The United States long term debt problem
Michael Linden from Center for American Progress addresses one aspect of using CBO projections, especially the June 2012 report. Best to walk it through with him based on the June report and subsequent reports…good for several posts more is how the current situation is still improving on the debt to GDP ratio so much talked about( and remind people to keep in mind the differences between federal deficit and public debt). Based on going over there to read the walk through, I will post his conclusions only:
The United States long term debt problem
Does this mean our long-term debt problem is solved? No, it doesn’t. Debt at 97 percent of GDP is still a serious challenge. But it’s a much more manageable and less intractable challenge than if the debt was actually on track to hit nearly 200 percent of GDP. With only a little additional deficit reduction, we can stabilize the long-term debt-to-GDP ratio at a reasonable level. Implementing an average of about 0.5 percent of GDP in additional annual programmatic spending cuts or tax increases—or some combination of the two—would keep the debt level essentially stable for the next 25 years, reducing it to about 71 percent of GDP in 2037. This 0.5 percent of GDP would amount to about $1 trillion saved over the next 10 years.
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The conventional wisdom in Washington is that we have a huge long-term debt problem. But we rarely recognize that much of the expected run up in debt is derived not from out-of-control entitlement spending but rather from the assumption that future Congresses will make our budget challenges much worse by enacting new tax cuts and new spending increases without paying for them. Take that assumption away, add in the deficit reduction we’ve already enacted, and factor in the recent slowdown in the growth of health care costs, and the debt projection falls by more than 100 percentage points of GDP. That doesn’t mean the long-term budget picture is suddenly rosy, but it does mean that we may not need to hyperventilate quite so much.
there are so many variables to the long term debt problem that it was never worth hyperventillating about.
the level of employment, interest rates, and government willingness to print money to name a few.
not that it isn’t worth keeping an eye on. but the thing to remember is that there may be really no such thing as “debt” the way it is usually thought of.
we use the resources, including labor, that we have today. and we will use the resources that we have tomorrow. debt… lending money… is always a risk, and the lender bears the risk. unless of course we choose to create debtors prisons… which i am hearing we are doing in a plausibly deniable way… but unlikely to imprison the United Sates of America, or even Greece, unless they assent to it.
looking back over my lifetime, fighting “debt” and “inflation” and “high taxes” have been the surest way to create misery among workers and lower profits even to the rich.
again, something to keep an eye on, and try to manage intelligently, but not something to hyperventiallate about, which is what a small group of people who can’t think past short term profit and political power want us to do. have always wanted us to do.
let me risk going a little further. Antoinne de St Exupery flew a reconnaisance mission early in the War (WW2 for you children) which he knew would produce no useful information and was almost certain to result in his death
he survived (for another two years) and wrote about his thoughts following the “Flight To Arras.”
he develops the idea that he fought a certain-to-lose defense of France in order to defend the “idea of France” which seemed to be something like the brotherhood of Man, which he easily tied into the basic idea of Christianity.. and distinguished from the brotherhood of Communism or Fascism.
along the way he said the France had lost track of it’s own Idea… replacing “being” with an over intellectualized “what should we “do.”
I think American is losing or has lost the Idea of America. That is, there has always been graft and predatory dealing… but at one time this was not “the norm”. People still treated each other decently.. mostly.
Anymore I am not sure that is true. The MBA people have taught us how to be “efficient” predators and that is the new “idea” of America.
I don’t think we will cure what is wrong with our government, or our banks, or the republicans, or the democrats… until WE can recover the original idea of america… not only are all men created equal, but we treat each other as equals
or as St Ex would say, since we need to be equal “in” something, equals in God.
i know that will offend some people who think “God” has something to do with TV preachers and very cynical politicians who use the word to scare the superstitious… but at least for an experiment, try to use the word as “standing for” the idea of treating each other “as yourself” , and even as though it mattered.
(strictly speaking, if you are doing it for some “reward” you are not doing it. but it’s a good enough place to start.)
“….but rather from the assumption that future Congresses will make our budget challenges much worse by enacting new tax cuts and new spending increases without paying for them.”
Are those assumptions about future behavior of the Congress inherent in both CBO and OMB budget projections? That seems rather far fetched. Or do such budgetary “studies” offer projections based on varying scenarios such as, if this, then that. A commparative analysis might be of use in determing what to do and not to do, but otherwise there seems little value to such predictions.
Jack
that. and the fact that all the “debate” is all about “entitlements”.
i suppose it is possible the congress would vote to increase payments to Medicare and Social Security without paying for them.. but that’s what they mean by “out of control entitlement spending.”
so maybe i am not sure this is making any sense.
which is my excuse for my second comment above. we are not thinking about what is decent or even sensible for us to do. we are thinking of “how to balance the budget without paying for what we need.”
all of us.
please note “the budget” and even “the program” have come to mean only the piece of paper with the numbers on it… having nothing to do with what the numbers are for. that way you can “preserve” medicare by cutting it, and leave the people to find a way to pay for medical care other than through Medicare, which is the cheapest and most sensible way for them to do it.
Bottom line is that we do not have a long term debt problem. We just don’t. Federal debt is not something we owe ourselves, it is not like household debt.
James Galbraith on this very topic:
http://www.newrepublic.com/article/politics/93365/no-long-term-deficit-problem#
And yet, S&P’s statement (math error and all) was of a piece with mainstream budget projections from CBO and other official sources. These projections all assume steady growth, low inflation, and falling unemployment (in which case, one may ask, what’s the problem exactly?). Yet they also predict much higher interest rates. In these projections, it is mainly the vicious magic of compound interest—debt compounded on top of debt in computer models—that generates the explosive debt dynamic which rationalized the downgrade.
These projections are so bizarre and so inconsistent that they survive only through the willful refusal of those who use them to actually look at them. With low inflation, why on earth would the Federal Reserve jack up interest rates? If it did, mortgages would go even more massively into default, stocks and bonds and real estate would again crash, so the growth rate could never be achieved. Not to mention the fact that actual economic growth rates have been below-track for two years, so that the short-term assumption that a sustainable recovery is underway is obviously and plainly wrong.
mcosker
subject to correction I am not sure we do not owe it to “ourselves” (and china.)
folks who buy bonds expect to be paid. i suspect they also mostly roll over their bonds so all they really care about is interest. but still the “money” they are paid needs to be tied reasonably to production.
they can take a “loss” from inflation.. because they would take a worse loss any other way they tried to “save” money.
but “bottom line” the congress still has to tax the people to pay the cash “interest.”
not that it often doesn’t make more sense simply to borrow more and increase the debt because the money is better “invested” in real jobs and an economy that makes more for even bondholders than the difference between their interest and their taxes.
In the end who we owe it to is unimportant, and yes productivity is the key.
My only nit Coberly, is that the Government does not even need to issue debt to spend in the first place, which highlights that they do not need taxes to spend. Taxes do serve an important purpose in creating demand for the currency, and regulating aggregate demand.
and here one of us goes ka-blooie.
maybe up to a point the gov does not need to “issue debt” (borrow) or tax to spend. but over the long run, it does. simply as a way of keeping track of “who” is doing something “useful” according to whoever is willing to give up some of his share of “other” production in order to obtain the right to “own” some particular part of production.
you don’t always sound like you don’t believe this, but if you don’t, i don’t see how you propose to ultimately reconcile “production” with “demand.”
said another way
that spending without taxing or borrowing only works if it “stimulates” enough production that will satisfy the effective demand created by the “printed” money.
I am new to these discussions, but I have been doing some study and want to put forth some comments and links.
A government with a non-convertible fiat currency, a floating exchange rate and no debts in a currency other than it’s own has no government budget constraints other than those which are self imposed.All of our debt is denominated in US “currency”. These are nothing more than keyboard strikes. The chinese hold US securities because of trade imbalances and the fact that these are the most secure investments. We will never involuntarily default on our “debts”. Most US debt is debt we owe ourselves. I point to this http://neweconomicperspectives.org/2013/03/government-debt-and-deficits-are-not-the-problem-private-debt-is.html. Feel free to correct me but this makes sense to me.
JuJuMan; sounds about right to me…the Chinese will not demand cash for the Treasury bonds they hold because US treasury bonds are in fact better than cash…and our debt, in the form of a million dollar Treasury bill, is used as money by the international banking system and by sovereign wealth funds a cash in the same sense that you use a ten dollar bill in your wallet…