4 ms·

70% of the US budget is inexorably allocated to entitlements, interest on debt, and welfare. The rubicon of 100% US Debt-to GDP will soon be crossed. Many US st

by rrggrr 9y ago

70% of the US budget is inexorably allocated to entitlements, interest on debt, and welfare. The rubicon of 100% US Debt-to GDP will soon be crossed. Many US states are hanging on to solvency by a thread. Corporations and banks have sequestered hundreds of billions in cash waiting for signs of US fiscal stability. And what does the media want to talk about? Russian spies and Chinese A.I. Rome burns and everyone is asleep or mad with partisan fever.

Sargos 9y ago
You are just fear mongering. USA's debt to GDP ratio is not a problem for our economy or anything else and won't be for a very long time. The US economy is growing fast enough that the debt-to-GDP has no effect on our stability as we could pay it off if we wanted to and do indeed have plans for this sort of thing. Also most of our debt is actually owned by US citizens which also helps make this a non issue. There's a reason nobody credible thinks the sky is falling. It's not. Helpful article: https://www.thebalance.com/what-is-the-debt-to-gdp-ratio-1978993 https://www.thebalance.com/what-is-the-debt-to-gdp-ratio-197...
- rrggrr 9y ago
  Debt suppresses growth above 85% of GDP. At current levels it reduces net purchasing power. It depletes tangible foreign reserves. It causes legislative gridlock. It distorts the Federal Reserve's balance sheet. It also doesn't sit in isolation. The BLS statistics add another 200 or so percent for about 300% debt-to-GDP when you include household, state and muni debt. Unlike China, the US citizen lender argument isn't helpful. US debt holders are free to move their money into other assets. The only argument in favor of the current debt levels is that no other nation can float enough liquidity to compete with US debt. For that reason alone the sky isn't falling.
yequalsx 9y ago
Medicare and Social Security are not entitlements. Social Security is a pension system that we pay into. There are some exceptions to this for Social Security but a large majority of the funds payed out are to people who paid into the system. Medicare is an insurance system for the elderly. We all pay into it. Social Security and Medicare happen to be government run and there aren't options to opt out of them but they are not welfare or entitlement programs. The shortcomings for Social Security are easy to fix. I don't know about Medicare and it's actuarial prospects. Crossing the 100% debt/gdp ratio is not a Rubicon. Lots of countries have done this and been none the worse for having done so. The U.S. famously exceeded 100% debt/gdp ratio during WWII. It was able to come down from that. Current debt obligations for the U.S. are in low interest bonds. The borrowing of the money has not crippled the nation. Spending it poorly on stupid wars, a massive surveillance/security apparatus in the form of DOD, CIA, etc. has been a problem. Currently, as a percent of GDP taxes in the U.S. are quite low. https://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_to_GDP_ratio https://en.wikipedia.org/wiki/List_of_countries_by_tax_reven...
linkages 9y ago
China has 300%+ GDP to Debt ratio, collapsing economy, declining forex, fake GDP numbers, strict capital controls, internet censorship, middle income trap, authoritarian regime that brutalizes treatment of its own people, floods the world with cheap, shoddy products that destroys the manufacturing and community of other countries, pollution, poisonous food, poisonous water, mindwashing culture, allies with NK that seeks to destroy the world, pollutes the earth, etc. And what do people want to talk about? how bad (supposedly) US is. When US leads the world in innovation and protection against aggression from NK and Russia (and China), ruled by dictators that brutalizes its own people. Whataboutism.
- dang 9y ago
  This sort of ideological rant isn't welcome here, and we've banned this account. Please don't create accounts to do this. It's not what the site is for.
devy 9y ago
Btw, The Economist is a British media, not an U.S. media. So your assumption of domestic media not talking about the bigger fiscal issues in US doesn't really apply in this particular case. And traditionally, The Economist has covered a lot of aspect of China in a fair and analytical angle than any other US medias do.
allemagne 9y ago
Don't mask simplistic ideological beliefs about debt and economics as some kind of melodramatic reality everyone else but you is ignoring.
- rrggrr 9y ago
  There's nothing ideological in saying this isn't sustainable: https://fred.stlouisfed.org/series/GFDEBTN https://fred.stlouisfed.org/series/GFDEBTN
comicjk 9y ago
70% of the US federal government budget is 15% of GDP. Not such a big deal, especially considering that we're going to be paying for pensions and healthcare somehow, whether as a government program or otherwise. Rubicon? I don't recall the sacred oath not to cross a 100% debt-to-GDP ratio. What's the importance of that particular round number, which many countries including the US have crossed in the past, except for rhetoric? Finally, what makes you think corporations are holding cash waiting for fiscal stability, of all things? How would US dollars or bonds help them in case of US fiscal instability? Isn't it more parsimonious to think that they're waiting for return on investment? And that has much more to do with growth than with government debt.
callmeal 9y ago
You are way off. 10% goes to welfare. 6% goes to interest on debt. 16% goes to defense. 25% goes to CHIP/medicare/medicaid. (25% to social security, but that has a separate tax inflow and is a net positive to the budget.) see: https://www.cbpp.org/research/federal-budget/policy-basics-where-do-our-federal-tax-dollars-go https://www.cbpp.org/research/federal-budget/policy-basics-w...
- rrggrr 9y ago
  http://www.politifact.com/truth-o-meter/statements/2015/aug/17/facebook-posts/pie-chart-federal-spending-circulating-internet-mi/ http://www.politifact.com/truth-o-meter/statements/2015/aug/...
  - callmeal 9y ago
    The numbers in that page are exactly the ones I mentioned. So what were you trying to say?
seppin 9y ago
100% US Debt-to GDP would still put it ahead of most EU countries, LA, MENA, etc.
- rrggrr 9y ago
  Nope. Add household debt, state debt and obligations, muni debt... its a sinkhole.
colorint 9y ago
The Reinhart-Rogoff research indicating that there's a public-debt-to-GDP Rubicon was wholly discredited by grad students; turns out there is no relationship between debt-to-GDP and growth. http://darribas.org/WooWii/Assignments/OriginalPaper.pdf http://darribas.org/WooWii/Assignments/OriginalPaper.pdf The broader point is, if I issue money and then issue obligations on that money, there's no practical difference between the two issues. That is, public debt of countries that are sovereign in their currency, and only issue debt in their currency, cannot have public debt overhang. It's just a red herring, based on a false analogy between governments (currency issuers) and households (currency users).
- rrggrr 9y ago
  Historically, rates above 200% (eg. Argentina) lead to disorderly corrections (crisis). Michael Pettis regarding the research you cite states: "What is usually missing from such discussions, however, is an explanation of how too much debt leads to slower growth." ... "A country has too much debt when stakeholders begin behaving in ways that reduce growth. The controversy over the research by Rogoff and Reinhart should not be allowed to obscure the nature of the link between debt and economic performance." https://www.project-syndicate.org/commentary/the-misleading-correlation-between-public-debt-and-gdp-growth-by-michael-pettis https://www.project-syndicate.org/commentary/the-misleading-... So, absent a proven behavioral line in the sand, we have only measures of debt to try to surmise at what point debt impacts growth and stability. Its really chicken and egg.
  - colorint 9y ago
    As I said, countries that are sovereign in their currency and don't hold any foreign-denominated debt cannot suffer debt overhang. Or put another way (to specifically address your link, though I only got four paragraphs), there is no involuntary default risk if we're talking about a country issuing money and then issuing liabilities denominated in that money. Regarding specific claims in your linked article: - Bond markets in such countries are subordinate to central banks; the most obvious case is Japan, where a greater-than-200% debt ratio is accompanied by, I believe, negative yields on public debt. Central banks (again, in countries that have nonconvertible sovereign currency) totally control short-term interest rates, and so indirectly control long-term rates. Creditors take the central bank's number and then risk-adjust and discount it for borrowers; for the government the risk is zero, so they just discount it. - Ricardian equivalence is a stupid model. Have you ever made consumption or investment decisions based on a belief that public deficits will result in higher tax rates at some point in the future? I certainly haven't. - "Workers organize to protect their jobs," but I guess the anti-union bent says a lot. Nevermind that spending equals income; a falling wage share is a far more plausible explanation for less-than-desirable growth in most situations. - "savers [...] withdraw their bank deposits" The loanable funds model is not how banking works, but that's a much lengthier discussion. Suffice it to say, it's still the case that central banks set interest rates. I assume this is the reason the author brings this up, because otherwise the question is---they withdraw their savings and do what? - Again, the only way the US government can default on US Treasury obligations is if Congress explicitly decides to do so. There's no mechanical or functional reason this might happen. Historically, countries have not been sovereign in their currency. You'd have to be more specific about Argentina, though its biggest debt crisis was because its currency was pegged to the US dollar. Likewise, the current troubles in the Eurozone come from a lack of currency sovereignty. These things are unfortunate, and will probably lead to a dissolution of the EMU at some point, but they have no bearing on the US.
awkwarddaturtle 9y ago
China has an even worse problem because of their 1 child policy. An aging population with no safety nets who will have to depend on their lone child to support them. We can always print more debt instantaneously thanks to the FED. China can't print more humans. We have our problems for sure, but china is facing far greater problems.

by rrggrr 9y ago

Sargos 9y ago

You are just fear mongering. USA's debt to GDP ratio is not a problem for our economy or anything else and won't be for a very long time. The US economy is growing fast enough that the debt-to-GDP has no effect on our stability as we could pay it off if we wanted to and do indeed have plans for this sort of thing. Also most of our debt is actually owned by US citizens which also helps make this a non issue. There's a reason nobody credible thinks the sky is falling. It's not. Helpful article: https://www.thebalance.com/what-is-the-debt-to-gdp-ratio-1978993 https://www.thebalance.com/what-is-the-debt-to-gdp-ratio-197...

rrggrr 9y ago
Debt suppresses growth above 85% of GDP. At current levels it reduces net purchasing power. It depletes tangible foreign reserves. It causes legislative gridlock. It distorts the Federal Reserve's balance sheet. It also doesn't sit in isolation. The BLS statistics add another 200 or so percent for about 300% debt-to-GDP when you include household, state and muni debt. Unlike China, the US citizen lender argument isn't helpful. US debt holders are free to move their money into other assets. The only argument in favor of the current debt levels is that no other nation can float enough liquidity to compete with US debt. For that reason alone the sky isn't falling.

yequalsx 9y ago

Medicare and Social Security are not entitlements. Social Security is a pension system that we pay into. There are some exceptions to this for Social Security but a large majority of the funds payed out are to people who paid into the system. Medicare is an insurance system for the elderly. We all pay into it. Social Security and Medicare happen to be government run and there aren't options to opt out of them but they are not welfare or entitlement programs. The shortcomings for Social Security are easy to fix. I don't know about Medicare and it's actuarial prospects. Crossing the 100% debt/gdp ratio is not a Rubicon. Lots of countries have done this and been none the worse for having done so. The U.S. famously exceeded 100% debt/gdp ratio during WWII. It was able to come down from that. Current debt obligations for the U.S. are in low interest bonds. The borrowing of the money has not crippled the nation. Spending it poorly on stupid wars, a massive surveillance/security apparatus in the form of DOD, CIA, etc. has been a problem. Currently, as a percent of GDP taxes in the U.S. are quite low. https://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_to_GDP_ratio https://en.wikipedia.org/wiki/List_of_countries_by_tax_reven...

linkages 9y ago

China has 300%+ GDP to Debt ratio, collapsing economy, declining forex, fake GDP numbers, strict capital controls, internet censorship, middle income trap, authoritarian regime that brutalizes treatment of its own people, floods the world with cheap, shoddy products that destroys the manufacturing and community of other countries, pollution, poisonous food, poisonous water, mindwashing culture, allies with NK that seeks to destroy the world, pollutes the earth, etc. And what do people want to talk about? how bad (supposedly) US is. When US leads the world in innovation and protection against aggression from NK and Russia (and China), ruled by dictators that brutalizes its own people. Whataboutism.

dang 9y ago
This sort of ideological rant isn't welcome here, and we've banned this account. Please don't create accounts to do this. It's not what the site is for.

devy 9y ago

Btw, The Economist is a British media, not an U.S. media. So your assumption of domestic media not talking about the bigger fiscal issues in US doesn't really apply in this particular case. And traditionally, The Economist has covered a lot of aspect of China in a fair and analytical angle than any other US medias do.

allemagne 9y ago

Don't mask simplistic ideological beliefs about debt and economics as some kind of melodramatic reality everyone else but you is ignoring.

rrggrr 9y ago
There's nothing ideological in saying this isn't sustainable: https://fred.stlouisfed.org/series/GFDEBTN https://fred.stlouisfed.org/series/GFDEBTN

comicjk 9y ago

70% of the US federal government budget is 15% of GDP. Not such a big deal, especially considering that we're going to be paying for pensions and healthcare somehow, whether as a government program or otherwise. Rubicon? I don't recall the sacred oath not to cross a 100% debt-to-GDP ratio. What's the importance of that particular round number, which many countries including the US have crossed in the past, except for rhetoric? Finally, what makes you think corporations are holding cash waiting for fiscal stability, of all things? How would US dollars or bonds help them in case of US fiscal instability? Isn't it more parsimonious to think that they're waiting for return on investment? And that has much more to do with growth than with government debt.

callmeal 9y ago

You are way off. 10% goes to welfare. 6% goes to interest on debt. 16% goes to defense. 25% goes to CHIP/medicare/medicaid. (25% to social security, but that has a separate tax inflow and is a net positive to the budget.) see: https://www.cbpp.org/research/federal-budget/policy-basics-where-do-our-federal-tax-dollars-go https://www.cbpp.org/research/federal-budget/policy-basics-w...

rrggrr 9y ago
http://www.politifact.com/truth-o-meter/statements/2015/aug/17/facebook-posts/pie-chart-federal-spending-circulating-internet-mi/ http://www.politifact.com/truth-o-meter/statements/2015/aug/...
- callmeal 9y ago
  The numbers in that page are exactly the ones I mentioned. So what were you trying to say?

seppin 9y ago

100% US Debt-to GDP would still put it ahead of most EU countries, LA, MENA, etc.

rrggrr 9y ago
Nope. Add household debt, state debt and obligations, muni debt... its a sinkhole.

colorint 9y ago

The Reinhart-Rogoff research indicating that there's a public-debt-to-GDP Rubicon was wholly discredited by grad students; turns out there is no relationship between debt-to-GDP and growth. http://darribas.org/WooWii/Assignments/OriginalPaper.pdf http://darribas.org/WooWii/Assignments/OriginalPaper.pdf The broader point is, if I issue money and then issue obligations on that money, there's no practical difference between the two issues. That is, public debt of countries that are sovereign in their currency, and only issue debt in their currency, cannot have public debt overhang. It's just a red herring, based on a false analogy between governments (currency issuers) and households (currency users).

rrggrr 9y ago
Historically, rates above 200% (eg. Argentina) lead to disorderly corrections (crisis). Michael Pettis regarding the research you cite states: "What is usually missing from such discussions, however, is an explanation of how too much debt leads to slower growth." ... "A country has too much debt when stakeholders begin behaving in ways that reduce growth. The controversy over the research by Rogoff and Reinhart should not be allowed to obscure the nature of the link between debt and economic performance." https://www.project-syndicate.org/commentary/the-misleading-correlation-between-public-debt-and-gdp-growth-by-michael-pettis https://www.project-syndicate.org/commentary/the-misleading-... So, absent a proven behavioral line in the sand, we have only measures of debt to try to surmise at what point debt impacts growth and stability. Its really chicken and egg.
- colorint 9y ago
  As I said, countries that are sovereign in their currency and don't hold any foreign-denominated debt cannot suffer debt overhang. Or put another way (to specifically address your link, though I only got four paragraphs), there is no involuntary default risk if we're talking about a country issuing money and then issuing liabilities denominated in that money. Regarding specific claims in your linked article: - Bond markets in such countries are subordinate to central banks; the most obvious case is Japan, where a greater-than-200% debt ratio is accompanied by, I believe, negative yields on public debt. Central banks (again, in countries that have nonconvertible sovereign currency) totally control short-term interest rates, and so indirectly control long-term rates. Creditors take the central bank's number and then risk-adjust and discount it for borrowers; for the government the risk is zero, so they just discount it. - Ricardian equivalence is a stupid model. Have you ever made consumption or investment decisions based on a belief that public deficits will result in higher tax rates at some point in the future? I certainly haven't. - "Workers organize to protect their jobs," but I guess the anti-union bent says a lot. Nevermind that spending equals income; a falling wage share is a far more plausible explanation for less-than-desirable growth in most situations. - "savers [...] withdraw their bank deposits" The loanable funds model is not how banking works, but that's a much lengthier discussion. Suffice it to say, it's still the case that central banks set interest rates. I assume this is the reason the author brings this up, because otherwise the question is---they withdraw their savings and do what? - Again, the only way the US government can default on US Treasury obligations is if Congress explicitly decides to do so. There's no mechanical or functional reason this might happen. Historically, countries have not been sovereign in their currency. You'd have to be more specific about Argentina, though its biggest debt crisis was because its currency was pegged to the US dollar. Likewise, the current troubles in the Eurozone come from a lack of currency sovereignty. These things are unfortunate, and will probably lead to a dissolution of the EMU at some point, but they have no bearing on the US.

awkwarddaturtle 9y ago

China has an even worse problem because of their 1 child policy. An aging population with no safety nets who will have to depend on their lone child to support them. We can always print more debt instantaneously thanks to the FED. China can't print more humans. We have our problems for sure, but china is facing far greater problems.