The large budget deficits recorded in recent years have substantially
increased federal debt, and the amount of debt relative to the size of
the economy is now very high by historical standards. CBO estimates that
federal debt held by the public will equal 74 percent of GDP at the end
of this year and 79 percent in 2024 (the end of the current 10-year
projection period). Such large and growing federal debt could have
serious negative consequences, including restraining economic growth in
the long term, giving policymakers less flexibility to respond to
unexpected challenges, and eventually increasing the risk of a fiscal
crisis (in which investors would demand high interest rates to buy the
government’s debt).
http://www.cbo.gov/publication/45010
The Obama administration acknowledges the defense cuts are controversial
but maintains they are being done with a specific intention:"...in
order to sustain our readiness and technological superiority and to
protect critical capabilities like special operations forces and cyber
resources," Secretary of Defense Chuck Hagel told reporters Monday.
The CBO report finds that mandatory spending, which includes Social
Security, Medicare and Medicaid, is projected to rise $85 billion, or 4
percent, to $2.1 trillion this year.
Interest on the debt is worse. It is projected to increase 14 percent
per year, almost quadrupling in dollar terms between 2014 and 2024. "We
are going to be spending more in interest in a couple of years then we
do on national defense," House Armed Services Committee Chairman Buck
McKeon, R-Calif
In fiscal 2013, which ended Sept. 30, net interest payments on the debt totaled $222.75 billion, or 6.23% of all federal outlays. (The government paid out an estimated $420.6 billion in interest, but that included interest credited to Social Security and other government trust funds, as well as a relatively small amount of offsetting investment income.) By comparison, debt service was more than 15% of federal outlays in the mid-1990s; the share has fallen partly because lower rates have held down interest payments, but also because outlays have risen substantially: up 39.4% over the past decade.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteThe party in power almost always unapologetically engages in deficit spending, while the other party argues passionately against the evils of debt and deficits.
ReplyDeleteThis simple, once-cheerful law of politics is the reason why one can jump on the Internet anytime and find examples of Dick Cheney sounding like Paul Krugman ("Reagan proved deficits don't matter") and/or Barack Obama sounding like Paul Ryan (Candidate Obama in 2008: "The problem is, is that the way Bush has done it over the past eight years is to take out a credit card from the Bank of China in the name of our children . . ."). The reigning party spends, the opposition pisses and moans – until now, things have never been any different.
But today's Republicans have gamely spent the Obama years predicting the imminent arrival of a giant Earth-smashing debt asteroid. That this is transparently an effort to target social programs loathed for purely ideological reasons is obvious, but it's hard not to admire the balls: After spending much of the past decade borrowing from, among other places, the Social Security trust fund to pay for massive tax cuts and bank bailouts, America's wealthy are now turning around and demanding both $5.7 trillion in new tax breaks and significant cuts to things like Social Security, which incidentally is self-funding and running a huge surplus.
Rolling Stone
Since we owe it to ourselves I guess 17T doesn't matter.
DeleteAt what number does it begin to matter Mick?
17 trillion at 3%, chump change.
DeleteWill 20 trillion at 4-5% still be chump change?
How much borrowing must occur before the money changers say, no more treasuries at 4%. Your treasuries are to much of a risk, we want 6%.
There is no good ending here. The past is past, we cennot do anything about past spending but pay the bill. Does it matter what Bush spent? Can you change it. Does it matter what Obama spent? Can we change it?
Can tomorrow's spending be changed? Only people here and everywhere screaming at the place holders called politicians in Washington can change our march toward insolvency.
I'm not being flippant Lou, but screaming is not going to do it. a market driven bump to 6% would be a start, but even at that rate, they would still lend to us. The thing that would "force" us to stop borrowing would be other countries ceasing to lend to us. Wether we admit it or not, we all know that the stuff that each of us is ideologically opposed to is supported by someone else. Democrats have not succeeded in gutting Republican agendas (tax cuts and war mongering) and Republicans have been only mildly successful at gutting Democrat agendas (allegedly, food stamps and free shit for everyone). What I hear constantly is that our debt can't go higher, and that we have too much and so on. What I never hear is a reality based solution. I'm not dismissing your point Lou about the size of the debt. I just don't believe we can cut everything, suffer no consequence economically and magically pay down our debt when we won't raise taxes while we simultaneous suck money out of the economy that business is not wiling spend.
DeleteIn my personal life, if I spend less money but then take a job making less money, how can I pay down any debt that I already have? This is essentially what many deficit hawks are proposing that we should do. IE, spend less money, but then shrink the tax base. Or, spend less money, raise taxes on everyone, and still take money out of the pockets of the middle class who will in turn spend less money and shrink the tax base further.
There is no shortage of cash in the business world, they simply are not investing here because they cannot abuse our workers or our environment. While I think it would be awesome to have China's shitty air pollution so that I can wear a mask every time I leave the house, I'm kinda glad I don't have to. Anyway, we've gone form 70% marginal rates under Reagan to half that today and all we have encouraged is hoarding of money by the wealthy. The only chance in investment we have left is the government. That's a shitty state of affairs, but it's reality.
Max,
DeleteMy comment above was directed at Mick who seems to think debt isn't a big thing.
I agree that debt does matter. The problem we face is when we get to 6% at 20 trillion that will generate a 5% overall interest rate. While part is phoney transfers moving money from the front pocket to the rear pocket, a trillion in interest is daunting. For every dollar in interest wasted, that's a dollar they could spend on infrastructure. The process of downsizing the military is underway however spending 300 billion on roads and bridges is laughable as half is dependent on raising taxes. Another joke in today's economy.
In any case, the day of reckoning is near and decisions will need to be made, do we really need radio free Europe? Do we really need free cell phones? Perhaps, back to land lines which would cut the cost and usage. Screw over part of the population that paid SS all their lives? Full cost medicare for some? Do we really need to help people dumb enough to live on the ocean with little insurance? Do we really need to pay for people to rebuild below sea level?
It will become a nightmare we all created with the I want more attitude of Americans. Government will need to be downsized, more people will need to pay Federal Income Tax, some people will need to pay more.
You are correct, if you owned a business faced with the added regulations of the last 5 years, added cost for healthcare, higher taxes making you less competitive, would you invest here? Why should Apple or any other company return overseas profits to the US with a 35% penalty? Would you do that?
As to the Reagan comment, yes he reduced the tax rates and closed loopholes. I remember it well thinking I would lay less in taxes, ended up paying more. The results would be higher tax revenue. Some would argue that it would have gone up anyway as it always does. The question remains would business have invested at that rate, would consumers have spent as much if Government would have taken more?
In 2007 government spent 2.7 trillion dollars. Today we are looking at 3.9 trillion dollars. Inflation adjusted, 2007 would say the same sicxe government, 3.1 trillion dollars. Government is growing faster than inflation. Bloated. Yes lets have another study on the sex lives of snails, well spent money.
Nothing is free in life and Americans are about to see that reality.
Well stated Louman... sometimes my thought process gets ahead of my ability to articulate... common sense really.
DeleteIn response to the original question: Dick Cheney said debt doesh't matter.
ReplyDeleteAs Hillary said, who cares anyway. What difference does it make?
DeleteIn 2002, Vice-President Dick Cheney and the Bush administration’s economic team met to discuss a second round of tax cuts, which would follow Bush’s 2001 cuts. At the meeting, “then-Treasury Secretary Paul H. O’Neill pleaded that the government — already running a $158 billion deficit — was careening toward a fiscal crisis.” Allegedly, Cheney replied by saying that “deficits don’t matter.”
ReplyDeleteSix years later, the Bush administration’s consistent belief that deficits don’t matter has increased the national debt to over $10 trillion. This is the highest dollar amount ever, and pushes the debt to 69% of the gross domestic product, which is the highest percentage since 1955.
I would suggest that is what happens when you surround yourself with Harvard educated Keynesian that tell you what you want to hear and listen to no countervailing opinions...
DeleteMick, please what's done is done. Just like all the spending Obama has done in the last 5 years. We can all be pissed and as much as you want, you cannot justify Obama's spending with Bush's spending/tax cuts. What Bush did is what he did. What Obama does is strictly on him 5 years later. Nothing can change that.
DeleteAs Obama says forward. That means he can begin that change now, reduce spending, smarter government spending. He could even take on government reform. I like that, reduce waste, duplication maybe even get rid of outdated government spending. My favorite to go away, Radio Free Europe. Cold war's over kids, go away. But all that would assume that he actually wants to make government effective. But, I assume to much.
Louman... Will I will agree with you that Radio Free Europe is a relic of the past... I wouldn't put away your long johns just yet.... Russia is not to be trusted and as more satellite countries attempt to align with Europe, its cooperation with china will grow.
DeleteI love the world today.
DeleteWe want to trust everyone yet few are trust worthy.
One would think we would have learned that lesson. Guess not as we continue to repeat the past.
Korea/Vietnam/Iraq/Afghanistan.
I have an idea, let's drone the world, that will fix it.
I still wonder why government is never down sized/right sized/ consolidated. One would think with all the smart people we send to Washington it would be under constant review. The I remember, it's not their money and they don't care.
Some people read the word 'Defense' and understand it to mean Imperialism... others see the word 'Promote' and understand it to mean Provide... The constitution is such a complex document...
Delete