U.S. Public Debt: A Non-Issue

[AUTUmike 79]

A great paper released last week by the IMF demonstrates the folly of fixating on the public debt for states like the U.S. As I have [ahem] been pointing out for over two years now, the U.S. debt level has been adopted as a pseudo-crisis by conservatives in order to pursue their greater, and openly held, goal of reducing the size of government. In actual fact, however, our debt level is not only quite sustainable, but it is also the most efficient use of resources to invest more public funds at the present rather than to reduce the debt burden. Discuss...

A PDF of the paper can be found here: http://www.imf.org/e...aspx?sk=42931.0

The Economist offers a brief summary and a few thoughts about this issue here: http://www.economist.../06/public-debt

[WarTim 3,457]

Funny stuff !! Thanks !!

[AURaptor 1,128]

Reckless lunacy.

[TitanTiger 20,542]

I have seen stuff like this before, but I cannot get my mind around it. I cannot fathom how you can continue to spend more than you take in and it be ok.

[Proud Tiger 4,261]

No matter what this paper or anyone says, you can't.

[icanthearyou 4,464]

I read this last week. I think there are a lot of fundamental truths in the rationality, especially with extremely low (some say negative) interest rates. However, I also believe there are certain factors, implied or assumed, that weigh heavily as to whether a practical/reasonable course of action is, in practice, effective.

I think you have to look at this as, plan and execution. The plan is/was sound. The execution was poor since a great deal of the money never left Washington or New York. We helped the banks, some corporations, we helped some affected people, we spent a lot of money in a rather innocuous manner. What we didn't do, is spend it effectively in a broad, progressive effort to bolster the entire economy. Still, even with poor execution, I believe the alternative of austerity would have been an epic disaster.

I still believe the deficit that should be most concerning to us all, is the trade deficit. We are allowing the wealth and security of the country to be drained. We are undermining our own brand of capitalism. We are hypocritically endorsing and supporting the exploitation of labor and destruction of the environment in other parts of the world. We are undermining our own worker/consumer class in favor of developing new markets for our corporations. This imbalance is, IMHO, the primary cause for wage and wealth disparity. In turn, the demands for government intervention and assistance will grow and, so will spending and deficits.

The immediate effect of avoiding a far worse crisis was successful. Good job. The realizations and actions necessary to avoid another crisis,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,almost nothing. Bad job. What else would you expect from a government run by special interests, ideological idiots, self-serving career politicians, and fueled by inane rhetoric embraced by a systematically divided populous? Bush/Clinton 2016, that is our democracy!

[autigeremt 6,776]

I read this last week. I think there are a lot of fundamental truths in the rationality, especially with extremely low (some say negative) interest rates. However, I also believe there are certain factors, implied or assumed, that weigh heavily as to whether a practical/reasonable course of action is, in practice, effective.

I think you have to look at this as, plan and execution. The plan is/was sound. The execution was poor since a great deal of the money never left Washington or New York. We helped the banks, some corporations, we helped some affected people, we spent a lot of money in a rather innocuous manner. What we didn't do, is spend it effectively in a broad, progressive effort to bolster the entire economy. Still, even with poor execution, I believe the alternative of austerity would have been an epic disaster.

I still believe the deficit that should be most concerning to us all, is the trade deficit. We are allowing the wealth and security of the country to be drained. We are undermining our own brand of capitalism. We are hypocritically endorsing and supporting the exploitation of labor and destruction of the environment in other parts of the world. We are undermining our own worker/consumer class in favor of developing new markets for our corporations. This imbalance is, IMHO, the primary cause for wage and wealth disparity. In turn, the demands for government intervention and assistance will grow and, so will spending and deficits.

The immediate effect of avoiding a far worse crisis was successful. Good job. The realizations and actions necessary to avoid another crisis,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,almost nothing. Bad job. What else would you expect from a government run by special interests, ideological idiots, self-serving career politicians, and fueled by inane rhetoric embraced by a systematically divided populous? Bush/Clinton 2016, that is our democracy!

Yep!

[icanthearyou 4,464]

No matter what this paper or anyone says, you can't.

"you can't" what?

[Proud Tiger 4,261]

Read the last sentence in Titan's post above which I was responding to.

[icanthearyou 4,464]

Read the last sentence in Titan's post above which I was responding to.

But he already said he could not fathom it?

[Proud Tiger 4,261]

Apparently you don't fathom it so let's just move along.

[AUTUmike 79]

No matter what this paper or anyone says, you can't.

You can bind yourself to that titantic falsehood if you choose, just do so knowing you are dead wrong. Since GDP growth outpaces debt in the medium- and long-term (and since the U.S. has zero chance of default), the debt will decrease based on that fact alone.

[AUTUmike 79]

Reckless lunacy.

Ok, I'll play. Tell me what, exactly, you think is going to happen because of this "reckless lunacy."

[icanthearyou 4,464]

Apparently you don't fathom it so let's just move along.

It's not my fault that you did not make your reference very clear.

[TitanTiger 20,542]

No matter what this paper or anyone says, you can't.

You can bind yourself to that titantic falsehood if you choose, just do so knowing you are dead wrong. Since GDP growth outpaces debt in the medium- and long-term (and since the U.S. has zero chance of default), the debt will decrease based on that fact alone.

I admit a certain degree of ignorance here, but help me understand the perspective that ties debt to GDP rather than debt vs. tax revenue. How does measuring it as a percentage of GDP make any difference when GDP isn't "owned" by the US per se?

[icanthearyou 4,464]

No matter what this paper or anyone says, you can't.

You can bind yourself to that titantic falsehood if you choose, just do so knowing you are dead wrong. Since GDP growth outpaces debt in the medium- and long-term (and since the U.S. has zero chance of default), the debt will decrease based on that fact alone.

I admit a certain degree of ignorance here, but help me understand the perspective that ties debt to GDP rather than debt vs. tax revenue. How does measuring it as a percentage of GDP make any difference when GDP isn't "owned" by the US per se?

Our ability to produce is an indicator our our ability to raise revenue via taxes.

[TitanTiger 20,542]

No matter what this paper or anyone says, you can't.

You can bind yourself to that titantic falsehood if you choose, just do so knowing you are dead wrong. Since GDP growth outpaces debt in the medium- and long-term (and since the U.S. has zero chance of default), the debt will decrease based on that fact alone.

I admit a certain degree of ignorance here, but help me understand the perspective that ties debt to GDP rather than debt vs. tax revenue. How does measuring it as a percentage of GDP make any difference when GDP isn't "owned" by the US per se?

Our ability to produce is an indicator our our ability to raise revenue via taxes.

Ok. But the paper says that raising taxes creates a drag on productivity. And the current tax levels aren't bringing in enough revenue to cover spending. So it's an ability that seemingly can't be realized.

[icanthearyou 4,464]

No matter what this paper or anyone says, you can't.

You can bind yourself to that titantic falsehood if you choose, just do so knowing you are dead wrong. Since GDP growth outpaces debt in the medium- and long-term (and since the U.S. has zero chance of default), the debt will decrease based on that fact alone.

I admit a certain degree of ignorance here, but help me understand the perspective that ties debt to GDP rather than debt vs. tax revenue. How does measuring it as a percentage of GDP make any difference when GDP isn't "owned" by the US per se?

Our ability to produce is an indicator our our ability to raise revenue via taxes.

Ok. But the paper says that raising taxes creates a drag on productivity. And the current tax levels aren't bringing in enough revenue to cover spending. So it's an ability that seemingly can't be realized.

The beauty of credit! You aren't having to cover your spending, only servicing your debt.

It can be realized up to the point that your ability to borrow, and your cost of borrowing are affected. However, in an age when you can "borrow from yourself", buy your own notes, I'm not so sure about that one. I think it is time for AUTUmike to jump back in and, explain the intricacies of the Treasury/Fed relationship and, why we even need to pay interest.

[cooltigger21 0]

Just another excuse to keep spending and justify the doubling of the debt under BHO. Hey lets run it up to 100 trillion since it doesn't matter. Let's spend 10 trillion dollars a year.

[TitanTiger 20,542]

Just another excuse to keep spending and justify the doubling of the debt under BHO. Hey lets run it up to 100 trillion since it doesn't matter. Let's spend 10 trillion dollars a year.

I've seen this argument made for years before Obama ever even ran for office. It's not new or a smokescreen created to justify anything of his doing.

[cooltigger21 0]

Just another excuse to keep spending and justify the doubling of the debt under BHO. Hey lets run it up to 100 trillion since it doesn't matter. Let's spend 10 trillion dollars a year.

I've seen this argument made for years before Obama ever even ran for office. It's not new or a smokescreen created to justify anything of his doing.

True and I should have made that distinction. I was specifically referring to the reason it was posted by Mike.

[japantiger 4,052]

No matter what this paper or anyone says, you can't.

You can bind yourself to that titantic falsehood if you choose, just do so knowing you are dead wrong. Since GDP growth outpaces debt in the medium- and long-term (and since the U.S. has zero chance of default), the debt will decrease based on that fact alone.

I admit a certain degree of ignorance here, but help me understand the perspective that ties debt to GDP rather than debt vs. tax revenue. How does measuring it as a percentage of GDP make any difference when GDP isn't "owned" by the US per se?

Our ability to produce is an indicator our our ability to raise revenue via taxes.

Ok. But the paper says that raising taxes creates a drag on productivity. And the current tax levels aren't bringing in enough revenue to cover spending. So it's an ability that seemingly can't be realized.

The beauty of credit! You aren't having to cover your spending, only servicing your debt.

It can be realized up to the point that your ability to borrow, and your cost of borrowing are affected. However, in an age when you can "borrow from yourself", buy your own notes, I'm not so sure about that one. I think it is time for AUTUmike to jump back in and, explain the intricacies of the Treasury/Fed relationship and, why we even need to pay interest.

It's called a Ponzi scheme...you can't borrow from yourself...it's called making stuff up. And I guess as long as everyone else goes along with it; and no one calls your note; you can get away with it. The real issue will be when our current unfunded obligations come due and start to outstrip the ability (either politically or in fact) to raise taxes to cover the outlays...whoever is elected in 2016; should just consider one term...because in the 2020-2022 range the baby boomers are going to ask for their money (Social Security, Medicaid).

[AUTUmike 79]

No matter what this paper or anyone says, you can't.

You can bind yourself to that titantic falsehood if you choose, just do so knowing you are dead wrong. Since GDP growth outpaces debt in the medium- and long-term (and since the U.S. has zero chance of default), the debt will decrease based on that fact alone.

I admit a certain degree of ignorance here, but help me understand the perspective that ties debt to GDP rather than debt vs. tax revenue. How does measuring it as a percentage of GDP make any difference when GDP isn't "owned" by the US per se?

Our ability to produce is an indicator our our ability to raise revenue via taxes.

Ok. But the paper says that raising taxes creates a drag on productivity. And the current tax levels aren't bringing in enough revenue to cover spending. So it's an ability that seemingly can't be realized.

The beauty of credit! You aren't having to cover your spending, only servicing your debt.

It can be realized up to the point that your ability to borrow, and your cost of borrowing are affected. However, in an age when you can "borrow from yourself", buy your own notes, I'm not so sure about that one. I think it is time for AUTUmike to jump back in and, explain the intricacies of the Treasury/Fed relationship and, why we even need to pay interest.

ICHY has been nailing it. As he pointed out, the greater GDP, the greater tax revenue is--even if tax rates remain the same. That is why gains in GDP alone can reduce debt. The main point of the paper is that having fiscal flexibility is more important than having low debt. However, debt DOES become an issue if--like in the popular case of Greece--a state becomes insolvent and cannot service their loan payments. The U.S. is in no danger of reaching that point.

There is such demand for US treasury bills (and at very low yields) that there is virtually no shortage of credit from that stand point. Yes, we need to service those debts in order to maintain their attractiveness in the medium- and long-term; however, by virtue of the U.S. having both desirable debt and an independent central bank (not to mention the world's reserve currency), America is in a unique position to sell debt and be able to almost freely pay it off if they choose. The possible risk in that scenario is inflation (though that, too, would effectively decrease the debt burden of the U.S.), which has remained a non-issue, as evident by the actual numbers and the inevitable bursting of the gold bubble a year or so back. The result of this situation for the Fed and fiscal policymakers alike, is that it grants them the ability to spend more without risking default, destabilizing the currency, or harming foreign investment. However, circling back to the point of the paper, the correct policy avenue is to spend what is necessary for things like infrastructure improvements, not to spend as much as possible just because we can because that would limit future fiscal flexibility.

[japantiger 4,052]

I read this last week. I think there are a lot of fundamental truths in the rationality, especially with extremely low (some say negative) interest rates. However, I also believe there are certain factors, implied or assumed, that weigh heavily as to whether a practical/reasonable course of action is, in practice, effective.

I think you have to look at this as, plan and execution. The plan is/was sound. The execution was poor since a great deal of the money never left Washington or New York. We helped the banks, some corporations, we helped some affected people, we spent a lot of money in a rather innocuous manner. What we didn't do, is spend it effectively in a broad, progressive effort to bolster the entire economy. Still, even with poor execution, I believe the alternative of austerity would have been an epic disaster.

I still believe the deficit that should be most concerning to us all, is the trade deficit. We are allowing the wealth and security of the country to be drained. We are undermining our own brand of capitalism. We are hypocritically endorsing and supporting the exploitation of labor and destruction of the environment in other parts of the world. We are undermining our own worker/consumer class in favor of developing new markets for our corporations. This imbalance is, IMHO, the primary cause for wage and wealth disparity. In turn, the demands for government intervention and assistance will grow and, so will spending and deficits.

The immediate effect of avoiding a far worse crisis was successful. Good job. The realizations and actions necessary to avoid another crisis,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,almost nothing. Bad job. What else would you expect from a government run by special interests, ideological idiots, self-serving career politicians, and fueled by inane rhetoric embraced by a systematically divided populous? Bush/Clinton 2016, that is our democracy!

As to the "execution"; we agree 100%; in spite of the claimed shovel ready jobs; we didn't invest in any of those programs. No roads, bridges, damns, airports, high speed rails, etc...We basically increased transfer payments and move a crap load of $$ to the welfare state.

As to the trade deficit, again, we agree...we need strong domestic production and we need to keep jobs home when possible....some of these move though are inevitable...for example, if I can enter a market and grow a business overseas faster,easier and get higher returns than in the US, well of course I will spend my money in Indonesia or the UK or wherever...we want our companies to have strong global presence...so you can't stop; nor should you want to stop that type of overseas investment growth. But, most of what drives this is a direct product of US tax policy and rates. If we pegged tax policy in a reciprocal fashion; you would see jobs flood back into the US. Having been on the end of moving a ton of jobs overseas; the difference in productivity rarely justifies it...in fact, I don't think I have every seen the productivity delta justify it; though I am sure it does in some cases....It is the tax differences that drive the decision...either outright incentives for locating work somewhere or differences in corporate tax rates. Equalize that; get our corporate rates on par with Singapore or China and you get a ton of jobs back.

As to your final conclusion...I don't think we avoided a far worse crisis. The sky wasn't going to fall. None of the $$ we spent did anything for jobs or economic growth....our GDP growth is only .3% better than the UK which enacted strong austerity measures...and their recent GDP growth is better than ours. We just increased the debt...and propped up the banks. And we continue to increase the debt; and we haven't addressed any of our long term issues....jobs, infrastructure or tax policy.

[AUTUmike 79]

I read this last week. I think there are a lot of fundamental truths in the rationality, especially with extremely low (some say negative) interest rates. However, I also believe there are certain factors, implied or assumed, that weigh heavily as to whether a practical/reasonable course of action is, in practice, effective.

I think you have to look at this as, plan and execution. The plan is/was sound. The execution was poor since a great deal of the money never left Washington or New York. We helped the banks, some corporations, we helped some affected people, we spent a lot of money in a rather innocuous manner. What we didn't do, is spend it effectively in a broad, progressive effort to bolster the entire economy. Still, even with poor execution, I believe the alternative of austerity would have been an epic disaster.

I still believe the deficit that should be most concerning to us all, is the trade deficit. We are allowing the wealth and security of the country to be drained. We are undermining our own brand of capitalism. We are hypocritically endorsing and supporting the exploitation of labor and destruction of the environment in other parts of the world. We are undermining our own worker/consumer class in favor of developing new markets for our corporations. This imbalance is, IMHO, the primary cause for wage and wealth disparity. In turn, the demands for government intervention and assistance will grow and, so will spending and deficits.

The immediate effect of avoiding a far worse crisis was successful. Good job. The realizations and actions necessary to avoid another crisis,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,almost nothing. Bad job. What else would you expect from a government run by special interests, ideological idiots, self-serving career politicians, and fueled by inane rhetoric embraced by a systematically divided populous? Bush/Clinton 2016, that is our democracy!

As to the "execution"; we agree 100%; in spite of the claimed shovel ready jobs; we didn't invest in any of those programs. No roads, bridges, damns, airports, high speed rails, etc...We basically increased transfer payments and move a crap load of $$ to the welfare state.

As to the trade deficit, again, we agree...we need strong domestic production and we need to keep jobs home when possible....some of these move though are inevitable...for example, if I can enter a market and grow a business overseas faster,easier and get higher returns than in the US, well of course I will spend my money in Indonesia or the UK or wherever...we want our companies to have strong global presence...so you can't stop; nor should you want to stop that type of overseas investment growth. But, most of what drives this is a direct product of US tax policy and rates. If we pegged tax policy in a reciprocal fashion; you would see jobs flood back into the US. Having been on the end of moving a ton of jobs overseas; the difference in productivity rarely justifies it...in fact, I don't think I have every seen the productivity delta justify it; though I am sure it does in some cases....It is the tax differences that drive the decision...either outright incentives for locating work somewhere or differences in corporate tax rates. Equalize that; get our corporate rates on par with Singapore or China and you get a ton of jobs back.

As to your final conclusion...I don't think we avoided a far worse crisis. The sky wasn't going to fall. None of the $$ we spent did anything for jobs or economic growth....our GDP growth is only .3% better than the UK which enacted strong austerity measures...and their recent GDP growth is better than ours. We just increased the debt...and propped up the banks. And we continue to increase the debt; and we haven't addressed any of our long term issues....jobs, infrastructure or tax policy.

I disagree strongly with the assertion that tax policy outweighs simple wage rates in determining whether to move production overseas--certainly in terms of manufacturing jobs.

Also, ICHY was absolutely correct that we avoided a far worse crisis through state intervention in 2008-09. It seems as though you're conflating TARP money used to prop up the financial industry (a collapse of which would have caused an economic crisis that was worse by orders of magnitude) with fiscal stimulus undertaken by both Bush and Obama. In other words, the TARP money was to stop the contagion; the stimulus was to stimulate recovery. We absolutely agree on the point that the stimulus money should've been used in other ways, but the primary purpose of it was to increase aggregate demand--which it did. Austerity measures simply do not work and are not necessary for solvent states. The situation is compounded in most of Europe, however, since states there do not have an independent central bank and since their banks were leveraged to a significantly higher degree than U.S. banks. For more on that, I highly recommend Mark Blyth's Austerity (Brown Univ. prof of political economy).