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Old 09-27-2015, 02:38 PM   #21
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For those who think astronomical debt doesn't matter, nothing to worry about, just carry on, we're Chicken Littles, Limbaugh-heads - if that's true, then why don't we just write every citizen a check for $100k? That would be nifty, it'll sure stimulate the economy, it'll make people dance in the streets, and heck, debt is okay. Stop goofing around about a $15 minimum wage, let's just mandate a six figure income for every citizen. Yipee.

I'm being facetious of course, but my point is, at some point it's unsustainable and triggers a collapse. Greece is a perfect, present day example of unsustainable government debt and outlay. If $20 trillion is still just peachy, what is dangerous? $40 trillion? (That is not a rhetorical question, I'd like to know.)

My household finances would collapse in about five minutes if I bought a million dollar boat. Now granted, I can't print more money like the government or issue myself loans to buy more time, but this argument that the same ultimate logic doesn't apply micro/macro is nonsense. From Argentina to Greece economic history is littered with examples of the results of govt recklessness and irresponsibilty.

If debt is no big deal, then I want my Kadey Krogen tomorrow.
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Old 09-27-2015, 04:07 PM   #22
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For those who think astronomical debt doesn't matter, nothing to worry about, just carry on, we're Chicken Littles, Limbaugh-heads - if that's true, then why don't we just write every citizen a check for $100k? That would be nifty, it'll sure stimulate the economy, it'll make people dance in the streets, and heck, debt is okay. Stop goofing around about a $15 minimum wage, let's just mandate a six figure income for every citizen. Yipee.

I'm being facetious of course, but my point is, at some point it's unsustainable and triggers a collapse. Greece is a perfect, present day example of unsustainable government debt and outlay. If $20 trillion is still just peachy, what is dangerous? $40 trillion? (That is not a rhetorical question, I'd like to know.)

My household finances would collapse in about five minutes if I bought a million dollar boat. Now granted, I can't print more money like the government or issue myself loans to buy more time, but this argument that the same ultimate logic doesn't apply micro/macro is nonsense. From Argentina to Greece economic history is littered with examples of the results of govt recklessness and irresponsibilty.

If debt is no big deal, then I want my Kadey Krogen tomorrow.
I am not being snarky either, but you really need to understand the huge difference between micro and macro economics.
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Old 09-27-2015, 05:08 PM   #23
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You cannot prove or predict that. In fact you do not know that. So it is only your opinion, right?
Yes, that is my opinion. It seems obvious to me that when the cost to finance the debt is many times that of today, the only way to finance it is with more debt. Anyone want to buy some Greek government bonds?

So what is devastating about financing debt with more debt? First of all more debt adds to the cost of financing the debt. Increased interest rates on top of that means even more cost. Pretty soon there would have to be some painful things happen to the economy such as devaluing the currency to pay with cheaper dollars. I see nothing but pain to come from this huge debt we are building.
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Old 09-28-2015, 06:18 AM   #24
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"I see nothing but pain to come from this huge debt we are building. "

I would not agree , the pain is HERE NOW!

The current US and world economic problems are all caused by a lack of growth (to service the debt) which will continue.

Deflation is back min Japan , the world leader in "Borrow your self rich" now going on its 3rd decade.

The time to stop spending on Bread and Circus handouts to be paid for by the generations yet to come,is long past.

WE are seeing the results of this insanity right now.
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Old 09-28-2015, 12:55 PM   #25
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FF-Where is the pain now? And what does Japan's nearly 20 year problem with potential deflation mean for us? You seem to think that it presages some disaster for us. Economic growth seems to be moving along quite decently, the latest 2015 annualized rate is 3.9% growth, a bit higher than the 1945-2014 historical average of 3.25%. I assume from your many comments over time that you are in favor of some sort of "austerity" program, I assume significant cuts in spending, for the US economy. Can you share how you think this will work and how it will benefit the economy?
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Old 09-28-2015, 01:48 PM   #26
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... I assume from your many comments over time that you are in favor of some sort of "austerity" program, I assume significant cuts in spending, for the US economy. Can you share how you think this will work and how it will benefit the economy?
Well for one thing if we drastically cut spending now, one benefit will be that our descendants won't curse us quite as badly for enslaving them with staggering debt. I see no one has still answered my question about how much debt is dangerous, if $20 trillion is just peachy. And if debt is good, why can't we all have a check for $100k right now?

"Austerity." That's hilarious. As if there were Greeks starving in the streets and widows and orphans living in cardboard boxes after Greek cuts. 20% tax increase on cigarettes. 20,000 public employees, formerly guaranteed a job for life, were supposed to have been laid off (at 60% pay for life) - but then of course Greece broke the IMF terms and hired back 15,000 of them. Means testing for public benefits. Retirement age raised to 65. A cap on retirement benefits for those who retire under 55 (!!). Oh the humanity.
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Old 09-28-2015, 03:33 PM   #27
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KT-First-in answer to your question-there is no existing study that has determined what level of debt is dangerous. The amounts of public debt in relation to GDP varies wildly around the world. The effect of public debt on a country's economy also varies wildly dependent on the particular circumstances of each economy. There is no black line level at which debt becomes a bigger burden than an economy can bear. I think there is a small disconnect though on attitudes towards debt. No one, not even the most possibly liberal economist in the world, holds that debt is universally good, should be totally ignored, or holds that debt should just be increased without regard to any potential effects on an economy. The more generally true statement would be that most classical economist believe that debt is a fiscal tool just like any other fiscal took available to a country to manage its economy. And it should be used in the circumstances that economic history shows that it is effective. Can a country carry debt ad infintum ? Of course it can, just like you (or the vast majority of people) can carry debt personally all your life.

As to Greece, Greece is in no way comparable to our own, not is its debt in any way comparable to our own. The short version is that Greece is a member of the EU, cannot issue debt is its own currency, and is reliant on the other members of the EU to purchase tis debt. Yes, Greece has some systemic problems it must solve and it eventually will. But it the actions of the other members of the EU as much or more than Greece itself that caused a debt and liquidity crisis there.

On "austerity"- It is normally defined as steep cuts in spending accompanied by tax increases. The theory has been dubbed "Expansionary Austerity." The theory, first espoused by and based on research by, the Harvard economist Alberto Alesina, holds that steep spending cuts and corresponding tax increases create confidence by business in an economy and that the positive effects of that confidence will outweigh the negative effects of the spending cuts. Unfortunately, his original research has been to have been shown to be a bit flawed and the "austerity" experience since, primarily in Europe, has been shown not to work. The negative effects of the spending cuts have not been offset by increased revenues fro higher taxes or by increased economic growth. In fact, in virtually every country that has tired or been forced to try an "austerity program", the economy has actually regressed, not grown.

As to whether steep cuts now will benefit future generations, that is unknown. Are debt loads truly staggering? Well, not really right now. Will they be in the future? No one can really say, it depends on too many factors, growth of the economy, our own revenues and expenditures, the rest of the world economy. One thing that is known for sure is that steep cuts in the current, today, economy will create some very serious problems not the least of which is a very substantial decrease in economic growth. Incomes decrease, consumption decreases, tax revenues decrease. Net wealth of the populace decreases. I fail to see how any of that leads to a benefit to my future generations.
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Old 09-28-2015, 06:45 PM   #28
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THD -- Thanks for that thoughtful (but I still think entirely wrong-thinking) response. Talk about thread creep, but worthwhile even so I think. I remember sitting in one of my PhD classes a few years ago -- public admin though, not economics, but we were talking about the intergenerational transfer of massive debt. Of course there has been some econ writing on that topic, but surprisingly not much, and it hadn't occurred to a lot of faculty to even consider that topic. Whether interest rates jump or not, debt service is already draining a huge amount away from discretionary spending. Economic preservation here and now, preservation of wealth and prosperity and stability here and now, at the expense of future generations. We run up debt but ultimately somebody else pays the bills -- and we think of that as doing a favor to them, that we'll bequeath lots of wealth to them, so foisting the debt upon them is justified. Ach, who cares, they'll just inflate themselves out of it, the burden will magically diminish over time, like pixie dust on a windy day, and meanwhile they'll get all our junk when we're dead. Here you go grandchild, you get (some fraction) of my stuff, so the debt is justifiably yours too. We're doing you a favor by preserving wealth and stability now at your expense in 2080.

And what an odd line of thinking -- because we (maybe) bequeath some wealth, we can saddle them with massive debt too and so then it's all okay, because citizens yet-unborn got all our stuff. So I'll tell my great grandchildren in 2080 that they shouldn't resent the trans-generational debt because they got (some of) my stuff. And funny you almost never hear Krugman talk about massive intergenerational opportunity costs of this current practice. The fact that we're bequeathing something to future generations no more justifies irresponsibility and self-centeredness and self-indulgence than it would have justified slavery because after all, the country was able to bequeath huge amounts of capital drawn from the labor of others. This is not much different in my opinion -- we are bequeathing assets to future generations ultimately purchased at their own expense, not ours, because we are unwilling and unable now to pay for it ourselves -- leeching again on the labor of others. It's like I buy myself an Escalade and when I die I bequeath the Escalade and the auto loan to my children, and we think that's somehow okay. (I know, we're back to the macro/micro distinction, and you and I don't agree on that either.)
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Old 09-28-2015, 07:49 PM   #29
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KT-I agree on the thread creep but I enjoy the "conversation". I think the first disconnect is with the idea that we are "saddling" future generations with debt. For that to be the case, there has to be an assumption that (1) the debt service, the interest on the debt, will become so burdensome that it crowds out other needed spending or (2) the debt principal will ultimately have to be repaid to the bondholders. As to the first, are we "saddled" with the debt of the previous generations? The $18 Trillion is the accumulated debt since 1790. So far, I think we are handling it pretty well. Our debt service costs are about 7% of the current budget. As both the GDP and the US budget increase over time, those costs are forecast by the CBO to decrease to about 5.8% in 2025. Similarly, the CBO estimates about 3.5% GDP growth over the next ten years and estimates that the budget deficit will run at about 2.7% of GDP annually. By their estimate, the debt, as a % of GDP will decrease to about 77%, from its current just over 100%, And these projections are based on the law as it exists today, no changes are forecast. So, any action the US that results in (1) a lower deficit, or (2) greater GDP growth those %relationship will improve. Of course, knowing politicians as we all do, they can also totally screw it up.

As to the second point, repayment of principal, in effect we have never paid off the principal, not since the US assumed the Colonies' debt in 1790. The government has just rolled it over from year-to-year and added to it in most years. The fact is it, or very large portions of it, will never be paid off. Our bonds provide a necessary benchmark investment for international financial markets. That is a position we most certainly want to maintain.

Now, all that said, can the ability to issue debt be abused? or not used wisely? or can economic policies be implemented that end up required the issuance of debt to cover deficits? The answer to all of the above is yes.

As I mentioned back in the beginning, there is no "bright line" on debt in relation to GDP. I certainly hope we do not have to ever find out where that line is for the US. My hope hope, so far not rewarded, is for responsible economic leadership from both sides. Haven't much of that lately.
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Old 09-28-2015, 08:12 PM   #30
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Good discussion here. To get back to the macro economics, the huge debt soaks up investment capital that could be used to grow the economy. Also, inflation devalues currency. So, working our way to making our massive debt smaller in relation to the GPD, we are also penalizing many sectors of the economy namely those on fixed incomes most of all.

The way to make the debt smaller in reality to GDP is to actually grow the economy in real numbers to that point. At the numbers we are growing at presently it will never happen.

There is one sure way to tell what amount of debt is dangerous. Just keep piling it on. It will happen.

Greece has one disadvantage as opposed to the US. Greece has no control over the Euro, and can't devalue that currency. They would have to go back to the Drachma which would be chaotic.
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Old 09-28-2015, 08:15 PM   #31
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What affect would that debt have if the Dollar ceased being the worlds reserve currency?
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Old 09-29-2015, 06:22 AM   #32
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Where is the pain now?

The unemployed , especially the youth barred from working an entry level job , and unable to obtain skills

One "adjusted" flash reading of 3.9% is little .cheer over the past 6 years.
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Old 09-29-2015, 02:43 PM   #33
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Why just six years?

Data please.
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Old 09-29-2015, 02:50 PM   #34
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SINCE THE ECONOMY "RECOVERED" IT HAS BEEN THE POOREST RECOVERY SINCE wwii.

Usually about 2% with this debt burden , in past recoverys 4% was reached , for a while.
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Old 09-29-2015, 11:22 PM   #35
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Where is the pain now?

The unemployed , especially the youth barred from working an entry level job , and unable to obtain skills

One "adjusted" flash reading of 3.9% is little .cheer over the past 6 years.
I`m not clear, is that the annual US GDP increase? Or the unemployment rate?
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Old 09-30-2015, 06:29 AM   #36
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I`m not clear, is that the annual US GDP increase? Or the unemployment rate?

Good question , depends on how you count.

Is someone unemployed for over 4 weeks that DOES NOT go looking for work"

Or is he removed from unemployment numbers and not counted , as is done today.

The best guesstimates are probably the total population vs the number of workers.

Even there all the Black Work (under the table cash folks) is a mere guess.
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