The budget cuts don’t go deep enough:
The chart is brutally bipartisan. Debt increased under Republican presidents and Democratic presidents. It increased under Democratic congresses and Republican congresses. In war and in peace, in boom times and in busts, after tax hikes and tax cuts, the Potomac flowed ever deeper with red ink.
Our leaders like to talk about sustainability. Forget sustainable — how is this sane?
Yet when any politician hesitates before increasing spending, he’s portrayed as a madman. When Paul Ryan, R–Wis., offered a thoughtful plan to reduce the debt over decades, he was pushing grannies into the Grand Canyon and pantsing park rangers on the way out.
One of the many cons of Trump is that his budget cuts are going to solve the problem, when they don’t even scratch the surface. I’m not opposed to them, in general, mostly because I think they’re funding things that aren’t a federal responsibility, but it’s ludicrous to think they’ll have any significant fiscal effect. As long as he refuses to touch entitlements, we’re fiscally doomed.
The plan for dealing with the debt is to renege on it.
Yep. There is literally no way to pay off the debt at its real, current value, so they either need enough inflation to eliminate the debt by devaluing the currency, or they’ll have to default.
Since we’re heading rapidly into a future where most work will be done by machines, and most production will become local, it’s an interesting question as to whether default will come before money becomes pretty much meaningless.
so they either need enough inflation to eliminate the debt by devaluing the currency
That is the scary possibility.
or they’ll have to default
OK, slightly more scary. Actually, which is scarier?
Obama was rather fortunate that interest rates didn’t rise while he was President. Servicing the debt is nearly as much as what we spend on defense but it is a transitory cost. If we could freeze spending at current levels, the debt would get paid down.
Interest rates have been kept very low because that favors debtors and borrowers over savers. The government is the biggest debtor and borrower of all. Should they try to use inflation to devalue the currency, that will force interest rates to also rise (see: 1970s), making the amount of money needed to service the debt skyrocket. Much of the national debt is held in short term instruments, so raising interest rates will be devastating. In addition, many things like the annual Cost of Living increases given for Social Security and many government payrolls are tied to the inflation rate. Raising the inflation rate will drive up government spending even more.
It is truly a bipartisan problem. For decades, politicians of both parties have used debt to buy votes and to enrich themselves and their cronies. They never concerned themselves with an increasing national debt because the problems were always long-term ones, and as John Maynard Keynes wrote, “In the long run we are all dead.”
“One line of attack held that [Keynes] was uninterested in the long term ramifications of his theories because he had no children.”-Wikipedia
There is a way to pay off the debt without inflation/default. Massive reduction in entitlement spending, substantial reduction in military spending, and reduction in spending on everything else. Despite the debt, most of our liabilities are future spending which we can cut now.
Having said that, I think the US will inflate its currency instead, breaking thoroughly COLA (Cost of Living Adjustment) in the process. The problem isn’t that politicians are sabotaging any significant effort to cut spending, but rather that voters are listening.
The problem is that inflating the currency will impoverish the majority of the voters, because they have no power to demand wage increases in a world where they can be replaced by machines.
Inflating the currency will squeeze the middle class more than anything. The rich own property and the poor don’t own anything so it doesn’t matter for them.
Retired people in fixed incomes get it in the neck when you inflate the currency They have no means to increase their income.
And yet, Godzilla, you remain a Keynsian, a philosophy that relies on printing money, thus expanding the money supply and raising prices.
There are three problems.
The first, is that there is an endless list of worthy causes to spend money on.
The second, is that people don’t understand the variables of the equations that allow for either government or the private sector to fund things.
The third, is that people don’t accept the limits of reality.
I know a hard lefty who told me a few years ago that Obama’s crazy spending won’t be a problem – we’ll just inflate our way out of the debacle.
Well now that fellow recently retired. He’s in for a shock.
The fourth problem is that a lot of folks commenting here aren’t “woke” to the concerns of the stale-pale-males. The ones who saved us from a President Hillary Clinton in North Carolina, Ohio, Wisconsin, Pennsylvania, even Michigan, and almost Minnesota, discounting Senator Amy’s snark on this topic when asked whether her state was in play.
And to those of you who dissed Speaker Ryan when he wanted to get the ball rolling on long-term entitlement reform by starting with incremental changes to the ACA, I have just one thing to say to you people.
Shut up. And show some spirit in getting those TLAMs reloaded into these launcher tubes . . .
The only thing Ryancare would have accomplished is making medical coverage costs inflate even faster, as it killed the coverage providers with nearly the same mandates and much weaker means to pass on the pain.
Interest on the national debt doesn’t have to go to 1970s levels in order to start the death spiral. It just needs to go to 2000 levels, just above 6%. If the 2016 deficit of $550 billion holds (it won’t go down), and the GDP grows at 3% annually (it won’t), by 2018 the national debt will be $21 trillion, and the GDP $19.7 trillion. Debt service in 2016 was $241 billion. Well, if interest rates go to just 6% in 2018, the debt service will go to $1.26 trillion, immediately adding $1 trillion a year to the deficit. Spending will then go from $4.2 trillion to $5.2 trillion.
According to Hauser’s Law, federal income tax revenues (post WWII) average 19.5% (and never exceed 20.5%). So the most we could expect from tax hikes would be $4.04 trillion, for a net deficit increase of $1.16 trillion (total deficit, $1.71 trillion). To erase the deficit by tax increases would require a 29% increase in federal tax revenue, putting the federal tax as a percentage of GDP at almost 25%. That isn’t going to happen, either.
We are not on the precipice. We are on the pinnacle, A step in any direction will be the end.
It isn’t as much a problem as most people think. US debt is denominated in US dollars, and US dollars can be created at the stroke of a key by the US. It’s not like, say, Argentina, where the debt is denominated in a foreign currency, and they must find customers for their goods in order to gain the currrency to repay the debt.
Consummable goods and services are what create prosperity. To the extent that bondholders use their payouts to lay a claim on our goods and services, it can fuel inflation. But, they can only consume so much, and there is plenty of slack to produce more of most of the things they would buy. It only hurts if they put demand on things for which production cannot be easily expanded. But, that too can fuel increases in productivity, which is a net benefit for all.
The bottom line is that, to get something tangible for their holdings, the bondholders have to swap our dollars for our production. Whereas Argentina has to push their goods on ambivalent customers to repay their debt, our creditors have to come to us to buy our goods. We really cannot lose.
It’s nice to be King. And, it’s nice to be the world’s preferred reserve currency. As long as the country remains strong, and people have the confidence to allow us to sell them our debt on our terms, we will be OK.
Bart, you must be new around here. Especially to question arguments invoking “sustainability.”
Same old Bart. I’ve been seeing this every decade of my life. The debt keeps climbing, and doom is just around the corner. Just when you think we can’t possibly shoulder anymore, we go and do, and life goes on pretty much the same as before.
I learned long ago that the finances of the State are nothing like the personal finances to which so many people make the mistake of comparing them. For one, the State never dies (it can be killed, or commit suicide, but it doesn’t just die) and doesn’t have to plan for retirement. And, most of us don’t have a printing press loaded with green ink in our basements.
I’m not saying we can issue promissory notes with wild abandon. But, it is clear to me there is a great deal more elasticity in the system than ordinary people generally realize.
The thing that really matters is not little green pieces of paper, which have no intrinsic value in and of themselves. It is the actual physical manifestations of that for which that paper can be commonly traded. It is production of goods and services.
If we produce enough to go around, then we have prosperity. If we don’t, then we don’t. And, except for the oil shortages of the 70’s, economic pain in free societies has generally been caused by overproduction and gluts, rather than underproduction and shortages. And, I fear that hazard is only going to get worse as the robots start taking over all the jobs.
Lay on the inflation hard enough and creditors will start demanding the debt be denominated in something more stable than the devaluing Dollar.
But, what is “hard enough”, and when is the tipping point reached? It seems that with the right monetary policy, that eventuality is not so obligatory as once thought.
We’re fiscally doomed.
Look at the economic suffering that has and is happening around the world, then imagine it can’t happen here.
Politicians will protect themselves. The rest of us are expendable.