U.S. National Debt now 90% of GDP . (This is crazy!!)

[briann]

http://thehill.com/blogs/on-the-money/budget/99973-us-debt-reaches-level-at-which-economic-growth-begins-to-slow-

U.S. debt reaches level at which economic growth begins to slow
By Walter Alarkon    - 05/26/10 12:25 PM ET
The level of U.S. debt has reached a point at which economic growth traditionally begins to slow, a bipartisan fiscal commission making recommendations to the White House and Congress was told Wednesday.

The gross U.S. debt is approaching a level equivalent to 90 percent of the country's gross domestic product, the level at which growth has historically declined, said Carmen Reinhart, a University of Maryland economist.

When gross debt hits 90 percent of GDP, Reinhart told the commission during a hearing in the Capitol, growth "deteriorates markedly." Median growth rates fall by 1 percent, and average growth rates fall "considerably more," she said.

Reinhart said the commission shouldn't wait to put in place a plan to rein in deficits.

"I have no positive news to give," she said. "Fiscal austerity is something nobody wants, but it is a fact.

Gross debt is at 89 percent and will reach 90 percent by the end of the year, said Sen. Kent Conrad (D-N.D.), a member of the commission.

Another commission member, Rep. Jeb Hensarling (R-Texas), described the situation: "Essentially, the needle is hitting the red zone in respect to economic growth.”
 
Gross debt, unlike the public debt measure used by the Congressional Budget Office (CBO) and other economic forecasters, includes the money the government owes to all entities it supports, such as mortgage firms Freddie Mac and Fannie Mae, Reinhart said. The CBO expects public debt to grow from 63 percent this year to 90 percent in 2020, largely because of rising healthcare costs.

The bipartisan fiscal commission, which was created by President Barack Obama and contains lawmakers from both parties, is tasked with producing a plan to rein in debt by December 1. Leaders in both the House and Senate have said the commission's proposals would receive votes on the floor later that month.

Reinhart cautioned policymakers against seeing the strengthening of the dollar as a sign that investors can wait for the United States to show how it will deal with the debt.

"I am concerned about complacency," she said. "I am concerned that because the dollar has renewed its role as a reserve currency, we may wait too long."

[Zelhar]

Even though the debt and deficit are a big problem, this post is misleading by mixing up gross debt with the public debt.

[TheCoon]

Fact is, the US is on course to become like Greece thanks to socialism. Fiscal accountability by government should be required just as providing national security, judiciary, etc.

[IsraeliGovtAreKapos]

 

[MassuhDGoodName]

It's even worse than you think!

Since Clinton, Washington has been "cooking the books" each year; using "new rules" for a "new economy" so that American Gross Domestic Production appears stronger on paper than it actually is -

The percentage of all goods manufactured in Red China for sale in the U.S.A. are now included in the total production when they determine our GDP.

So...the REAL National Debt probably is now more like 190% of our GDP and growing by the day.

Try to find any product anywhere for sale today which is marked "Made in the U.S.A."

[Ari Ben-Canaan]

Perhaps this is the punishment to the US for having presidents who work against Israel and instead for the Muslims?

[briann]

Even though the debt and deficit are a big problem, this post is misleading by mixing up gross debt with the public debt.

What are you talking about?  This article never mixes up gross Natonal debt with just the publicly held portion of the debt?   It briefly mentions publicly held debt, when it talks about CBO estimates but there is no mixup or no misleading.

By the way, here is how all this looks graphically.  This needs to be updated, becacuse its even MORE severe:

[Zelhar]

Even though the debt and deficit are a big problem, this post is misleading by mixing up gross debt with the public debt.

What are you talking about?  This article never mixes up gross Natonal debt with just the publicly held portion of the debt?   It briefly mentions publicly held debt, when it talks about CBO estimates but there is no mixup or no misleading.

By the way, here is how all this looks graphically.  This needs to be updated, becacuse its even MORE severe:

Isn't the so called "debt held by the public" is the default reference when people mention "national debt" ? If it is then when you say the national debt reached 90% is misleading because the public debt is going to pass 60% this year which is not as bad as bad on its own if it wasn't expanding at insane rate.

[briann]

Even though the debt and deficit are a big problem, this post is misleading by mixing up gross debt with the public debt.

What are you talking about?  This article never mixes up gross Natonal debt with just the publicly held portion of the debt?   It briefly mentions publicly held debt, when it talks about CBO estimates but there is no mixup or no misleading.

By the way, here is how all this looks graphically.  This needs to be updated, becacuse its even MORE severe:

Isn't the so called "debt held by the public" is the default reference when people mention "national debt" ? If it is then when you say the national debt reached 90% is misleading because the public debt is going to pass 60% this year which is not as bad as bad on its own if it wasn't expanding at insane rate.

No.  Here in America, when people talk about national debt, they are always talking about the gross national debt.  Not just me, but all economists, etc, use ALL outstanding debt, including debt held as government securities.  Do a search for National debt, and you will ALWAYS get the 13 trillion dollar figure (or 12 if the info is from last year)

BTW, the publicly held debt percentage is going up at nearly the same rate, so when you say it isnt expanding at an insane rate, I think you need to look at the data.

Here are some references:
http://www.businessdictionary.com/definition/national-debt.html
http://www.investorwords.com/3200/National_Debt.html
http://useconomy.about.com/od/fiscalpolicy/p/US_Debt.htm

Also check out
www.usdebtclock.org/
http://zfacts.com/p/461.html
http://www.brillig.com/debt_clock/

[Zelhar]

Even though the debt and deficit are a big problem, this post is misleading by mixing up gross debt with the public debt.

What are you talking about?  This article never mixes up gross Natonal debt with just the publicly held portion of the debt?   It briefly mentions publicly held debt, when it talks about CBO estimates but there is no mixup or no misleading.

By the way, here is how all this looks graphically.  This needs to be updated, becacuse its even MORE severe:

Isn't the so called "debt held by the public" is the default reference when people mention "national debt" ? If it is then when you say the national debt reached 90% is misleading because the public debt is going to pass 60% this year which is not as bad as bad on its own if it wasn't expanding at insane rate.

No.  Here in America, when people talk about national debt, they are always talking about the gross national debt.  Not just me, but all economists, etc, use ALL outstanding debt, including debt held as government securities.  Do a search for National debt, and you will ALWAYS get the 13 trillion dollar figure (or 12 if the info is from last year)

BTW, the publicly held debt percentage is going up at nearly the same rate, so when you say it isnt expanding at an insane rate, I think you need to look at the data.

Here are some references:
http://www.businessdictionary.com/definition/national-debt.html
http://www.investorwords.com/3200/National_Debt.html
http://useconomy.about.com/od/fiscalpolicy/p/US_Debt.htm

Also check out
www.usdebtclock.org/
http://zfacts.com/p/461.html
http://www.brillig.com/debt_clock/

I said, or at least I meant to say, that the current deficit is insanely large, but if it wasn't, then the current debt level is manageable.

I reading Israeli financial news sources and they usually cite the lower figure as the national debt for comparison with other nations, and usually it is also mentioned that on top of that national debt there are mounting obligations in future pensions and health expenses.

Does the gross debt include state-level debt too ? Does it include Medicaid and Medicare expected costs ?

[Ithaca-37]

So what's coming?  Two things are quite likely, in my opinion:

1) Inflation, perhaps even hyperinflation.  People in the United States have not experienced double-digit inflation since the late 1970s, and the public has forgotten what a cruel thing it is to live with high inflation.  If things go really bad, then we could have something like 1970s Argentina or Weimar Germany.

2) Rather than cutting these insane levels of spending, what's coming is a value-added tax.  It will start small, and the Dems will get some weak RINOs to go along.  However, it will only grow over time, and it will foster a curious thing that the United States has never seen before, but is common in third-world nations:  a rhobust black market.

37

[Ben m]

so what is the implications for the future of the united states?

[briann]

so what is the implications for the future of the united states?

Theres no real positive scenario.   It is possible to reverse the trend, but I just dont think its gonna happend.   I'm becoming more convinced that this will be a lost decade.

Best case scenario is huge spending cuts and low growth for a few years.

Worst case scenario is catastrophic.  A credit crunch followed by a massive pull-out from U.S. debt, followed by a depression that seemingly will never end.

[Ben m]

so what is the implications for the future of the united states?

Theres no real positive scenario.   It is possible to reverse the trend, but I just dont think its gonna happend.   I'm becoming more convinced that this will be a lost decade.

Best case scenario is huge spending cuts and low growth for a few years.

Worst case scenario is catastrophic.  A credit crunch followed by a massive pull-out from U.S. debt, followed by a depression that seemingly will never end.

this is very bad.it could destroy also the israeli economy.

[MassuhDGoodName]

Re:  "what's coming is a value-added tax"

Like the "fair tax", a VAT is also ILLEGAL.

Why?

Because the Constitution states that only by formal ratification of a Constitutional Amendment can our system of taxation and monetary policy be changed.

Any attempts at "legislating" tax revision outside of formally amending the Constitution of the United States of America are null and void.

Only Congress has the legal authority to mint coinage, regulate currency, and declare War.

Does this mean that we've been living in a tyranny all this time?

Duh!     

[briann]

Even though the debt and deficit are a big problem, this post is misleading by mixing up gross debt with the public debt.

What are you talking about?  This article never mixes up gross Natonal debt with just the publicly held portion of the debt?   It briefly mentions publicly held debt, when it talks about CBO estimates but there is no mixup or no misleading.

By the way, here is how all this looks graphically.  This needs to be updated, becacuse its even MORE severe:

Isn't the so called "debt held by the public" is the default reference when people mention "national debt" ? If it is then when you say the national debt reached 90% is misleading because the public debt is going to pass 60% this year which is not as bad as bad on its own if it wasn't expanding at insane rate.

No.  Here in America, when people talk about national debt, they are always talking about the gross national debt.  Not just me, but all economists, etc, use ALL outstanding debt, including debt held as government securities.  Do a search for National debt, and you will ALWAYS get the 13 trillion dollar figure (or 12 if the info is from last year)

BTW, the publicly held debt percentage is going up at nearly the same rate, so when you say it isnt expanding at an insane rate, I think you need to look at the data.

Here are some references:
http://www.businessdictionary.com/definition/national-debt.html
http://www.investorwords.com/3200/National_Debt.html
http://useconomy.about.com/od/fiscalpolicy/p/US_Debt.htm

Also check out
www.usdebtclock.org/
http://zfacts.com/p/461.html
http://www.brillig.com/debt_clock/

I said, or at least I meant to say, that the current deficit is insanely large, but if it wasn't, then the current debt level is manageable.

I reading Israeli financial news sources and they usually cite the lower figure as the national debt for comparison with other nations, and usually it is also mentioned that on top of that national debt there are mounting obligations in future pensions and health expenses.

Does the gross debt include state-level debt too ? Does it include Medicaid and Medicare expected costs ?

No, it doesnt include state-level debt.

Yes, social security (and to a smaller degree, medicare).  We dont really have a trust 'fund' for Social security/Medicare/etc.  The contributions aren't 'saved', etc.  Its all a big scam. 

Here in America, our thieving politicians (starting with LBJ and is still going strong) decided that they would take social security contributions, and steal, I mean 'borrow' them.  This was never intended to happen, but they did it anyway.  This has made things much worse for our long term fiscal health.  Things are gonna get really nasty in a few years because of all of this.

[Zelhar]

Brian can you explain how the catastrophic scenario might turn out ?

I think it is possible that America will essentially default on her debt, which in practice means- she will devalue the dollar to a fraction of its current value. So what should happen then ? I think this can actually be very positive for the economy- it will reboot and start over without the burden of old debt. Like it happened in Russia earlier this decade, in Argentina, etc. Recovery can be very quick after such a reboot. The catch is that the people might lose their most of their savings.

[briann]

Brian can you explain how the catastrophic scenario might turn out ?

I think it is possible that America will essentially default on her debt, which in practice means- she will devalue the dollar to a fraction of its current value. So what should happen then ? I think this can actually be very positive for the economy- it will reboot and start over without the burden of old debt. Like it happened in Russia earlier this decade, in Argentina, etc. Recovery can be very quick after such a reboot. The catch is that the people might lose their most of their savings.

This takes a LONG time to explain, and its still not very likely.  Also, I think saying Argentina recovered is a stretch, lol.

Countries often times recover, because other countries that were not affected, lift them up.  First-world countries start to see value in beaten down economies with extremely cheap currency, and ultimately, they starts to help the country recover.

In the worst case scenario, there would be nowhere to hide.  No countries would be immune to it.  Lets look at the situation now.  Global investors are slowly getting cornered.  People around the world are looking for a safe-haven for their money and running out of places to find it; they are still looking to the US for that safety, and thats keeping demand for our Treasury bills strong and keeping interest rates artificially low.  There is now even a possibility of China’s bubble bursting.  What happens if in the middle of all this panic, the U.S. suddenly has a catastrophic credit meltdown?  The pull out would be dramatic.  The fed will of course pump unheard of amounts of money, but that will do nothing other than scare international investors even more.  At this point, we will be in a situation worse than Japan in the 1990’s (which went through a lost decade), since there will not be any large economies thriving anywhere.  There will only be nervous investors sitting on their hands, and stuffing their wealth in commodities and currencies.

This is all unlikely, but it’s a possibility.