How Much Debt Is Too Much?
Thus one problem we have going forward is that we are not in a war of the magnitude that led to sharp rises in debt in the past. Therefore, we cannot anticipate that the debt will fall with the end of hostilities.
That's some seriously bad news. Sigh.
In fact, there is every reason to believe that the debt as a share of GDP will continue rising long past 2019. The CBO's latest long-term budget forecast shows the national debt reaching 181% of GDP in 2035, 321% in 2050, and 716% of GDP in 2080.
That's actually some good news. I doubt that I can live to the age of 116 so it is unlikely I will ever have to worry about a 716% of GDP debt load. Hurray!
Of course, this forecast will never come to pass.
That's more bad news. Apparently we can't just let deficit spending grow forever, even if our economy desperately needs it in order to appear healthier than it would otherwise be.
Interest on the debt would rise so rapidly that eventually more than 100% of projected revenues would be needed for that purpose alone. According to CBO, interest on the debt will rise from 7.7% of federal revenue this year to 21% of projected revenue in 2020, 39% in 2035, 68% in 2050, and 138% in 2080.
There's more good news. Based on actuarial tables, I should die in 2042. That means I have an 8 year buffer between me and the 68% interest payments due in 2050! Hurray!
In summary, that's two sets of good news, two sets of bad news, and one set of heavy sarcasm. In my opinion, it balances out quite nicely.
Stag,
ReplyDeleteGood morning. Lots of good posts lately! Your rate of posting seems highly correlated with the level of Central Bank foolishness.
Anyway, Bernanke is still printing while private bank credit is STILL contracting:
http://research.stlouisfed.org/fred2/series/TOTBKCR?cid=101
Who knew deflation fighting would take so much effort?
If the government didn't take on huge amounts of debt and the fed didn't print, we would indeed be in the midst of another Great Depression. However, if we allowed it to quickly run its course, the final outcome for the majority may very well have been better as debt loads would have been lightened. As it is, I see a long drawn out depression (small d) on Main St. and a recovery on Wall St. That doesn't seem right or fair, but that's the way I see it. Even if Bernanke successfully reflates again, I'm quite certain the majority will end up worse off.
Bernanke claims we have to save Wall St. in order to save Main St. I just don't see it that way. I'd argue Bernanke will further decimate Main St. in order to save Wall St. By now, it SHOULD be obvious that loading up households with debt doesn't make them better off. Seemingly, the man really has a blind spot. Or does he?
Bernanke has bailed out the creditors at the expense of the debtors. But arguably, the majority would have been better served with a debt purge or a least a massive restructuring.
Consider. Prior to Bernanke's meddling, mortgage paper was trading at a deep discount (much at under 50 cents on the dollar). At those prices, investors could have purchased the debt and profitably restructured loans down to affordable levels. Plus, absent the crushing levels of debt and high overhead costs of over-valued housing, our economy would have had a more stable foundation for future growth. Under that scenario, creditors (the minority) would have taken a financial beating.
The system is run by and for the benefit of the creditors. I don't see the creditors benefiting from inflation (bailouts are way more beneficial).
Central Bank independence is a ruse that allows the fed to serve the creditors.
As for all Bernanke's printing, cui bono?
mab,
ReplyDeleteForget the Kool-Aid. The new drink of the day is saltwater. So what if the Titanic sank? We're all safely in the lifeboats! We even have a technology that can create nearly infinite amounts of water at "essentially no cost." It's called a bucket. There's no guarantee that the water will actually be worth much to us though. Beggars can't be choosers.
I've been thinking about unemployment lately. The best part is that bread lines aren't needed as much as they once were. The government and corporations have mostly automated the process. My girlfriend uses her phone to tell the government computer that she still can't find work. A week later a check automatically shows up in the mailbox. She can then convert that paper into other paper (dollars) using an automated teller at the bank (assuming it isn't direct deposit, which it very well may be). She can then buy "bread" at the grocery store using the automated checkout and completely avoid human workers entirely! How cool is that?
This could be done for MANY years without affecting our national debt much at all. 15 million people collecting 20 thousand a year is only $300 billion per year. Chump change when you can print or borrow it at "essentially no cost."
That number is kind of small. It's like borrowing money to buy a new luxury car once you've taken out a subprime mortgage to buy a luxurios house. It would look silly parking a clunker in the driveway. Further, IF you really could afford the house then surely you could afford the car too. It just stands to reason.
*thwack*
That's just my forehead again. Nothing to worry about.
Stag,
ReplyDeleteIt's like borrowing money to buy a new luxury car once you've taken out a subprime mortgage to buy a luxurios house.
I have neither a luxurious house nor a luxury car. But as you can imagine, it's very comforting to know that the fed and government are using my tax dollars to subsidize the auto and house purchases of others, not to mention their creditors.
It's even more comforting to see that the government is demanding the destruction of our capital stock (clunkers) in exchange for my tax dollars.
I just can't help but be optimistic about the long term prospects of borrowing our way to prosperity - again!
mab,
ReplyDeleteI can imagine it! They say it is better to give than to receive. One can only imagine how comfortable we all will be in the distant future.
15 million people collecting 20 thousand a year is only $300 billion per year. Chump change when you can print or borrow it at "essentially no cost."
ReplyDeleteGood point! But the actual costs should be lower.
Typically, fewer than 50% of the unemployed are qualified to collect benefits. Currently, a little over 9 million (~60%) are collecting benefits, but ~ 3 million are on extended benefits. By some reports, millions will fall off the extended benefits in the coming months.
I'm not sure eCONomists have the natural rate of unemployment pegged properly at 5%. Same for real GDP growth.
If OER and hedonics hadn't been introduced into the GDP calculations, I suspect eCONomists would see what Main St. is feeling - we have had little real GDP growth for the past two decades. And much of the "growth" we did have was due to military actions, bubbles and debt growth. What kind of eCONomist would view soaring house prices as rising wealth?
In my mind, low interest rates are indicative of low inflation or low growth. In our case, they indicate both.
mab,
ReplyDelete"What kind of eCONomist would view soaring house prices as rising wealth?"
I can't speak for eCONomists, but my neighbor was very giddy.
I was not nearly so giddy. I could picture a time when property taxes had increased so high that I would be forced to sell my house and live in a much smaller one.
Perhaps someone could explain to me why I'd be wealthier once I did that.
Fortunately, the housing market fell apart. That may mean that I can actually continue to live in my home longer than I feared. Go figure.