on the significance of $9 trillion
the cumulative deficit projected over the next decade

Managing the debt will be tricky, but the real problem is how to deal with a politically unacceptable jobless recovery. It seems to me that we need two things:

1) A massive public/private infrastructure program insulated from political wants … perhaps something like the Rohatyn National Infrastructure Bank … to fill the demand gap.

2) Something other than tax cuts to rekindle “animal spirits” … perhaps an aggressive technological development program extending beyond clean technology, e.g. the “Internet of Things”, nanotechnology, organic electronics, atomic fusion, wireless power transmission,fuel producing bacteria and even space exploration.
— Sam Costanzo, Lovejoy GA

Federal debt is a problem. There is no ratioanlizing it or avoiding it. Ross Perot must be smiling a grim smile.

But it is true that it did not happen over night and we can eliminate it over time, actually relatively–relatively–painlessly if we do it properly. Politically it would be extemely difficult to pass, but the country would be solid for fifty years.

Over time, if we do nothing we will have an expanded GDP. We can reduce the federal debt to early post-Reagan numbers with some effort. We could do a number of things. For example:

We could decide whether we want to tax products coming in from forieign countries made by U.S. corporations, or establish a VAT tax.

We could raise the top rate, people with individual annual taxable incomes over $300,000 to 45% with a minimum of 29% after all deductions.

Third, we could simply also raise all income taxes by 5%. This means obviously that if you pay $20,000 per year, a fairly typical amount, you would pay $25,000. But if you are asking to top category to go up by about 7%, and a lot more money in actual dollars…which I would…then you must put some skin in the game.

Finally, we should regulate capital investment in a way that recapitalizes the system on a more regular basis. If we are capitalists then we are risk takers. If we are not, then we are something other than capitalists and we should modify the way with think of our free enterprise system.

If those who benefit from our financial system are not willing to reinvest in it, then we should begin to consider a different model, one more in the direction of the European systems, which are much more controlled and have much more cooperation between industry and government. If the investor class is not interested, then we should build a system in which the government participates in the generation of major industries.

I would prefer the former, but if I were in a position to push for it, I would not let many moons pass before I would insist on one or the other.

The one other thing I would do is start in 2010 to build our military from our needs for security. Zero-based budgeting. I would ask for a strategic justification for protecting Europe and Asia and military governments in Latin America. I would combine the Military and Homeland Security and make all of them one operation, including the NSA, CIA and FBI.
— Joseph O’Shaughnessy

Since the total “notational” value of “financial derivatives” is now $600 Trillion (can that really be right? That’s over ten times the combined GDP of every country on earth.), wouldn’t a simple tax of 1.5 percent on derivatives wipe out the entire national debt?

I mean what’s a measly 1.5 percent to Wall St. ?

If these pieces of paper, based on other pieces of paper, based on pieces of paper are really worth more than what every person on the world combined produces in a year, surely a tax of 0.015 couldn’t hurt?

Just asking.
— JimF

Ah, if only we were coming off an endeavor such as WW2 and the century’s major Depression to justify such debt. And if only there was in the nation a sense of cohesiveness and communal purpose to energize us. Alas, not the case. And alas, it appears most likely we won’t be dealing with this debt in a sane fashion.
Jon Jost
— Jon Jost

Additional debt is not a bad thing. It may be good or may be bad, depending on the state of the economy. If the Americans save too much or invest too little, new government spending (implying new government debt) is warranted to boost demand. This, at the same time, encourages investment.

If the federal debt grows, the creditors become wealthier. This increases their demand and renders new debt unnecessary. If you maintain full employment by government spending (or, perhaps even better, by adjusting taxes without regard to the public debt), the system is self-stabilizing.

The interest to be paid for public debt goes to the creditors. It is not lost, it generates additional income and expenditure–another route for self-stabilization. Further, the taxes required to offset interest payments in a growing economy will always be less than the interest payments themselves, as a larger public debt that keeps growing at the same rate as the economy grows (implying a constant fraction of debt to income) implies a larger new debt.

For a technical analysis see

— Ekkehart Schlicht

Yeah right, this figure conveniently ignores debt service which is a matter or confidence. When no one believes you can repay expect the short end of the curb that needs to be rolled over to cost double or triple due to interest rate spikes. Debt to GDP is one thing, service payments as a % of total budget figures is quite another.
— Mark

Unfortunately, that’s not the case; 9 trillion dollars in debt is greater then the current gross domestic product; you see, when inflation happens, it devalues the inidivudal currency significantly; simply put the worse inflation is, the worse things are for the poor, and the more the governments spends for less effect. A 9 trillion dollar debt, with the rising rate of inflation would put the United States goverment farther into debt then it’s ever been in it’s history; and the inflation isn’t 2% right now; it’s about 35%, again, probably the worst it’s been in quite awhile.

Simply put, not only is the current rate of inflation and government spending not sustainable… The programs allegedly being created to help the poor to justify it will end up harming them more then ever. The average tax burden on the poor and middle class (especially the middle class, who by themselves pay 93% of the taxes in the US despite only having roughly 40% of the income) are really going to be hurt, if the trend continues.

If people want to help the poor, and help the economy, the solution’s pretty simple. Stop spending. The average middle class American right now puts in 7350 dollars a year just in property taxes. there are people who, as hard as this may be to believe, receive less then that a year from government welfare programs. Time and time again, when the spending increases, the money used for doing everything but generating debt decreases.
— Aaron

A) If it is “possible to deal with” don’t look at Italy, Greece or Japan for a solution. As far as I can see, they are not dealing with it, but just kicking the can down the road. They have been quite successful at it these last 20 years, but only with the full wind of the global credit bubble flowing on their back. Now that USA destroys demand instead of creating it, things are not going to be that easy.

B) Things were “dealt with” at the end of WW2 through a very nasty bout of negative interest rates, and practically all significant USA competitors for industrial goods having their production capacity eradicated by war damages (with, incidentally, close to 0% recovery for Germany and Japan Govt. Bonds in real terms). THIS was the recipe for bringing Debt to GDP ratio from 120% to 60% in 10 years.

One's job is to find a roadmap that is better than the WW2 plan. Good luck with that ! By the way, hoping for 2.5% GDP growth for 10 years is more than a bit delusional, check Japan’s trajectory…
— Charles Monneron

70% of the GDP sum is consumption. So only 30% of the GDP generates any wealth, unless I am missing something?

Not to mention the unfunded liabilities of around $ 60 trillion and well as the fact that the $9 trillion needs to be added on to this plus the existing national debt of around $12 trillion. So in 10 years’ time the deficit will be getting on for $100 trillion (the way we are going).

But never mind those trivialities, I will try and demonstrate how big a number $9 trillion is.

* If you had $100 for every human who has ever walked the earth you’d have around $9 trillion
* It would take 5,000 lifetimes just to count to 9 trillion
* If you piled 9 trillion dollar bills on top of each other you’d have a stack 650,000 miles high (nearly three times further than the moon)

Hope that helps!
— Nick Thomas

At the end of World War II, the manufacturing capacities of Europe and Japan were significantly reduced by the war, and China and India were not competitive at that time. Much of the US manufacturing capacity had been producing war products for many years: almost no cars had been produced. This created consumer demand

All of this left the US in a position unequaled in world history in our ability to manufacture consumer products without competition. The government sent all GIs that wanted a college degree to college for free and provided a working class that was unequaled in the world.

The situation is reversed now. We have an oversize financial system that is too large a percentage of GDP, college that is too expensive, tremendous competition from Asia and a very small manufacturing component of GDP.

The government debt on top of personal and corporate debt, unlike the situation after WW2 will be impossible to pay back.
— Eric Neikrug

I think a mixed economy would help this situation. If we were to remove the profit motive, (i.e., nationalize), certain sectors of the economy that are out of control, like the so-called “defense” industry, oil industry, and transportation, costs could be lowered, and there would be a return on the public investment. This is not to be confused with handing several trillion dollars to Wall Street. Why the latter is considered acceptable but the former is not is a testament to the manipulation of public opinion by Big Capital. We need fundamental change in our approach to governance. Bring back the Sherman Anti-Trust Act, the Fairness Doctrine, an SEC with some teeth, and quit letting Big Capital and the wacko right-wing control the conversation.
— Doug Harvey

The world economy crashed in July 2008 when oil prices spiked at $150. The world economy will sputter at the existing $70 and crash again with the next spike to $150. World growth for past 100 years has averaged 3% with oil prices averaging $20 in 2008 dollars. There will be no world economic growth until there is an energy source to power it. There is not enough oil production capacity now to even power the 2008 demand level and that capacity is now shrinking Solar and Biomass must replace Coal and Oil before humans on this Earth can resume technical progress and economic growth all historically powered by cheap oil.

We can talk about all the other “important issues” forever and the world will just spiral into the next dark ages. The only thing that matters now is a new energy source.
— Jet

No comments:

Blog Archive