Monday, October 18, 2010

How Can We Possibly Pay This Off?

Not from FoxNews but from CBS News comes this fear-inspiring information:

New numbers posted today on the Treasury Department website show the National Debt has increased by more than $3 trillion since President Obama took office.

The National Debt stood at $10.626 trillion the day Mr. Obama was inaugurated. The Bureau of Public Debt reported today that the National Debt had hit an all time high of $13.665 trillion.

The Debt increased $4.9 trillion during President Bush's two terms. The Administration has projected the National Debt will soar in Mr. Obama's fourth year in office to nearly $16.5-trillion in 2012. That's more than 100 percent of the value of the nation's economy and $5.9-trillion above what it was his first day on the job.

Mr. Obama frequently lays blame for soaring federal deficits on his predecessor.
What will happen not just to the US, but to world stability, when the bill comes due? Unsustainable is a word that applies here.

11 comments:

MikeAT said...

Darren

We could only wish the actual debt was this little...

http://www.nationalreview.com/articles/229942/other-national-debt/kevin-williamson?page=1

Closer to 130 trillion.

David said...

Proper accounting would indeed reflect things like liabilities for unfunded pension promises. But it would also reflect offsetting *assets*, such as the money the government is owed under various TARP programs, a significant part looks like it's actually going to get repaid. Are these offsets considered in numbers like the $10.6 trillion? I doubt it, and I'm afraid the average political reporter has too little understanding of finance to even ask the question.

mazenko said...

Exactly.

So we must pay for it? How are we going to do that? If spending increased by $787 billion and no increases went to entitlements, then it must also be a massive loss of revenue. Oh, yes, of course it was because we are in a recession, fighting two wars after two tax cuts which produced exactly zero job growth.

As discretionary spending is less than 15% of the budget, I guess we should consider how to get back that revenue.

Hmmmm. How about letting *all* of the last two tax cuts expire on schedule with a provision to "sundown" that as well in eight years when rates will decrease again? Along with a freeze on discretionary spending, a freeze on entitlement spending, a freeze and review and cutback in military spending, and the return of pay-go, that might actually close the deficit and pay down the debt.

When in a hole, stop digging. That goes without saying. But in a $13 trillion dollar debt hole, you must start putting dirt back in. Talk of "growing the economy with tax cuts" will return no dirt to the hole.

If, and only if, you are really serious about "paying this off," you have to concede an increase in revenue to match the cuts in spending.

And if you are really serious about that, you can not hope that John Boehner and Mitch McConnel get control because they will never pay down the debt or close the deficit.

Darren said...

Again, straw man.

I'm not against tax increases, I'm against tax increases to pay for more pork and more entitlement spending that does nothing to reduce this debt. The only option I see is to starve the beast.

ChrisA said...

G O L D

Darren said...

There's not enough gold on the planet to pay this off. I don't buy into the "gold standard" propaganda. It strikes me as that old teacher who sits through an entire staff meeting learning about how to identify gang symbols on student books, notebooks, and clothing, and who at the end of the meeting says, "But who's going to stop those kids from chewing gum in class?"

Anonymous said...

Darren: "What will happen not just to the US, but to world stability, when the bill comes due? Unsustainable is a word that applies here."

Well, the US government does a partial-default.

It isn't like this hasn't happened before ...

What? You say that the US government has never defaulted?

Well ... not quite. Back in 1933 we had the following sequence of events:
   1) US citizens were required to turn in gold at about $20/ounce.
   2) They were given paper money equivalent to the gold. At this point, $20 was equivalent to roughly one ounce of gold. And the paper currency said so (gold notes). I think.
   3) Gold was then set to $35/ounce. Now you couldn't convert your gold note (which said you could convert!) to gold.

In effect, money (gold, at the time) was converted to paper at almost a 2:1 devaluation.

We did something similar under Nixon ... US dollars were converiable to gold at a specified rate until they weren't. I know *I* would feel partially-defaulted on if my bank said that I had, say, $100 in it one day and then the next said that I only had $50.

Why can't the US government do something similar in the future? You think you have $1,000 in US bonds at 5%? Sorry, new plan is that you have only $500 in bonds.

You thought you had a government pension? Sorry, you only get 60% of what you thought you had coming. Or it gets capped.

Same for Social Security (which doesn't even require a default as there is no contract). And Medicare.

We get to play this game at the state and city level, too.

Eventually, the question becomes: "Do we spend the tax money on goods/services or do we send checks to bondholders and retirees?" I just don't see how spending even close to 50% of the tax revenue on retirees/bondholders is going to fly with the people *paying* these taxes.

Messy? Oh, yes. Quite.

But it can certainly happen. What is the mystery? Some of the people *owed* money are going to get told that they can't collect ... or at least can't collect all of it.


-Mark Roulo

mazenko said...

It's not a straw man. And I concede, D, that you are not opposed to tax increases as a way of paying down this debt and deficit. But you have to admit that the GOP has adamantly said it will not accept a tax increase to solve the fiscal crisis. It makes "tax cuts to grow the economy" the one and only solution to the problem and it won't put "revenue increases" on the table.

If conservative-tax-cutting-god Ronald Reagan and George Bush with six years of a GOP Congress could not "starve the beast," then at some point you have to understand that as a myth.

Darren said...

Reagan didn't have a Republican Congress, and Bush and the Republican "gentry" (that's the new word) weren't my favorites on domestic issues. I understand that no one yet has starved the beast, but the alternative is *not* just to send more money to Washington.

Again, no country ever taxed and spent itself into prosperity.

ChrisA said...

Darren,

We can compare notes in a few years. You are welcome to substitute a basket of commodities for gold if you wish. I've seen the high tech and bio-tech booms and you go to work every day and people are standing around the water cooler talking about how their stocks are doing.

We haven't come close to that when it comes to Gold/Commodities. Not that the government hasn't required citizens to turn in all our gold in the past. Somehow I don't think that will work this time around. Just sayin...

Darren said...

You're changing your argument, while refusing to address the point that there isn't enough gold in the world to account for just our economy, much less the world economy.

There's nothing wrong with gold as a commodity, but to think it's going to be the basis for an entire economy is very backward-thinking.