!!!!!

I was wondering how long it would take.  Glen Beck, is that you?

-W

as well as diversication into international assets amd hard assets.

socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #71 on: June 28, 2014, 11:34:31 AM »
Warfreak,

Since increased government spending increases gdp and thus lower the debt to gdp ratio would you say that more government spending makes the debt more manageable? Also what is the assumed gdp growth for those ratio projections and when was the last time [CBO GDP predictions turned out to not be overly optimistic]? Where is gdp today relative to where the cbo predicted it would be 5 years ago?
Now you are arguing against the reliability of the data that you brought into the discussion. Smooth!

With respect to the historical accuracy of the governments projections of both GDP and deficits it favors my position in both cases. Care to address the questions?

waltworks

  • Magnum Stache
  • ******
  • Posts: 3431
Re: United States National Debt concern
« Reply #72 on: June 28, 2014, 11:37:44 AM »
What questions? As Warfreak has pointed out, Debt/GDP and deficit levels are historically pretty... normal. I mean, the US only has ~250 years of history to go by, but that's the data we have. You are making the argument that something has fundamentally changed and that the past situation is unsustainable in the future. You need to say something more about *why*, since all of US economic history says the opposite.

-W

Emilyngh

  • Pencil Stache
  • ****
  • Posts: 892
Re: United States National Debt concern
« Reply #73 on: June 28, 2014, 11:42:49 AM »
Warfreak,

Since increased government spending increases gdp and thus lower the debt to gdp ratio would you say that more government spending makes the debt more manageable? Also what is the assumed gdp growth for those ratio projections and when was the last time [CBO GDP predictions turned out to not be overly optimistic]? Where is gdp today relative to where the cbo predicted it would be 5 years ago?
Now you are arguing against the reliability of the data that you brought into the discussion. Smooth!


socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #74 on: June 28, 2014, 11:50:40 AM »
What questions? As Warfreak has pointed out, Debt/GDP and deficit levels are historically pretty... normal. I mean, the US only has ~250 years of history to go by, but that's the data we have. You are making the argument that something has fundamentally changed and that the past situation is unsustainable in the future. You need to say something more about *why*, since all of US economic history says the opposite.

-W

The ones in post 67. The ones that end with question marks. Those questions. Increasing government spending has the effect of lowering the debt to GDP ratio. Does that mean the debt is becoming more sustainable?  It should if all you are looking at is that one metric. I already pointed out other countries that have experienced significant trouble meeting their debt obligations and their debt to gdp ratio is less than half that of the US. It simply isnt as simple as just looking at that one metric. The trend of the ratio is increasing. Should we expect it to decrease in the long term?  With tens of millions of baby boomers retiring and trillions in unfunded liabilities? How? On what evidence? Even at current levels it could be problematic at higher interest rates. Sorry you don't find it optimistic but these are the facts. I don't like them either but I'm not foolish enough to deny them on that basis.

randymarsh

  • Handlebar Stache
  • *****
  • Posts: 1374
  • Location: Denver
Re: United States National Debt concern
« Reply #75 on: June 28, 2014, 11:51:02 AM »
Thanks for posting warfreak. That makes my point that the deficit is projected to increase in future years. There is no projected balancing of the budget. That means the debt and the interest that goes with it will continue to increase. So the response is it doesn't matter because gdp will grow sufficiently to accommodate it right? Ok let's see that demonstrated along with the assumptions of private sector gdp growth those projections are based on. It's a poor metric to use.

The graphs specifically show that the deficit is not growing. Debt will grow, which isn't necessarily a bad thing.

socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #76 on: June 28, 2014, 11:53:10 AM »
Also Walt the current ratio is well above the historic norm.

Thedudeabides

  • Stubble
  • **
  • Posts: 242
Re: United States National Debt concern
« Reply #77 on: June 28, 2014, 11:55:48 AM »

If debt to gdp is the metric that tells you if a country is in trouble why is Argentina having trouble servicing their debt when their debt to gdp ratio is less than half that of the US and they have inflation of 25% per annum?

And with respect to the US debt how exactly are the books going to end up balanced when you have unfunded liabilities and growing deficits as far as the eye can see? In the coming years millions of baby boomers are going to retire and go from tax payers to tax consumers. No problem. Just print more money right? So inflation rises. Volcker raised interest rates in the 80's to get inflation under control. If that is done now how will government pay the higher interest on the debt? More borrowing? More printing? Eventually something has to give. And if the rest of the world loses confidence and moves away from the dollar as they already are it just makes the problem worse. What exactly makes the US exempt from basic math and economics that every other country around the world is subject to and if it is so why does the American economy continue to struggle?

Some here are way off on their understanding of basic macroeconomics. Like I said, believe whatever you want but do save this thread and revisit it a few years down the line. Maybe the can will be kicked for much longer. That wouldn't surprise me. Japan has a debt to gdp of more than 200% and is still limping along. But this idea that the debt doesn't matter because "we owe it to ourselves" or many of the other reasons given here simply isn't true. It's a problem and is only going to get worse according to the governments own estimates which always turn out to be overly optimistic. The government budget is on an unsustainable path and any mustachian should be able to see that plain as day.

Also the US isn't exactly the only country with a debt problem so comparisons to other countries don't really prove much. It would be like saying it's not a problem that your household is up to it's eyeballs in debt because your neighbor is up to their eyebrows in debt.

Argentina: Maybe because of massively failed economic and monetary policies?

A couple other comments as I think many of the others on this thread have made the points I would want to make.

Technically speaking, printing money does not cause inflation in and of itself. The other factor unloved is the velocity of money.

With regard to the rest of the world losing confidence and demanding higher rates. I'm afraid it's not that simple. Do you remember what happened when the US Debt was downgraded in 2011? Interest rates went down! Why? There was a flight to safety into the safest currency around, the US dollar. Until there is an alternative currency, this will remain to be the case.

socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #78 on: June 28, 2014, 11:59:48 AM »
Thanks for posting warfreak. That makes my point that the deficit is projected to increase in future years. There is no projected balancing of the budget. That means the debt and the interest that goes with it will continue to increase. So the response is it doesn't matter because gdp will grow sufficiently to accommodate it right? Ok let's see that demonstrated along with the assumptions of private sector gdp growth those projections are based on. It's a poor metric to use.

The graphs specifically show that the deficit is not growing. Debt will grow, which isn't necessarily a bad thing.

It shows a deficit that increases every year from 2016 to 2023.

waltworks

  • Magnum Stache
  • ******
  • Posts: 3431
Re: United States National Debt concern
« Reply #79 on: June 28, 2014, 12:08:41 PM »
Again, the projections (which apparently are believable only when supporting your argument) show the deficit holding right around 3% of GDP plus or minus a bit, which is the historical norm.

"Trillions in unfunded liabilities" are nicely balanced by tens of trillions in anticipated economic growth and innovation.

-W

It shows a deficit that increases every year from 2016 to 2023.

warfreak2

  • Handlebar Stache
  • *****
  • Posts: 1140
  • Location: UK
    • Music by me
Re: United States National Debt concern
« Reply #80 on: June 28, 2014, 12:09:19 PM »
It shows a deficit that increases every year from 2016 to 2023.
After first shrinking by much more than that. As I pointed out above, the entire projection remains under the current level today; claiming that this is a projected "growth" is either innumerate or dishonest. (I'm currently offering a great investment opportunity, which grows by 6%/year for 7 years. Oh, there's an up-front fee of 35%, but never mind that, the investment grows!). Also, the projection stops growing in 2022, not 2023, but please keep assuming the rest of us can't read a graph.

socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #81 on: June 28, 2014, 12:58:51 PM »
Again, the projections (which apparently are believable only when supporting your argument) show the deficit holding right around 3% of GDP plus or minus a bit, which is the historical norm.

"Trillions in unfunded liabilities" are nicely balanced by tens of trillions in anticipated economic growth and innovation.

-W

It shows a deficit that increases every year from 2016 to 2023.

The projections don't bode well as they are if you take them at face value. Why? Because you're still adding hundreds of billions to the national debt every year for the foreseeable future and in an amount increasing between 2015 and 2023. That's if you believe their projections will be met. If you go back and look at how accurately past CBO projections they tend to be overly optimistic. The debt to GDP ratio, which is what has been under discussion this entire thread is well above historic norms. For example, if you go back just a few years ago they predicted we would see over 4% GDP growth in 2014 and 5% in 2015.



How has that projection worked out? I could go back to earlier predictions and the trend is the same. So what I'm saying is the projections don't paint a pretty picture as they are when the debt to GDP ratio is already over 100%.  Not to mention the fact that these metrics are problematic at best. GDP includes government spending. That means as government spends more and increases the GDP number it lowers these ratios making the situation look better on the surface than it actually is. And on top of that GDP isn't even the same as government revenue! When you look at your own balance sheet do you measure your expenditures against your income or the income of your employer?

Look the bottom line in all this is the country is on an unsustainable path with respect to debt and government debt in particular. A path that other countries have already been down with very negative consequences. MMM constantly harps on this so I'm astonished to find so many here who think the same rules of math just don't apply at the macro level. Seems like denial and wishful thinking to me. My suggestion besides what most here are probably already doing if they are following his advice would be to have at least some of your portfolio hedged against inflation. Overly cautious? Perhaps but I don't think so. It was a good idea in 1971 and in 2001 and by just about any metric you want to look at the US economy and .gov finances were in better shape then than now.

Ok, let the shooting the messenger continue. I can take it. I promise. :)

waltworks

  • Magnum Stache
  • ******
  • Posts: 3431
Re: United States National Debt concern
« Reply #82 on: June 28, 2014, 01:09:33 PM »
Ok, I'm done now. If you think "historical" growth is captured well by looking at the 2000-2010 period, you are welcome to continue freaking out but it's pretty clear you're not going to be persuaded by any sort of rational argument from me or anyone else. Enjoy your paranoia, welcome to the forum.

-W

socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #83 on: June 28, 2014, 01:21:54 PM »
Also a question about deflation since it was brought up earlier. Technology is perhaps the most deflationary sector of the economy. Todays computer is far more powerful than one in the 90s and at a fraction of the cost. Yet this sector is still robust and innovative and profitable. Shouldn't it have dried up and died by now because of consumers sitting on their money not buying anything because they could buy more with the same money next year?

Eric

  • Magnum Stache
  • ******
  • Posts: 4061
  • Location: On my bike
Re: United States National Debt concern
« Reply #84 on: June 28, 2014, 01:32:08 PM »
GDP includes government spending. That means as government spends more and increases the GDP number it lowers these ratios making the situation look better on the surface than it actually is.

The ratio is Debt:GDP, correct?  Since we're deficit spending, wouldn't they cancel each other out?

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8890
  • Registered member
Re: United States National Debt concern
« Reply #85 on: June 28, 2014, 01:44:02 PM »
Socratic, did you even read the comments and links before you jumped in here?  Argentina has debt denominated in currency they do not control.  This will make it hard to service debt in bad economic circumstances.  The US wisely does not have this problem.  It can print whatever it needs.  Yes, it does not need to tax or borrow to operate.  Yes this will cause inflation.  No, it probably wouldn't be catastrophic inflation as long as there is productive capacity left in the economy.  I suggest you look into basic macroeconomics.

I suggest you start here for a good discussion on both sides:

http://gyroscopicinvesting.com/forum/permanent-portfolio-discussion/printing-money-does-not-equal-inflation/?nowap
« Last Edit: June 28, 2014, 01:47:15 PM by dragoncar »

socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #86 on: June 28, 2014, 01:45:37 PM »
Ok, I'm done now. If you think "historical" growth is captured well by looking at the 2000-2010 period, you are welcome to continue freaking out but it's pretty clear you're not going to be persuaded by any sort of rational argument from me or anyone else. Enjoy your paranoia, welcome to the forum.

-W

It's really not much of a rational argument to presume the government will get out of this situation through economic growth. That has been the predicted solution for decades now based on rosy government predictions of limited spending and high economic growth. Meanwhile the forecasts fell short and debt has grown in nominal and in relative terms and is set to continue that trend. What's the basis for thinking that is going to change now? No rational basis for such an expectation has been offered. I'm not paranoid my friend. You're just engaged in wishful thinking. ;)

socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #87 on: June 28, 2014, 01:51:54 PM »
GDP includes government spending. That means as government spends more and increases the GDP number it lowers these ratios making the situation look better on the surface than it actually is.

The ratio is Debt:GDP, correct?  Since we're deficit spending, wouldn't they cancel each other out?

An extreme example just to demonstrate the math.

Debt $5
GDP $10 of which $5 is government spending
Debt to GDP ratio 50%

Government spending doubles to $10 (negative for the private sector BTW)
Debt $5
GDP $15
Debt to GDP ratio 33%

Which situation is more sustainable?

socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #88 on: June 28, 2014, 01:58:32 PM »
Socratic, did you even read the comments and links before you jumped in here?  Argentina has debt denominated in currency they do not control.  This will make it hard to service debt in bad economic circumstances.  The US wisely does not have this problem.  It can print whatever it needs.  Yes, it does not need to tax or borrow to operate.  Yes this will cause inflation.  No, it probably wouldn't be catastrophic inflation as long as there is productive capacity left in the economy.  I suggest you look into basic macroeconomics.

I suggest you start here for a good discussion on both sides:

http://gyroscopicinvesting.com/forum/permanent-portfolio-discussion/printing-money-does-not-equal-inflation/?nowap

Argentina can run the printing presses to buy dollars. They will devalue their currency by doing so. The US government could pay it's debt in the same way by simply monetizing it. That's destructive to the value of the dollar and the dollar based economy. Yes it has the advantage of being the world's reserve currency. But there are limits to how far that can be pushed. Nobody knows what that limit is but other countries are already moving to become less dependent on the dollar.
« Last Edit: June 28, 2014, 02:13:53 PM by socraticmethod »

warfreak2

  • Handlebar Stache
  • *****
  • Posts: 1140
  • Location: UK
    • Music by me
Re: United States National Debt concern
« Reply #89 on: June 28, 2014, 02:01:03 PM »
GDP includes government spending. That means as government spends more and increases the GDP number it lowers these ratios making the situation look better on the surface than it actually is.

The ratio is Debt:GDP, correct?  Since we're deficit spending, wouldn't they cancel each other out?
The ratio is deficit-to-GDP, at least that's what we were talking about above. If the current deficit-to-GDP ratio is d/g and you borrow another s > 0 to spend, the new deficit is d+s, the new gdp is g+s, so the new ratio is (d+s)/(g+s), which is bigger than the old ratio d/g because:

g > d > 0
gs > ds
gd + gs > gd + ds
g(d+s) > d(g+s)
(d+s)/(g+s) > d/g

Of course, this argument works exactly the same whether d is the deficit or the debt. Another way of looking at it is, the more you add to both numbers, the closer to 100% their ratio becomes, so if the ratio is below 100% it goes up, not down. It's almost as if the alarmism argument isn't based on actual maths...

Debt $5
GDP $10 of which $5 is government spending
Debt to GDP ratio 50%

Government spending doubles to $10 (negative for the private sector BTW)
Debt $5
GDP $15
Debt to GDP ratio 33%
Where did the government get the extra $5 from? Your argument was that the government would borrow more to spend, so the debt would become $10, giving a debt-to-GDP ratio of 67%, which is greater than 50%.
« Last Edit: June 28, 2014, 02:06:01 PM by warfreak2 »

warfreak2

  • Handlebar Stache
  • *****
  • Posts: 1140
  • Location: UK
    • Music by me
Re: United States National Debt concern
« Reply #90 on: June 28, 2014, 02:14:26 PM »
Argentina can run the printing presses to buy dollars. They will devalue their currency by doing so.
Argentina cannot guarantee to print enough Argentine pesos to settle its debts, because those debts aren't denominated in Argentine pesos. Somebody has to actually buy Argentine pesos for US dollars from the government, and they aren't going to just buy as many pesos as the Argentine government can print; what would be the point in owning practically all of the Argentine pesos in existence?

If they owe $123, that will currently cost 1000 pesos, but if they print 1000 pesos then the exchange rate can drop, and they can't buy as many dollars as they like just by printing more pesos. Suppose they only have 500 pesos, but they print 500 more, and now maybe it costs almost 2000 pesos to buy $123. They print another 1000, but now $123 costs almost 4000 pesos... there is potentially no limit, it depends on the Argentine economy being able to provide enough goods and services to be bought with pesos, so that people will still want to buy pesos for dollars, even if more pesos are printed.

By contrast, the US government can guarantee printing enough US dollars to settle its debts, because those debts are denominated in US dollars, so the printing has no effect on how many dollars are needed to settle them.

socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #91 on: June 28, 2014, 03:06:38 PM »
GDP includes government spending. That means as government spends more and increases the GDP number it lowers these ratios making the situation look better on the surface than it actually is.

The ratio is Debt:GDP, correct?  Since we're deficit spending, wouldn't they cancel each other out?
The ratio is deficit-to-GDP, at least that's what we were talking about above. If the current deficit-to-GDP ratio is d/g and you borrow another s > 0 to spend, the new deficit is d+s, the new gdp is g+s, so the new ratio is (d+s)/(g+s), which is bigger than the old ratio d/g because:

g > d > 0
gs > ds
gd + gs > gd + ds
g(d+s) > d(g+s)
(d+s)/(g+s) > d/g

Of course, this argument works exactly the same whether d is the deficit or the debt. Another way of looking at it is, the more you add to both numbers, the closer to 100% their ratio becomes, so if the ratio is below 100% it goes up, not down. It's almost as if the alarmism argument isn't based on actual maths...

Debt $5
GDP $10 of which $5 is government spending
Debt to GDP ratio 50%

Government spending doubles to $10 (negative for the private sector BTW)
Debt $5
GDP $15
Debt to GDP ratio 33%
Where did the government get the extra $5 from? Your argument was that the government would borrow more to spend, so the debt would become $10, giving a debt-to-GDP ratio of 67%, which is greater than 50%.

Thanks for correcting my math. It's been a long day. So if you're starting from below 100% the number will trend toward 100%. If you're above 100% the number will trend down toward 100%. The point is that counting government spending as part of GDP makes GDP which is supposed to represent the economic productivity of the country appear artificially high and that has the effect of lowering the debt to GDP ratio or at least make it appear lower than what it would otherwise be. Every dollar that it spends it must confiscate from others either by taxation or inflation. It leaves people poorer. Yet it gets added back into GDP as if the money had never left their pocket to be pissed away down some bureaucratic rat hole.

If you're going to look at GDP as a measure of the ability of an economy to sustain government spending then why are you adding government spending to the GDP figure? Isn't that a flawed methodology? Suppose government spending increased such that it went from 10% of GDP to 90% of GDP while the private sector component shrinks from 90% to 10%. Do both GDP numbers reflect the same capability of the economy to support a certain level of government debt?

With respect to the Argentina example if you're effectively counterfeiting the currency to pay debts the effect is going to be the same whether the debt is paid directly or converted into some other currency first. You're devaluing the currency and stealing from everyone who is using that currency.

socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #92 on: June 28, 2014, 03:41:44 PM »
Interesting reading from the same CBO projections that warfreak posted.

https://www.cbo.gov/publication/45229

Quote
But if current laws do not change, the period of shrinking deficits will soon come to an end. Between 2015 and 2024, annual budget shortfalls are projected to rise substantially—from a low of $469 billion in 2015 to about $1 trillion from 2022 through 2024—mainly because of the aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt. CBO expects that cumulative deficits during that decade will equal $7.6 trillion if current laws remain unchanged. As a share of GDP, deficits are projected to rise from 2.6 percent in 2015 to about 4 percent near the end of the 10-year period. By comparison, the deficit averaged 3.1 percent of GDP over the past 40 years and 2.3 percent in the 40 years before fiscal year 2008, when the most recent recession began. From 2015 through 2024, both revenues and outlays are projected to be greater than their 40-year averages as a percentage of GDP (see the figure below).

https://www.cbo.gov/sites/default/files/cbofiles/attachments/45229-UpdatedBudgetProjections_2.pdf

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.

No big deal right? After all, "we owe it to ourselves". And keep in mind these projections are assuming inflation stays low for the next 10 years, interest rates don't go up by more than a couple percentage points, GDP growth averages around 3% and no more wars or recessions for the next 10 years.

Cause for concern? Absolutely. Anyone that argues otherwise has their head in the sand or some other place the sun don't shine. Does it mean we should hole up in a bunker expecting the end of the world? Of course not! The world will keep on turning. Just be aware and try to learn from history, prepare as best you can and keep on living life. :)
« Last Edit: June 28, 2014, 11:29:23 PM by socraticmethod »

warfreak2

  • Handlebar Stache
  • *****
  • Posts: 1140
  • Location: UK
    • Music by me
Re: United States National Debt concern
« Reply #93 on: June 28, 2014, 05:07:09 PM »
If you're going to look at GDP as a measure of the ability of an economy to sustain government spending then why are you adding government spending to the GDP figure? [...] Do both GDP numbers reflect the same capability of the economy to support a certain level of government debt?
Obviously, yes. Unless you actually reduced the amount of money spent on acquiring taxed goods and services, of course it's the same. Why does it matter who acquires them? Whether a business gets its income from contracts with other businesses, or from contracts with the government, it pays the same tax on that income. Why wouldn't it? Why would there be a difference?

Quote
With respect to the Argentina example if you're effectively counterfeiting the currency to pay debts the effect is going to be the same whether the debt is paid directly or converted into some other currency first. You're devaluing the currency and stealing from everyone who is using that currency.
No, the effect is not the same at all. In the former case, the amount of printing that needs to be done is hyperbolic in the size of the debt, if it is even possible to pay the debts by printing at all. In the latter case, the amount of printing that needs to be done is at most equal to the size of the debt, because if printing money devalues the currency, it also devalues the debt in the same proportion. Mathematically, it's like the difference between a rocket and an electric train - the rocket needs fuel to carry the extra weight of the fuel it needs to carry the extra weight of the fuel, ad infinitum... The very fact that it's actually possible for Argentina to default, but literally impossible for the US to default, should make it clear that there is a fundamental, qualitative difference between the two situations.
« Last Edit: June 28, 2014, 05:12:21 PM by warfreak2 »

fixer-upper

  • Bristles
  • ***
  • Posts: 258
  • Location: Wisconsin
Re: United States National Debt concern
« Reply #94 on: June 28, 2014, 09:20:35 PM »
This thread is one to bookmark and revisit in 5 or 10 years. Some folks here are in for a rude awakening. In economics there is no free lunch, not even for governments.

Aside from stocking up on tinfoil and moving into a bunker, what exactly are you doing to prepare for your chosen doom scenario?

I'm protecting my assets from bail-ins, and diversifying with some off-the-book assets.  Every major western government has indicated that they're willing to follow the example of Greece, so planning for the ball to drop is prudent rather than tinfoil hattish.

You think the zerohedge folks are nuts, and they think you're nuts.  The truth is most likely somewhere in the middle.

waltworks

  • Magnum Stache
  • ******
  • Posts: 3431
Re: United States National Debt concern
« Reply #95 on: June 28, 2014, 09:30:26 PM »
You know, I hate to be the one to point this out, but inflation is the OPPOSITE of Greece's problem. Having your own currency (or not) is a big, big deal.

_W

This thread is one to bookmark and revisit in 5 or 10 years. Some folks here are in for a rude awakening. In economics there is no free lunch, not even for governments.

Aside from stocking up on tinfoil and moving into a bunker, what exactly are you doing to prepare for your chosen doom scenario?

I'm protecting my assets from bail-ins, and diversifying with some off-the-book assets.  Every major western government has indicated that they're willing to follow the example of Greece, so planning for the ball to drop is prudent rather than tinfoil hattish.

You think the zerohedge folks are nuts, and they think you're nuts.  The truth is most likely somewhere in the middle.

fixer-upper

  • Bristles
  • ***
  • Posts: 258
  • Location: Wisconsin
Re: United States National Debt concern
« Reply #96 on: June 28, 2014, 10:08:55 PM »
The Fed has its own currency.  The US (aside from coins), does not.  Realizing that the Fed is not a part of the government is a very important distinction.

The Greeks are being taxed (via utility bills) to save their central bank.  In addition, there's rampant unemployment, and their bank accounts were raided.  Is it possible for that to happen here?  I think so, and if keeping the pantry full, buying extra clothes, doing proactive maintenance, and keeping a garage full of productive assets such as tools qualifies me for a tinfoil hat, I'll wear it with pride.

Knowing you can get by with little to no money > a fat portfolio when the ATM stops working.

You know, I hate to be the one to point this out, but inflation is the OPPOSITE of Greece's problem. Having your own currency (or not) is a big, big deal.

_W

This thread is one to bookmark and revisit in 5 or 10 years. Some folks here are in for a rude awakening. In economics there is no free lunch, not even for governments.

Aside from stocking up on tinfoil and moving into a bunker, what exactly are you doing to prepare for your chosen doom scenario?

I'm protecting my assets from bail-ins, and diversifying with some off-the-book assets.  Every major western government has indicated that they're willing to follow the example of Greece, so planning for the ball to drop is prudent rather than tinfoil hattish.

You think the zerohedge folks are nuts, and they think you're nuts.  The truth is most likely somewhere in the middle.
« Last Edit: June 28, 2014, 10:13:28 PM by fixer-upper »

brewer12345

  • Handlebar Stache
  • *****
  • Posts: 1386
Re: United States National Debt concern
« Reply #97 on: June 28, 2014, 10:40:54 PM »
The Fed has its own currency.  The US (aside from coins), does not.  Realizing that the Fed is not a part of the government is a very important distinction.

Ah, the Ron Paul lunacy emerges into the light, all those legs scuttling around like crazy.  Ick!

I can tell you that the people who work at the Federal Reserve Board are to a man/woman/whatzit Federal Gubmint employees who bow to the Treasury Department in a whipped-doglike fashion, to my very great frustration on a daily basis for 5 freaking years.  The actual currency comes to the Fed from the Bureau of Engraving & Printing, a gubmint agency.

socraticmethod

  • 5 O'Clock Shadow
  • *
  • Posts: 65
Re: United States National Debt concern
« Reply #98 on: June 28, 2014, 10:48:33 PM »
The Fed has its own currency.  The US (aside from coins), does not.  Realizing that the Fed is not a part of the government is a very important distinction.

The Greeks are being taxed (via utility bills) to save their central bank.  In addition, there's rampant unemployment, and their bank accounts were raided.  Is it possible for that to happen here?  I think so, and if keeping the pantry full, buying extra clothes, doing proactive maintenance, and keeping a garage full of productive assets such as tools qualifies me for a tinfoil hat, I'll wear it with pride.

Knowing you can get by with little to no money > a fat portfolio when the ATM stops working.

You know, I hate to be the one to point this out, but inflation is the OPPOSITE of Greece's problem. Having your own currency (or not) is a big, big deal.

_W

This thread is one to bookmark and revisit in 5 or 10 years. Some folks here are in for a rude awakening. In economics there is no free lunch, not even for governments.

Aside from stocking up on tinfoil and moving into a bunker, what exactly are you doing to prepare for your chosen doom scenario?

I'm protecting my assets from bail-ins, and diversifying with some off-the-book assets.  Every major western government has indicated that they're willing to follow the example of Greece, so planning for the ball to drop is prudent rather than tinfoil hattish.

You think the zerohedge folks are nuts, and they think you're nuts.  The truth is most likely somewhere in the middle.

Well said.

fixer-upper

  • Bristles
  • ***
  • Posts: 258
  • Location: Wisconsin
Re: United States National Debt concern
« Reply #99 on: June 28, 2014, 10:59:16 PM »
The Fed has its own currency.  The US (aside from coins), does not.  Realizing that the Fed is not a part of the government is a very important distinction.

Ah, the Ron Paul lunacy emerges into the light, all those legs scuttling around like crazy.  Ick!

I can tell you that the people who work at the Federal Reserve Board are to a man/woman/whatzit Federal Gubmint employees who bow to the Treasury Department in a whipped-doglike fashion, to my very great frustration on a daily basis for 5 freaking years.  The actual currency comes to the Fed from the Bureau of Engraving & Printing, a gubmint agency.

Your insults go against forum policy as well as discrediting your arguments.  Perhaps you could put on your big boy pants and behave like a gentleman?

Maybe then, you could explain why we need for-profit banks to create our currency, rather than just doing it ourselves.  Perhaps the employees of the Fed are whipped and doglike, but the owners seem to have the politicians firmly in their grasp.  The bulk of the stimulus going to the banks rather than directly to the people is proof enough of that.