Originally posted by: maluckey
Spending is less than 30 percent of the income. What other industrialized and equivalent nation claims it's equal?
12 million souls not paying a cent then taking from the coffer roughly doubles the effective tax burden. Even at a measly 6000 dollars per year burden per person that's 72,000,000,000 dollars!! Hispanics average more than 2.5 children traditionally, so I'm giving the 80 percent of all illegals a cookie here.
SO the war on fear (1 trillion dollars) is only 25 percent higher than the load of debt for border enforcement (or lack thereof)? What's your point?
The United States got to be the worlds military and economic superpower by spending on programs that it feels will build it up. If that means borrowing against future returns and feeding other countries, the so be it. Deficit itself is not an issue.
Deficit is no higher than traditionally, though the numbers seem to scare you. If I earn 1000000 dollars every year, but spend more than that (Wayne Newton comes to mind) you are still solvent. Regardless of your spending, you can balance your budget so long as you do not exceed a reasonable percentage on the repayment.
Banks traditionally will loan to individuals at a debt to income rate of 30 percent (repayment load) to individuals, but to companies, will go higher if the particular company's track record merits this, even if the loan amount is more than the income for five combined years! Is this bad practice so long as your overall worth also increases?
It is normal practice to borrow against the future to expand growth.
Lets take a step back for a minute.
If I own a house that is 80,000 as of 1995 and is then 300,000 as of 2005 and I cash out 200,000 of that equity, not only do I have a 200,000 HELOC/HEloan/Refi, but I also use that cash. Now, what have I done? I have utilized equity as income.
Great, in as much as that equity contiues to be equity and I can, at some point, pay down that utilization. However, once we factor in that the housing market is a bunch of bullspit and that my house should have been worth 100,000, not 300,000, then all of the sudden I am screwed. Furthermore, your income that you spent wasn't income, it was cashing out of "equity" built upon smoke and mirrors. As my previous graph showed, the MEW (mean equity withdrawl) actually made GDP what it was. Americans assumed *MORE* debt, used it as equity, which drove the economy. However, your figure, which you point out as being so rosey, forgets that consumer debt is what drives GDP, you only look at Sovereign debt, which is still significant.
Then, if we look at the Shiller housing index, we see that housing prices are going to go down significantly, at least 10% nationwide in the next year. I persionally believe that this is more like 15-20%. Furthermore, if you looked at the other article I posted, you would see that more people are "house poor", meaning that they won't be able to spend as prolifically as you so love to point out in the GDP number.
Thus, if we have assumed more aggregate (sovereign + consumer) which has inflated GDP, then not only is your (sovereign/GDP) only capturing a small part of the problem (whereby you only align one portion of the debt that drives GDP, not the full portion, which is akin to only using equity to benchmark the return on a company, rather than the total cost of funding), but it is inflated by said debt.
Furthermore, your 30% figure doesn't capture consumer debt, only sovereign debt. What good is counting sovereign debt against the revenues of a whole country, when in fact that whole country is taking out more debt against it's revenues? Americans, in total, are spending more than they make (ie negative savings rate).
It is perfectly normal to borrow more than out make, for a short period of time. However, when you extend out that borrowing and keep borrowing more than you make for an extended period of time and *NEVER* pay that amount down, then you have a pretty big problem.
You keep forgetting that.
1. We dont pay down anything, just roll dollars.
2. Our debt as a % of GDP isn't including the debt actually owed by everything/body that makes GDP.
3. Servicing costs are increasing.
If we stripped out consumer debt spending from GDP and only used your sovereign/GDP, then that ratio would not only become drastically different, but it would be alarming. This is the crux of my argument. Everything that GDP has been founded upon is being propped up by consumer debt spending fueld by an out of control housing market/asset bubble.
It's not a matter of if this market collapses how bad GDP will look, but when it collapses, how bad the recession will be.