7 ms·

U.S.'s $13 Trillion Debt Poised to Overtake GDP

49 points by startuprules 16y ago

nikete 16y ago
It is worth to point out that one is a stock (debt) and one is a flow (GDP), and the right way of comparing them would be by taking the net present value of the flow, or comparing the cost of servicing the debt per year to GDP (so debt servicing cost climb to x percent of gdp).
- SkyMarshal 16y ago
  >or comparing the cost of servicing the debt per year to GDP (so debt servicing cost climb to x percent of gdp). Yeah, or yearly debt servicing cost vs yearly tax revenue, or delta debt servicing cost vs delta tax revenue. The GDP component only hints at the underlying issues - what it costs us to service the debt, and what it would cost us to stop adding to it, and what it would cost us to pay it down the hard way.
- emrosenf 16y ago
  According to this NYT article (http://www.nytimes.com/2009/11/23/business/23rates.html http://www.nytimes.com/2009/11/23/business/23rates.html), debt service was $202B in 2009. It is projected to go to $700B in 2019. To put that in perspective, $500B more than covers what we spend on education, energy, homeland security and the wars in Iraq and Afghanistan. Of course, this assumes that our interest rates stay the same. I don't see how this is possible as our debt/GDP rises. I fear we are seriously choking ourselves.
  - jrockway 16y ago
    I don't think we are choking ourselves. Loaning money to the US government means the government can use all its resources to pay you back. We have not tapped any of those resources yet; taxes in the US are pretty low compared to the rest of the developed world. Also keep in mind that the government can loan money at a higher interest rate than it can borrow it at. (I am not sure how much income this generates, though.)
    - kiba 16y ago
      Higher taxes might actually lead to lower tax revenues or a tax revolt. There's no such thing as a free lunch.
      - philwelch 16y ago
        We're not so far down the Laffer curve that raising taxes would lower revenues, and it's unlikely we will be anytime soon.
        bd_at_rivenhill 16y ago
        On the other hand, technology has significantly reduced the cost of tax avoidance for high net worth individuals compared to what it was during the Clinton era.
        jacobolus 16y ago
        Moreover, the Laffer curve is mostly an absurdity. Martin Gardner’s improved depiction: http://books.google.com/books?id=oXEaTdstD7gC&pg=PA133&lpg=PA133#v=onepage&q&f=false http://books.google.com/books?id=oXEaTdstD7gC&pg=PA133&#...
- aufreak3 16y ago
  Right. I had the same question about directly comparing the GDP figure versus the debt figure. It'll certainly help if someone knowledgeable lays bare the important factors and how they bear on the "rising debt" issue.
jswinghammer 16y ago
It's interesting that many people seem to have accepted that endlessly taking on more debt is a good idea. Debt has to paid off and you can't just take it on endlessly. I wonder what the future looks like if the United States continues to take on more and more debt. Right now we can't really pay it off ever so we're stuck servicing it forever. Seems like we're giving our children a much worse world than the one we were born in. When I was born the debt was pretty manageable and over the course of my lifetime it exploded to something that's basically never going to be paid off.
- jameskilton 16y ago
  Our future will pretty closely mirror what's going on in Europe right now. Greece's debt is some 115% of it's GDP and Italy has around 110%. What happens to Europe, and particularly the PIIGS nations in the next few months will be very important to pretty much the rest of the developed world. And besides that, we can look to history to show us that most major empires (e.g. Roman, Ottoman, British) that ended up collapsing did so partly because of rampant over-spending and a very broken debt-to-gdp ratio.
  - jswinghammer 16y ago
    On the plus side at least we won't have an empire anymore. That's about the only good thing I see coming from all this.
    - abalashov 16y ago
      Perhaps, but in all likelihood it just means someone else will have an empire.
  - Perceval 16y ago
    Not entirely. Greece and Italy cannot issue the currency in which their debt is denominated. The Germans (and French to a lesser extent) control the ECB. The U.S. can issue the currency its debt is denominated in. That puts us in a different situation than Greece. Not necessarily better, but not as imminently bad either.
aufreak3 16y ago
A dumb question - isn't the GDP a per-year figure whereas the debt a total figure? ... so doesn't it simply mean that if all GDP goes to paying off the debt, it will necessarily take more than 1 year. That pay off period is increasing and about to cross the 1 year threshold, but I'm not getting the "debt cycle" concept .. in other words what is the difference between 1year-delta and 1year+delta?
jsz0 16y ago
Like anything else in America we're going to need a crisis for anyone to even consider doing something to resolve the problem. It seems to me that a drastic cut in military spending, raising the retirement age to 70, raising taxes on everyone, closing tax loopholes, and an across the board cut of 5%-10% should be a good start to get this resolved in the next 20 years.
- adbge 16y ago
  Or a drastic reduction in our bloated bureaucracy.
- mechanical_fish 16y ago
  raising the retirement age to 70 That's idiotic. The official US unemployment rate is nearly 10%. The U6 unemployment rate, which is probably closer to what one actually means when one asks "how many people are looking for work" is twice that high. One in every four Americans who wants a job does not have one and we're going to raise the retirement age? What earthly good will that do?
  - slackerIII 16y ago
    I'm guessing he means "raise the age when folks begin collecting social security benefits"
    - prodigal_erik 16y ago
      Also the age at which they might crash the market when they're all forced to begin dumping their 401(k) and IRA holdings. Kiyosaki called this "Rich Dad's Prophecy".
    - mechanical_fish 16y ago
      Same difference. When you take away money that older people are living on, you force them to look for work. Which, in this economy, will tend to make them unemployed. I suppose great-grandma can always move in with her grandkids. Of course, the grandkids are also 25% likely to be unemployed. Naturally, there is a subset of people for whom Social Security is a needless luxury because they are living off of private investments. The proper way to target these people for additional funds is to nudge up the marginal tax rate on those private investments. This is difficult to accomplish, of course, because people with lots of money can afford to buy votes.
duffbeer703 16y ago
I think the difference today is that everyone is using fiat currency, and the markets for commodities potentially useful as a medium of exchange (gold, oil, etc) are too volatile. We've already been living with slow inflationary growth, despite the nonsense spewed by the government. In 1985, a single wage-earner could support a middle-class family. In 2005, two parents need to work, mostly to pay a mortgage and pay a few minimum wage earning daycare workers.
dnsworks 16y ago
Drill baby drill!!!!!!

49 points by startuprules 16y ago

It is worth to point out that one is a stock (debt) and one is a flow (GDP), and the right way of comparing them would be by taking the net present value of the flow, or comparing the cost of servicing the debt per year to GDP (so debt servicing cost climb to x percent of gdp).

SkyMarshal 16y ago
>or comparing the cost of servicing the debt per year to GDP (so debt servicing cost climb to x percent of gdp). Yeah, or yearly debt servicing cost vs yearly tax revenue, or delta debt servicing cost vs delta tax revenue. The GDP component only hints at the underlying issues - what it costs us to service the debt, and what it would cost us to stop adding to it, and what it would cost us to pay it down the hard way.
emrosenf 16y ago
According to this NYT article (http://www.nytimes.com/2009/11/23/business/23rates.html http://www.nytimes.com/2009/11/23/business/23rates.html), debt service was $202B in 2009. It is projected to go to $700B in 2019. To put that in perspective, $500B more than covers what we spend on education, energy, homeland security and the wars in Iraq and Afghanistan. Of course, this assumes that our interest rates stay the same. I don't see how this is possible as our debt/GDP rises. I fear we are seriously choking ourselves.
- jrockway 16y ago
  I don't think we are choking ourselves. Loaning money to the US government means the government can use all its resources to pay you back. We have not tapped any of those resources yet; taxes in the US are pretty low compared to the rest of the developed world. Also keep in mind that the government can loan money at a higher interest rate than it can borrow it at. (I am not sure how much income this generates, though.)
  - kiba 16y ago
    Higher taxes might actually lead to lower tax revenues or a tax revolt. There's no such thing as a free lunch.
    - philwelch 16y ago
      We're not so far down the Laffer curve that raising taxes would lower revenues, and it's unlikely we will be anytime soon.
      - bd_at_rivenhill 16y ago
        On the other hand, technology has significantly reduced the cost of tax avoidance for high net worth individuals compared to what it was during the Clinton era.
      - jacobolus 16y ago
        Moreover, the Laffer curve is mostly an absurdity. Martin Gardner’s improved depiction: http://books.google.com/books?id=oXEaTdstD7gC&pg=PA133&lpg=PA133#v=onepage&q&f=false http://books.google.com/books?id=oXEaTdstD7gC&pg=PA133&#...
aufreak3 16y ago
Right. I had the same question about directly comparing the GDP figure versus the debt figure. It'll certainly help if someone knowledgeable lays bare the important factors and how they bear on the "rising debt" issue.

jswinghammer 16y ago

It's interesting that many people seem to have accepted that endlessly taking on more debt is a good idea. Debt has to paid off and you can't just take it on endlessly. I wonder what the future looks like if the United States continues to take on more and more debt. Right now we can't really pay it off ever so we're stuck servicing it forever. Seems like we're giving our children a much worse world than the one we were born in. When I was born the debt was pretty manageable and over the course of my lifetime it exploded to something that's basically never going to be paid off.

jameskilton 16y ago
Our future will pretty closely mirror what's going on in Europe right now. Greece's debt is some 115% of it's GDP and Italy has around 110%. What happens to Europe, and particularly the PIIGS nations in the next few months will be very important to pretty much the rest of the developed world. And besides that, we can look to history to show us that most major empires (e.g. Roman, Ottoman, British) that ended up collapsing did so partly because of rampant over-spending and a very broken debt-to-gdp ratio.
- jswinghammer 16y ago
  On the plus side at least we won't have an empire anymore. That's about the only good thing I see coming from all this.
  - abalashov 16y ago
    Perhaps, but in all likelihood it just means someone else will have an empire.
- Perceval 16y ago
  Not entirely. Greece and Italy cannot issue the currency in which their debt is denominated. The Germans (and French to a lesser extent) control the ECB. The U.S. can issue the currency its debt is denominated in. That puts us in a different situation than Greece. Not necessarily better, but not as imminently bad either.

aufreak3 16y ago

A dumb question - isn't the GDP a per-year figure whereas the debt a total figure? ... so doesn't it simply mean that if all GDP goes to paying off the debt, it will necessarily take more than 1 year. That pay off period is increasing and about to cross the 1 year threshold, but I'm not getting the "debt cycle" concept .. in other words what is the difference between 1year-delta and 1year+delta?

jsz0 16y ago

Like anything else in America we're going to need a crisis for anyone to even consider doing something to resolve the problem. It seems to me that a drastic cut in military spending, raising the retirement age to 70, raising taxes on everyone, closing tax loopholes, and an across the board cut of 5%-10% should be a good start to get this resolved in the next 20 years.

adbge 16y ago
Or a drastic reduction in our bloated bureaucracy.
mechanical_fish 16y ago
raising the retirement age to 70 That's idiotic. The official US unemployment rate is nearly 10%. The U6 unemployment rate, which is probably closer to what one actually means when one asks "how many people are looking for work" is twice that high. One in every four Americans who wants a job does not have one and we're going to raise the retirement age? What earthly good will that do?
- slackerIII 16y ago
  I'm guessing he means "raise the age when folks begin collecting social security benefits"
  - prodigal_erik 16y ago
    Also the age at which they might crash the market when they're all forced to begin dumping their 401(k) and IRA holdings. Kiyosaki called this "Rich Dad's Prophecy".
  - mechanical_fish 16y ago
    Same difference. When you take away money that older people are living on, you force them to look for work. Which, in this economy, will tend to make them unemployed. I suppose great-grandma can always move in with her grandkids. Of course, the grandkids are also 25% likely to be unemployed. Naturally, there is a subset of people for whom Social Security is a needless luxury because they are living off of private investments. The proper way to target these people for additional funds is to nudge up the marginal tax rate on those private investments. This is difficult to accomplish, of course, because people with lots of money can afford to buy votes.

duffbeer703 16y ago

I think the difference today is that everyone is using fiat currency, and the markets for commodities potentially useful as a medium of exchange (gold, oil, etc) are too volatile. We've already been living with slow inflationary growth, despite the nonsense spewed by the government. In 1985, a single wage-earner could support a middle-class family. In 2005, two parents need to work, mostly to pay a mortgage and pay a few minimum wage earning daycare workers.

dnsworks 16y ago

Drill baby drill!!!!!!