I feel the Bern!

[Jerry Rapp]

how many senate votes has Trump missed?  Bernie is a communist mjk86. You will learn in due time.

[Al Agnew]

The federal debt is a huge political football, but I'd bet that very few people really understand it.  I know I didn't.  So I did a bit of research...typed in "national debt" in Google.  Website I got the most from was justfacts.com.  Here's some stuff that jumped out at me:

Federal debt was $18.8 trillion as of the end of 2015.  That's 104% of the annual gross domestic product.  539% of annual government revenue.  $58,361 for every person living in the U.S.

Sounds horrific, doesn't it?

So, one big question I had was, who do we owe all this money to?

$13.1 trillion is owed to non-federal entities (the publicly held debt).  $5.1 trillion is intragovernmental debt.  What the heck is all that?

Here's somewhat of a breakdown of the publicly held debt.  

Foreign and international entities (example is what we owe China that scares us so much):  $6.156 trillion.  Of this, China and Japan are our two biggest creditors by far, owning a little over $1.2 trillion each of our debt, or a bit over 20% each of the total foreign debt.  Nobody else comes close, including all the oil exporters we owe money to, which comes to a total of $293 billion.

Federal Reserve:  $2.46 trillion.  This is how much more money we've printed than what we have the backing for, I believe.

Nothing else comes close.  The rest of the publicly held debt is to entities like mutual funds, state and local governments, banks, and private pension funds.  

Here's a breakdown of the intragovernmental debt, which includes one biggie:  

Social Security trust fund:  $2.838 trillion.  The biggie.

Civil Service Retirement and Disability:  $740 billion.  

Military Retirement:  $532 billion.

Nothing else comes close, and the rest includes Medicare and the rest of the all federal employee retirement plans.

Now...how does this level of debt stack up to historic levels?  Well, we've owed people money since the country was founded, except for a few years in the 1830s.  You measure the true debt by what percentage it is of the Gross Domestic Product.  From 1790 to the beginning of WWII, debt ran anywhere from 5-40% of GDP.  But in WWII, it shot up to its highest level ever, about 118% of GDP.  After the war, thanks to the booming economy that economists say was partially caused by all that government spending during the war, it steadily dropped to lows of just over 30% from 1975 to 1982.  Note that time period...much of it was during the supposedly tax and spend Democratic administration of Jimmy Carter.  Then starting in 1982, it shot up to a high of about 65% during the Reagan administration and leveled off during the first of the Clinton administration, up to about 1994.  Then  iit dropped a bit to about 55% by the end of Clinton and first year of Bush...and then 9/11 and the Bush tax cuts happened, and it began to rise again.  It has definitely shot up faster, however, during the Obama administration, and now stands at that 104%.

Now, what are the causes?  Conventional wisdom is that it is simply spending more than you take in.  But it isn't quite that simple.  If you measure federal expenditures, as well as receipts, as a percentage of the GDP, then there have been a number of time periods in which the government has spent relatively more compared to what it took in than what's happening now.  During WWII, receipts were about 17-18% of GDP while expenditures were a whopping 32-33%.  During much of the Reagan administration, receipts were 17-18% and expenditures 22-24%.  During the first part of the Obama administration, due in significant part to stimulus spending while the economy had tanked and revenue was way down, at the same time the Bush tax cuts had been renewed, receipts had dropped to a low of 16% while expenditures climbed to a high of 25%.  But since then, the two have been gradually coming back into closer proximity, until now receipts are about 18% and expenditures 22.5% (note that this is less difference than during the Reagan administration).  And what happened after the Reagan administration?  During the last Clinton term, receipts actually exceeded expenditures, the only time this has happened since a two year period in the 1950s!

So in the end, it's really difficult to get a complete understanding of all this stuff.  But here's what I took away from it:

1.  This country and most developed countries have always run a debt.  The actual dollars involved (that $18 trillion that is so scary) is not as important a figure as the ratio of debt to GDP.  That figure has been higher at one other point in history, and did not result in catastrophe.  

2.  Due to all the stuff that is included in the debt, including a lot of stuff that continues and multiplies from year to year, the debt is not the same as the deficit.  And except for the last of the Clinton years, we've almost always spent more than we took in.  As percentages of GDP, the ratio of what we're taking in to what we're spending has been worse in the past and yet the debt has grown at a high rate.  So in and of itself, balancing the budget or spending less is NOT a recipe for reducing the debt, believe it or not.

3.  What most people compare the debt to is a household.  We all know that as a household, you can't indefinitely spend more than you take in, thus taking on more and more debt.  But government simply doesn't work quite the same way.  Really, a government borrows in order to grow the economy and accomplish ends that theoretically benefit society, always carrying debt, but hoping that in the good times when the economy is booming, the debt load will gradually be reduced.  It's always happened that way. 

4.  We are all scared that China or somebody will suddenly call in all their notes and bankrupt America.  But China and every other country that holds American debt knows that their own economic well-being depends upon a reasonably healthy American economy.  If John owes me a bunch of money and I know it's impossible for him to pay me back all at once, I'm not going to demand that he do so.  I'm not going to get more than a small percentage of my money back that way.  Instead, I hope that John stays prosperous enough to make the payments indefinitely, giving me a steady income.  If I do something to make John go belly up, I'm in big trouble myself.  And China already has its own debt load, which isn't far from what we have.

5.  While carrying debt in itself isn't really a problem, when the debt gets so big that too much of our annual revenue is being used  just to service the debt (make the payments on the loans, so to speak), then that leaves too little money for other stuff.  Some economists have postulated that once debt reaches 90% of annual receipts, economic growth slows because too little money is going to stuff that helps stimulate the economy.  According to them, we are too high now at 104%.  But we were worse off at the end of WWII and came out of it very nicely with exponential economic growth in the next ten years.  It apparently ain't that simple.

In conclusion, I agree the debt needs to be addressed.  But I don't raise this issue in itself to the level of my top 5 concerns.  If the economy takes off and goes into another boom phase, this will not look like such a big problem.  

 

 

[SpoonDog]

32 minutes ago, Jerry Rapp said:

how many senate votes has Trump missed?

...all of them?

[Jerry Rapp]

6 minutes ago, SpoonDog said:

...all of them?

[fishinwrench]

So.....Print up some darn money and give it to them.  Problem solved.  

No really, I truly am so stupid that I don't know why we can't do that.  

Please don't say that our money has to be backed in gold. That's a crock of $#it.   Enough paper currency has been lost/destroyed over time that there is no way to verify if every 100 dollar bill in circulation is backed in gold.   They can make all the money they want, the federal reserve is among the crookedest  faux establishments in existence, so who cares? 

Or.....here ya go.....give them those big piles of drug money that is supposedly being held as evidence.

[Gavin]

It is more than 18 trillion. Add in the unfunded Social Security and Medicare obligations and its probably closer in the 170-200 billion range. Those are not accounted for presently but estimates are available. Social Security is the easy fix though none will like it, medical costs are still running amok, plus the added costs and taxes included in the ACA.

Most of my 50 plus FTE employers have offered an affordable care plan to there employees but the low skill low wage folks still can't afford affordable care. Usually opt for lower cost mini-med plans and pay the penalty. Predict a big backlash against the ACA after this tax filing season.

 

 

[Trav]

Love ya Al...  you pretty much say everything I am thinking. 

 I have held off about my top 5 issues..  cause there are more than 5 to deal with to compete with the modern world. And I am not sure what is the most important or least important..  In my mind the planet is number one and people come second. And when it comes to the people I am going to lean towards helping the poor above the rich. When it comes to war I choose peace but I also think we can kick some butt in places that need it. My list would be a list of stuff I would prioritize if I could be Prez of the US. 

Haha...   my own little Utopia. Not in any given order. They are all equally important. 

As a society free medical and free college will assure our future generations ....

it is a good start..  

 

[Mitch f]

Some of this talk is really good, but when you start saying that legalizing pot is one of the top five problems, or that income inequality is caused from climate change, that's where it gets a little crazy. 

[ness]

I never felt debt to GDP ratio was really meaningful all by itself. You've got to look forward, and when you do you see there are trillions of obligations we've already committed to, with billions in additional obligations added each year. And many of those obligations are growing at high rates of inflation, like medical. Saying that we've been there before (debt/GDP >100%) and that worked out OK is a heck of a way to conclude we're fine this time. It does indeed look bleak.

China suddenly selling all its US obligations today isn't a real concern. But if they and others did it over time it would put a lot of pressure on interest rates and our currency. Anybody that's paid any attention to how markets work will understand a loss of confidence can cause things to happen quickly. When the 'sell no matter what' stage is reached, things can get really bad. So don't totally discount the possibility.

Let's not be casual about the fact that a big chunk of the debt we owe ourselves (i.e. Some of our debt is owned by the Social Security trust fund), as if we should deduct that from total debt. We owe it. That system is a Ponzi scheme defined! What's different is that the government has an almost unlimited ability to continue to tax, so they can continue the scam longer than you and I could. But, it's just simple mathematics it can't go on forever.  

Saying that all it takes is an economic boom to bail us out is a foolish way to get comfy with our problem. We are growing the problem at a growing rate. We're less and less likely to be able to outrun the problem the longer we keep adding to it. And there's absolutely no end in sight. We've become complacent to the deficits.

Look back into history and you'll see empires do fall. Looking just at the US since WWII is pretty short sighted. Hell, we're less than a century from the Great Depression. Are we so sure we're so smart that it couldn't happen again??

[Quillback]

Huge difference in today's economy and the post WWII economy.  We manufactured everything here in the 50's and 60's (cars, furniture, clothing, shoes, appliances, TV's, steel).  We'll never have an economic boom like that again, and to hope that we'll ever have an economic boom that will solve our debt is just going to get us further in the hole.  As Ness mentioned above we are committed to a huge amount of spending going forward, annual deficits are projected to head back to a trillion dollars per year, and that's assuming reasonable growth in GDP.  What if we have another recession?  Not to mention that interest rates are historically low and are being held down by Fed policy.  When rates normalize we're going to have to spend a huge chunk of money just to service that debt.

And if we ever have a government debt induced financial crisis, we'll be screwed, the risks are huge.  We can either control this debt through some kind of reasonable policy, or let it control us.  Doing nothing, and hoping that our economy will magically and painlessly solve this problem for us is a recipe for disaster.