By Erika Johnson
Here’s some oh-so-pleasant news to keep in mind as Democrats casually insist that we should simply raise the debt ceiling again
and again and again, with no end in sight, and fiercely rip Republicans
for even daring to suggest budget cuts to federal programs.
Congressional budget analysts on Tuesday issued a new warning about the long-term U.S. budget outlook, just as lawmakers and the White House are staring at a pair of fiscal confrontations.
The nonpartisan Congressional Budget Office said that the U.S. national debt is now 73% of gross domestic product, the highest in history except for a period around World War II. The figure is twice the percentage it was at the end of 2007. Read the CBO report.
Modestly lower spending, an improving economy and increased collection of income, payroll and corporate taxes have helped narrow the government’s deficit this fiscal year. If current laws remain in place, CBO said, the debt will decline “slightly” relative to GDP over the next several years.
But CBO cautioned that long-term challenges remain. It warned that growing future deficits will push the debt to 100% of GDP 25 years from now. And under another scenario that envisions changes being made to some laws — including removing the so-called automatic budget cuts known as the sequester — the debt would be even higher, at nearly 190%, by 2038.
While sequestration and Americans’ record-high tax revenue has had a mitigating impact in the near term — news on which the White House has been quick to seize — the entitlement implosion is still stubbornly looming in the future (particularly the incoming strain on Medicare and Social Security) while we accomplish approximately zero in addressing it.
What’s more, as James Pethokoukis
points out at AEI, the debt itself is hardly the long and short of it.
The CBO notes that the above forecast didn’t factor in “the harm that
growing debt would cause to the economy,” and, well…
And when you take into account stuff like how deficits might “crowd out” investment in factories and computers and how people might respond to changes in after-tax wages, you find the debt is much, much larger, closer to 200% of GDP.
The CBO:
“Projected budgetary outcomes under the extended alternative fiscal scenario are worsened by the economic changes that result from its policies. With the effects of lower output and higher interest rates incorporated, federal debt held by the public under the extended alternative fiscal scenario would reach 190 percent of GDP in 2038—about 80 percentage points greater than that under the extended baseline with economic feedback— according to CBO’s central estimates.”
I.e., the side effects of our mounting debt and burdensome policies will continually, directly, and increasingly contribute to economic losses. This is not some distant pain in the neck we can worry about in the future — we need to worry about this now.
*********************
SoRo: Indeed, Erika, but just a few points that puts the grim picture into focus:
The nonpartisan Congressional Budget Office said that the
U.S. national debt is now 73% of gross domestic product, the highest in
history except for a period around World War II. The figure is twice
the percentage it was at the end of 2007.
And, that’s just the PUBLIC debt. The national debt is OVER 100%.
Look at what has happened during the Obama administration:
Debt on 01.20.01: $5,727,776,738,304.64
Debt on 01.19.09: $10,628,881,485,510.23
An increase of: $4,901,104,747,205.59
Debt 01.20.09: $10,626,877,048,913.08
Debt 09.17.13: $16,738,502,722,145.90
An increase of: $6,111,625,673,232.82
Bush was in office for 2,921 days and he deficit spent per day: $1,677,885,911.40.
Obama has been in office for 1,702 days (through 09.17.13) and deficit spends per day: $3,590,849,396.73
Public debt on 01.20.09: $6,307,310,739,681.66
Public debt on 09.17.13: $11,965,887,207,931.11
Obama has increased the debt held by the public by $5,658,576,468,249.45 or 89.72% – EIGHTY-NINE & 72/100 in 1,702 days.
Every man, woman and child’s share of the national debt is now $53,995.17 – that’s a 79.99%— SEVENTY-NINE & 99/100 — INCREASE since Barack Obama’s Imaculation 1,702 days ago.
Total Debt = $16,738,502,722,145.90 and GDP = $16.2027 trillion (est)
Debt-to-GDP = 103.31%
Remember when Obama said this?
The problem is, is that the way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion for the first 42 presidents – #43 added $4 trillion by his lonesome, so that we now have over $9 trillion of debt that we are going to have to pay back — $30,000 for every man, woman and child. That’s irresponsible. It’s unpatriotic.
Well, I say this:
‘The problem is that the way Obama has done it in the last 1,702 days
is to take out a credit card from the Bank of China in the name of our
children, driving up our national debt the $10,628,881,485,510.23 incurred by the first 43 presidents to $16,738,502,722,145.90 now.
No. 44 has added $6,111,625,673,232.82 by his lonesome. So we now
have over $16,738,502,722,145.90 of debt that we are going to have to
pay back. $53,995.17 for every man, woman, and child.
If President Obama called President George W Bush
irresponsible and unpatriotic for presiding over a $4,901,104,747,205.59
increase in the national debt over 8 years, then what does he think we
should call him for spending $6,111,625,673,232.82 in 1,702 days?
Irresponsible and unpatriotic’ sound too mild in comparison; perhaps,
‘treasonous’ might be a more apt description of Mr Obama’s spending.
*********************
RCP: A National Debt Of $17 Trillion? Try $222 Trillion
I
asked Boston University economist Laurence Kotlikoff, an expert on the
national debt, to weigh in on the conversation. The following is a
lightly edited transcript of our conversation.
RealClearPolicy:
Cox and Archer argue that the U.S.’s underlying debt is much higher
than the officially stated debt of $16 trillion. They argue that if you
add up the unfunded obligations the government has -- to Social
Security, Medicare, federal workers’ pensions, and so on -- the real
debt is about $87 trillion. Can that be right?
Kotlikoff: That’s wrong. It’s $222 trillion.
That’s
what we economists call the fiscal gap. I don’t know what those guys
are looking at, but we economists do it a certain way. We’re not
politicians. We’re just doing it the way our theory says to do it. What
you have to do is look at the present value of all the expenditures now
through the end of time. All projected expenditures, including servicing
the official debt. And you subtract all the projected taxes. The
present value of the difference is $222 trillion.
So
the true size of our fiscal problem is $222 trillion, not $87 trillion.
That’s comprehensive and incorporates the official debt. The official
debt in the hands of the public is $11 trillion, so the true problem is
20 times bigger than the official debt.
RCP: Why is it more useful to think about the fiscal gap than the official debt?
Kotlikoff: The
official debt is something that has to be repaid, and the government is
committed to principal and interest payments. But the government has
other commitments, like Social Security payments, health care and
Medicare payments, Medicaid payments, and defense expenditures. And it
also has negative commitments, namely taxes. So you want to put
everything on even footing. Most of the liabilities the government has
incurred in the postwar period have been kept off the books because of
the way we’ve labeled our receipts and payments. The government has gone
out of its way to run up a Ponzi scheme and keep evidence of that off
the books by using language to make it appear that we have a small debt.
So
take my mom. She’s 93. The government is paying her Social Security
benefits. That’s a liability, an inflation-indexed liability. That means
that if inflation goes up, her check goes up. What happens if inflation
goes up to your interest and principal payments on government debt?
They don’t change at all. So inflation can water down the real repayment
of principal and interest, but it won’t water down Social Security
benefits. In some ways, Social Security benefits are a more secure
liability for the government, compared to the official debt. Because we
can always get out from under official debt by just running up
inflation, which is what we seem to be wanting to do, because we’re
printing a lot of money.
RCP: What
about the argument some have made, that unfunded liabilities are less
"real" than the official debt number, because the government's unfunded
liabilities can be adjusted easier? For example, the government’s
projected unfunded entitlement obligations could be reduced or
eliminated by cutting benefits or raising payroll taxes, and then the
fiscal gap would close.
Kotlikoff: Well,
the fiscal gap went up by $11 trillion last year, in one year. I’d like
to see economists start working on this problem. What we’ve heard from
the politicians is that the elderly and the baby boomers above 55 will
not be affected by any Medicare reform, will not be affected by any
Social Security reform. That’s not a way of reducing those liabilities
meaningfully, because if you exempt something like 50 million people,
you can’t get enough action. There’s not enough money to be had. The
burden you leave for younger people to deal with is too big. That’s the
rub here. You can’t exempt the current elderly and everybody over the
55. That’s what politicians are talking about, so I don’t think that’s a
serious set of comments that you’re raising.
You’re
saying, “we can always take care of this.” But when are they going to
take care of it? They’ve been saying that for decades. Social Security
itself is in worse shape than it’s ever been, because the country’s
always doing too little too late to deal with the problems.
RCP: Are there other countries that are more transparent about the amount of debt they have?
Norway, Holland, New Zealand, Australia,
Sweden, and Canada are all doing a much better job looking
systematically at the entire future set of liabilities and taxes. Their
fiscal gaps are much smaller, if not zero. Italy's fiscal gap is about 40 percent of ours when scaled by the size of its economy. Same for Germany. Greece and Japan
have very large fiscal gaps, proportionately speaking, but smaller than
ours. The U.S. is in worse fiscal shape than any developed country when
you actually look at the entire picture.
RCP: If, as you're claiming, our fiscal situation is far more dire than commonly realized, why are borrowing costs so low right now?
I’m
the only one who’s actually calculated the fiscal gap for the country.
It doesn’t take much more than 10 minutes. I don’t know why I’m the only
one in the country who’s calculated it and assessed it. If I’m the only
one, and you’re talking to me now for a story about this, and you’ve
got a $16 trillion number in your head and it’s really $222 trillion,
what do you think the traders on Wall Street have in their brains? Who
knows?
They’ve
got some form of nonsense in their brains. They’re not really trading
on the basis of what the fiscal realities are; they’re trading on the
basis of how everyone else trades. Because they can’t lose their jobs if
they lose money collectively, with everyone else. They can lose their jobs if they lose money alone.
You
can't just say, “gee, Wall Street isn’t pricing this in the [government
] securities.” Well, when has Wall Street gotten it right? They missed
the dot-com bubble, they missed the subprime problem. You don’t want me
taking Wall Street as your guide to economic forecasts or perceptions of
economic realities, because usually they’re wrong.
Bill
Gross, who runs the largest bond fund in the world, pulled out of the
bond market a year ago, and no one came along with him. So he was out
there hanging out by himself, and then he lost money. Then he decided to
cave and give up talking about what he was talking about.
So when it comes to making money, making money on other peoples’
mistakes is different from understanding the true problems that are
facing the country. That’s what economics is about. We’re trying to
understand what’s really going on. What these guys on Wall Street are
doing is anyone’s guess.
*********************
Can you (or someone) explain what the debt to GDP ratio is and why it’s important?
- Cleombrotus on September 17, 2013 at 4:26 PM
It means that we owe more than our entire annual economic output.
At some point, there is no turning back and, eventually, purchasers
of our debt will demand higher interest rates, which will be passed onto
consumers. It also means that you either enter into a moribund economy
like Italy or a perpetual ‘Lost Decade’ economy like Japan, which
entered its THIRD Lost Decade last year when it also embarked on its
EIGHT ROUND of quantitative easing.
If interest rates were what they were during the Clinton
administration, our debt service would consume one-third or more of
revenues.
And, consider this:
In 2010, John Kitchen of the US Treasury and Menzie Chinn of the University of Wisconsin published a study entitled: ‘Financing U.S. Debt: Is There Enough Money in the World—and At What Cost?’
By 2020, Kitchen and Chinn project the amount of US
Treasury debt that foreign governments will have to buy in order to
finance our spending and debt will have to rise to about 19 percent of
the rest of the world’s GDP, which they say is . . . do-able . . . BUT TOTALLY NEVER GONNA HAPPEN UNREALISTIC.
Whether the rest of the world will want to do it is another matter. A future that presumes the rest of the planet will sink a fifth of its GDP into U.S. Treasuries is no future at all.
Progs always say that we are 5% of the world’s population, but use
25% of the planet’s resources, which, according to them, is a very bad,
racist, imperialistic, oppressive, selfish, and mean thing to do.
Evidently, being 5% of the world’s population and expecting the
equivalent of the Coolies to build our modern-day railroads, which are
known as Obamacare, Social Security, Medicare, free college, subsidised
housing, cradle-to-grave welfare, etc., by demanding that the rest of
the world spend 19% OF THE GLOBAL GDP EVERY YEAR ON US TREASURIES
beginning in 2020 while we sit on our couches eating Twinkies watching
American Idol while our solar-panel-generated air conditioners are
blasting away because ‘we are so trying to save the planet, man’ is
perfectly acceptable.
http://tinyurl.com/obh7avk
1 comment:
Yours is the blog to follow :)
Thanks for all your hard work!
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