What are the practical implications of excessive US debt?

[StageLeft]

As I see it, substantial US debt generally involves a deficit, meaning that each year further spending vs income vs additional borrowing (in part simply to cover interest payments) sees the total debt figure higher.

The simplest way to see how this debt is growing is based on debt vs GDP. Current government projections have debt at about 96% of GDP by 2010 (best case), and continuing to grow.

As debt grows, this is all I can think of that's a problem:

1) US jeopardizes AAA credit rating, which means borrowing costs more, so for the same amount borrowed, debt grows even quicker than before.

2) Less leeway in times of true need (like economic slow down or war), but really this just ties into 1).

Given that nobody really expects the US to default or its dollar to totally collapse (at least compared to other currencies), it appears to have the unique position of debt actually not having the same kind of meaning as smaller countries.

In clear, practical terms, what does it mean to the US to have a debt:GDP ratio of 80% vs 120?

 

[BigJelly]

Originally posted by: Skoorb
As I see it, substantial US debt generally involves a deficit, meaning that each year further spending vs income vs additional borrowing (in part simply to cover interest payments) sees the total debt figure higher.

The simplest way to see how this debt is growing is based on debt vs GDP. Current government projections have debt at about 96% of GDP by 2010 (best case), and continuing to grow.

As debt grows, this is all I can think of that's a problem:

1) US jeopardizes AAA credit rating, which means borrowing costs more, so for the same amount borrowed, debt grows even quicker than before.

2) Less leeway in times of true need (like economic slow down or war), but really this just ties into 1).

Given that nobody really expects the US to default or its dollar to totally collapse (at least compared to other currencies), it appears to have the unique position of debt actually not having the same kind of meaning as smaller countries.

In clear, practical terms, what does it mean to the US to have a debt:GDP ratio of 80% vs 120?

Our current debt isn't that bad, not good but bad. The true problem lies with the fact that we are growing our debt at an alarming rate--through the deficit.
So although we aren't currently in over our heads, our current rate of deficit spending will put us over our heads.
Once we're over our heads and other contries--mainly China--know it, then they don't loan us money, the federal reserve prints more (instead of getting money from the current supply, they print more) and then we have much, much higher inflation which futher devalues the dollar.

The true concern is: No country can be a super power with its currency having the same value as toilet paper.

So government's only way to solve this is to get more money without printing more...well if they can't borrow from other countries they will get it the only way they know how--steal it by taxing the people more and more.

So when the debt gets higher watch as the taxes increase, which reduces the amount taken in (higher taxes -> weaker economy -> less taxes), so the taxes increase more, etc. until the house of cards falls apart.

 

[charrison]

Lets first define what is excessive is.

Currently our debt to gdp is about 65% and probably going much higher near term.

Post WWII, debt to gdp was 140%

Annual deficits are typically 2-3% of gdp and appear to completely sustainable.

 

[Pneumothorax]

The Ace that we had after WWII, was the rest of the world was broke and their industrial base in shatters while ours was untouched. We LOANED the money for the rest of the world so they can rebuild. We also BUILT products for the rest of the world to use. This in turn gave us a huge boom in the 50's-60's. We don't have that luxury of that situation now... In fact, China would be closest position to where we were in after WWII. The main things we export now are food and Banking "Implements"

 

[charrison]

Originally posted by: Pneumothorax
The Ace that we had after WWII, was the rest of the world was broke and their industrial base in shatters while ours was untouched. We LOANED the money for the rest of the world so they can rebuild. We also BUILT products for the rest of the world to use. This in turn gave us a huge boom in the 50's-60's. We don't have that luxury of that situation now... In fact, China would be closest position to where we were in after WWII. The main things we export now are food and Banking "Implements"

WE are still the largest manufacturer in the world. The death of manufacturing in the US is quite false.

 

[blackangst1]

Originally posted by: charrison

Originally posted by: Pneumothorax
The Ace that we had after WWII, was the rest of the world was broke and their industrial base in shatters while ours was untouched. We LOANED the money for the rest of the world so they can rebuild. We also BUILT products for the rest of the world to use. This in turn gave us a huge boom in the 50's-60's. We don't have that luxury of that situation now... In fact, China would be closest position to where we were in after WWII. The main things we export now are food and Banking "Implements"

WE are still the largest manufacturer in the world. The death of manufacturing in the US is quite false.

You are correct.

edit: here's one of many links.

And another

And a link from the UN itself if youre into spreadsheets.

 

[Pocatello]

Originally posted by: blackangst1

Originally posted by: charrison

Originally posted by: Pneumothorax
The Ace that we had after WWII, was the rest of the world was broke and their industrial base in shatters while ours was untouched. We LOANED the money for the rest of the world so they can rebuild. We also BUILT products for the rest of the world to use. This in turn gave us a huge boom in the 50's-60's. We don't have that luxury of that situation now... In fact, China would be closest position to where we were in after WWII. The main things we export now are food and Banking "Implements"

WE are still the largest manufacturer in the world. The death of manufacturing in the US is quite false.

You are correct.

The porn industry is still going strong, I see.

 

[Ozoned]

Have you ever heard the term recycling Skoorb, as it pertains to our debt?

For your question, In clear, practical terms, It means that we have a higher number to use in the equasion to figure our interest obligations.

 

[drdops]

At the moment the US Dollar is the number one reserve currency in the world with the Euro a distant second. However with the increasing national debt and lowering returns gained from US two and ten year bonds the world could downgrade the US Dollar as the primary reserve currency. Forcing the US to hold larger reserves of other currencies.

Putin already expressed a desire to do this in his speech at the opening ceremony of the World Economic Forum in Davos in Jan saying: "Excessive dependence on a single reserve currency is dangerous for the global economy. Consequently, it would be sensible to encourage the objective process of creating several strong reserve currencies in the future. It is high time we launched a detailed discussion of methods to facilitate a smooth and irreversible switchover to the new model."

 

[BigJelly]

Originally posted by: charrison
Lets first define what is excessive is.

Currently our debt to gdp is about 65% and probably going much higher near term.

Post WWII, debt to gdp was 140%

Annual deficits are typically 2-3% of gdp and appear to completely sustainable.

except this year it (the deficit) will be >12.8%

 

[blackangst1]

Originally posted by: Pocatello

Originally posted by: blackangst1

Originally posted by: charrison

Originally posted by: Pneumothorax
The Ace that we had after WWII, was the rest of the world was broke and their industrial base in shatters while ours was untouched. We LOANED the money for the rest of the world so they can rebuild. We also BUILT products for the rest of the world to use. This in turn gave us a huge boom in the 50's-60's. We don't have that luxury of that situation now... In fact, China would be closest position to where we were in after WWII. The main things we export now are food and Banking "Implements"

WE are still the largest manufacturer in the world. The death of manufacturing in the US is quite false.

You are correct.

The porn industry is still going strong, I see.

I read a US State Dept study a few years ago that showed the largest producer is Japan, followed by India, followed by USA. Im too lazy to look it up though

 

[charrison]

Originally posted by: BigJelly

Originally posted by: charrison
Lets first define what is excessive is.

Currently our debt to gdp is about 65% and probably going much higher near term.

Post WWII, debt to gdp was 140%

Annual deficits are typically 2-3% of gdp and appear to completely sustainable.

except this year it (the deficit) will be >12.8%

One year at 13% will not cause a huge problem, but this rate is not something that can be done on a regular basis.

 

[Zebo]

1. Check our GDP in a year and compare again it will be over 100% GDP/Debt ratio

2. It's a BS tricksy meaningless stat anyway when Medicare and Social Security unfunded liabilities are approaching like a tsunami and personal/business debt really puts us at ~900% or over 100 Trillion in debt. Can you say house of cards? Not to mention our good old GDP is bullshit too today because includes china TV's sold here but instead of 4 jobs to make it, it was 1 job to sell it usually on a credit card, 'payed off' with a second mortgage. Would not be a problem if we actually produced it.

3. When one is already in debt, the compounding can and will be disastrous when adding more debt. Today 500 Billion in taxes goes to pay bond holders. http://www.treasurydirect.gov/...orts/ir/ir_expense.htm About what we used to borrow each year to get in debt. That 500 billion of production/taxes is wasted used for past indulgences can't be used for todays challenges thus more borrowing. A trap we can't get out of. The high ratio of taxes collected to pay debts will approach 100% soon where ever dollar we pay in pays some rich bond holder (China, Saudi, Japan). As it even approaches that threshold first they will run out of money to loan us second they will question America's ability to make good on it's longterm debt and will call in the bonds. It's just a question of who blinks first. The bond yields must go up to retain them temporarily adding to more debt or we print money to pay them off. But make no mistake eventually we will have to print trillions ruining currency leading to hyperinflation never seen before in history of man.

Watching Moodys to see if they lower the Government's bond rating is key here.

4. Another slight problem, not that it matters with levels we are soon talking about because I think it will spiral out of control quickly, when they raise bond yields to keep investors - interest rates for private enterprise will increase, stifling business expansion and killing economy further.

 

[Ozoned]

Originally posted by: Zebo
1. Check our GDP in a year and compare again it will be over 100% GDP/Debt ratio

2. It's a BS tricksy meaningless stat anyway when Medicare and Social Security unfunded liabilities are approaching like a tsunami and personal/business debt really puts us at ~900% or over 100 Trillion in debt. Can you say house of cards? Not to mention our good old GDP is bullshit too today because includes china TV's sold here but instead of 4 jobs to make it, it was 1 job to sell it usually on a credit card, 'payed off' with a second mortgage. Would not be a problem if we actually produced it.

3. When one is already in debt, the compounding can and will be disastrous when adding more debt. Today 500 Billion in taxes goes to pay bond holders. http://www.treasurydirect.gov/...orts/ir/ir_expense.htm About what we used to borrow each year to get in debt. That 500 billion of production/taxes is wasted used for past indulgences can't be used for todays challenges thus more borrowing. A trap we can't get out of. The high ratio of taxes collected to pay debts will approach 100% soon where ever dollar we pay in pays some rich bond holder (China, Saudi, Japan). As it even approaches that threshold first they will run out of money to loan us second they will question America's ability to make good on it's longterm debt and will call in the bonds. It's just a question of who blinks first. The bond yields must go up to retain them temporarily adding to more debt or we print money to pay them off. But make no mistake eventually we will have to print trillions ruining currency leading to hyperinflation never seen before in history of man.

Watching Moodys to see if they lower the Government's bond rating is key here.

4. Another slight problem, not that it matters with levels we are soon talking about because I think it will spiral out of control quickly, when they raise bond yields to keep investors - interest rates for private enterprise will increase, stifling business expansion and killing economy further.

Or maybe the other willing participants in our recycling scheme cements the house of cards by forgiving a large portion of our debt, allowing it to start fresh.

The whole world now has a stake in the success of our failure.

 

[Zebo]

They will never forgive. It's not to their advantage to decouple yet. Have to ruin our dangerous military first.

 

[Ozoned]

Originally posted by: Zebo
They will never forgive. It's not to their advantage to decouple yet. Have to ruin our dangerous military first.

Subsidizing our military is cheaper than having their own. The house of cards is very carefully and strategically stacked.

 

[BigJelly]

Originally posted by: charrison

Originally posted by: BigJelly

Originally posted by: charrison
Lets first define what is excessive is.

Currently our debt to gdp is about 65% and probably going much higher near term.

Post WWII, debt to gdp was 140%

Annual deficits are typically 2-3% of gdp and appear to completely sustainable.

except this year it (the deficit) will be >12.8%

One year at 13% will not cause a huge problem, but this rate is not something that can be done on a regular basis.

fyi obama's plan of reducing the deficit factors in a 3.2% growth in the 2010 GDP and 4% growth in the 2011 GDP linky

This might be difficult since in the last 10 years only one year was above 4% and only two other years were above 3.2%. Furthermore, obama will raise taxes by not only rolling back bush's tax cuts, but increase the taxes on energy (his carbon tax on energy companies--you won't see the tax but you will notice an increase in rates), socialized/nationalized healthcare, and all the other taxes he will increase. So he's hoping the economy will recover while he continues to enact policies that are guarantied to hurt it.

That's like saying "i'll be able to support my standard of living only if I get a 7% raise this year" when the average wage increase is 3.5% and at the same time you slack off at work (IE raise taxes in a weak economy).

 

[charrison]

Originally posted by: BigJelly

Originally posted by: charrison

Originally posted by: BigJelly

Originally posted by: charrison
Lets first define what is excessive is.

Currently our debt to gdp is about 65% and probably going much higher near term.

Post WWII, debt to gdp was 140%

Annual deficits are typically 2-3% of gdp and appear to completely sustainable.

except this year it (the deficit) will be >12.8%

One year at 13% will not cause a huge problem, but this rate is not something that can be done on a regular basis.

fyi obama's plan of reducing the deficit factors in a 3.2% growth in the 2010 GDP and 4% growth in the 2011 GDP linky

This might be difficult since in the last 10 years only one year was above 4% and only two other years were above 3.2%. Furthermore, obama will raise taxes by not only rolling back bush's tax cuts, but increase the taxes on energy (his carbon tax on energy companies--you won't see the tax but you will notice an increase in rates), socialized/nationalized healthcare, and all the other taxes he will increase. So he's hoping the economy will recover while he continues to enact policies that are guarantied to hurt it.

That's like saying "i'll be able to support my standard of living only if I get a 7% raise this year" when the average wage increase is 3.5% and at the same time you slack off at work (IE raise taxes in a weak economy).

I was speaking from point of view from the math. The proposed budget does have me concerned about future growth of the economy.

 

[BigJelly]

Originally posted by: charrison

Originally posted by: BigJelly

Originally posted by: charrison

Originally posted by: BigJelly

Originally posted by: charrison
Lets first define what is excessive is.

Currently our debt to gdp is about 65% and probably going much higher near term.

Post WWII, debt to gdp was 140%

Annual deficits are typically 2-3% of gdp and appear to completely sustainable.

except this year it (the deficit) will be >12.8%

One year at 13% will not cause a huge problem, but this rate is not something that can be done on a regular basis.

fyi obama's plan of reducing the deficit factors in a 3.2% growth in the 2010 GDP and 4% growth in the 2011 GDP linky

This might be difficult since in the last 10 years only one year was above 4% and only two other years were above 3.2%. Furthermore, obama will raise taxes by not only rolling back bush's tax cuts, but increase the taxes on energy (his carbon tax on energy companies--you won't see the tax but you will notice an increase in rates), socialized/nationalized healthcare, and all the other taxes he will increase. So he's hoping the economy will recover while he continues to enact policies that are guarantied to hurt it.

That's like saying "i'll be able to support my standard of living only if I get a 7% raise this year" when the average wage increase is 3.5% and at the same time you slack off at work (IE raise taxes in a weak economy).

I was speaking from point of view from the math. The proposed budget does have me concerned about future growth of the economy.

I know that but, like you I'm concerned with the much higher deficits and fear that the higher rates of GDP will continue.

Basically he plans on spending more and hopes that economy will recover quickly and grow faster than the average over the last 10 years while he increases taxes. And if all that happens we'll still have a $533B deficit which would be 3.48% of GDP (0.553/(14.8*1.04*1.032) = 3.48%)

If it takes longer for the economy to recover AND if it doesn't recover as quickly, don't be surprised by 6+% of GDP deficits (deficit will be higher and GDP will be smaller). Note that is with the economy recovering, but not as quickly or as strong as obama assumes (which is stronger than 70-80% of the last 10 years).

I'd bet it will fail but hope it doesn't, because the tax payers and younger people will have to pay for the failure--many times over.

 

[heyheybooboo]

Topic: What are the practical implications of excessive US debt?

Over the last 30 years it has meant paying in excess of $8 trillion in interest.

Gross interest paid on Federal debt was $362 billion in FY 2000 and declining.

Gross interest paid on Federal debt will exceed $500 billion this fiscal year and by 2012 will exceed $600 billion per year (that debt that was passed on to him ...) not counting Obama debt

 

[wwswimming]

Originally posted by: SkoorbIn clear, practical terms, what does it mean to the US to have a debt:GDP ratio of 80% vs 120?

when US debt was below $5 trillion, or some amount you could determine, there was a realistic chance that the debt would be paid back.

not any more !

part of the budget with the $1+ trillion deficit that Obama recently submitted included the interest on $10+ trillion in debt. i don't know exactly what interest we're paying - does anybody here know ?

anyway, the US is borrowing to pay the interest on the debt.

the US has 2 outcomes - the rest of the world continues to buy US debt - which has to be priced at an interest rate high enough to be attractive

OR

the US buys its own debt, by printing money.

that puts the US at the whim of countries like China & Saudi Arabia that have been big lenders to the US in the past.

 

[Ozoned]

Originally posted by: heyheybooboo
Topic: What are the practical implications of excessive US debt?

Over the last 30 years it has meant paying in excess of $8 trillion in interest.

Gross interest paid on Federal debt was $362 billion in FY 2000 and declining.

Gross interest paid on Federal debt will exceed $500 billion this fiscal year and by 2012 will exceed $600 billion per year (that debt that was passed on to him ...) not counting Obama debt

It isn't like that interest evaporates. How much of that do you think goes back into and circulates in our economy?

 

[Ozoned]

Originally posted by: wwswimming

Originally posted by: SkoorbIn clear, practical terms, what does it mean to the US to have a debt:GDP ratio of 80% vs 120?

when US debt was below $5 trillion, or some amount you could determine, there was a realistic chance that the debt would be paid back.

not any more !

part of the budget with the $1+ trillion deficit that Obama recently submitted included the interest on $10+ trillion in debt. i don't know exactly what interest we're paying - does anybody here know ?

anyway, the US is borrowing to pay the interest on the debt.

the US has 2 outcomes - the rest of the world continues to buy US debt - which has to be priced at an interest rate high enough to be attractive

OR

the US buys its own debt, by printing money.

that puts the US at the whim of countries like China & Saudi Arabia that have been big lenders to the US in the past.

We have real tangible assets along with a fantastic lifestyle. We have Infrastructure, military equipment, houses, schools, etc. just take a look around, in any direction. Those that hold our debt have big piles of pretty green printed paper. Who has the power?

 

[miketheidiot]

Originally posted by: Pneumothorax
The Ace that we had after WWII, was the rest of the world was broke and their industrial base in shatters while ours was untouched. We LOANED the money for the rest of the world so they can rebuild. We also BUILT products for the rest of the world to use. This in turn gave us a huge boom in the 50's-60's. We don't have that luxury of that situation now... In fact, China would be closest position to where we were in after WWII. The main things we export now are food and Banking "Implements"

china is nowhere even close to what the united states was after ww2. china is still mostly a third world shithole

 

[Elias824]

Well here is a worst case senario, we end up like japan in the 90's our economy dosent recover to start reducing the deficit the interest rate on bonds goes up and we keep having to borrow. More and more of the budget gets sucked up in paying for interest for these bonds, at some point we would have to dismantle more and more parts of the govt to pay for this, or borrow more money and increase rates even more to keep the country together. At some point either the U.S govt would fall apart, or we would default on our loans making the dollar in effect worthless and end up like post WW1 Germany. At this point it isnt that bad, but it has some potential for some very very bad scenarios. The bailout and new us budget are setup based on the fact that we will recover from this recession rather quickly, if that dosent happen we will be in a very bad spot.