Government Shutdown on the clock thread

[caulfield12]

Ah, the classic "this is a big number it must be bad!" post.

 

That debt level does not have to come down. It has to eventually balance as a share of GDP...which has already happened. Budget projections show that the debt as a share of GDP is stable for the next decade already. It could start going down in fact if we actually could get people back to work, but long ago we decided unemployment is a low priority.

 

But since you brought up interest payment outlays...it's worth noting that adjusted for GDP, interest outlays for the last decade are 1/2 what they were between 1980 and the Clinton administration, and despite the large increase in total debt over the last 5 years, interest payments have fallen as a share of GDP.

 

The interest on the debt is actually taking up less of a share of the economy now than it was in 2000 or 2006, and it's 1/2 of what it was in the early 90's, and there is zero evidence of a trend towards increasing interest payments as a share of the economy.

 

 

And how much of that debt is actually owed to non-Americans/banks/institutions?

 

Something like 5.6 trillion, right?

 

America basically "owes itself," largely, at least 2/3rd's of the money.

 

China at 1.277 trillion and Japan at 1.135 trillion are the biggest foreign reserve note holders. If you consider HK & Taiwan part of China, that's another 0.3 trillion, so 1.6 trillion from the point of view of Chinese mainlanders.

Edited October 20, 2013 by caulfield12

[Texsox]

How much of the money that we pay in interest actually makes us secure? Feeds the poor? Fixes infrastructure? Sends a kid to college?

 

Now imagine what we could do if we could use that for the above projects instead of paying interest. The interest payments mean a project that may have cost a million, costs many times more.

 

Why do we pay taxes? Why not cut taxes for everyone and just borrow more if debt isn't an issue?

[caulfield12]

How much of the money that we pay in interest actually makes us secure? Feeds the poor? Fixes infrastructure? Sends a kid to college?

 

Now imagine what we could do if we could use that for the above projects instead of paying interest. The interest payments mean a project that may have cost a million, costs many times more.

 

Why do we pay taxes? Why not cut taxes for everyone and just borrow more if debt isn't an issue?

 

 

Tex, let's imagine there is a balanced budget every year and there was ZERO debt.

 

Imagine the same Congress.

 

Who on the GOP side would actually be for feeding the poor or sending kids to college? I can see more defense/military spending prioritized, PERHAPS fixing aging infrastructure, but not the other two priorities.

 

 

However, I'm sure there's a relationship between the time period of 2001 through 2013 and the increased inequality between rich and poor in the US, with the hollowing out of the middle class.

 

At some point (soon), that's going to start killing US corporate profits because there's just not going to be enough demand coming from outside the Top 10%.

 

And that's exactly why countries like India are starting to take off....their growing middle class. Ours is contracting.

 

But, ONCE AGAIN, how many in the GOP would really see the growing wealth disparity as a long term problem?

Edited October 20, 2013 by caulfield12

[Texsox]

So this country can not be successful based on the tax revenue that is collected. The only way to remain at this level is to borrow every year?

[Balta1701]

So this country can not be successful based on the tax revenue that is collected. The only way to remain at this level is to borrow every year?

That was the decision we came to as a country in the 2000 election.

[southsider2k5]

That was the decision we came to as a country in the 2000 election.

 

Now that is just funny.

[Balta1701]

Now that is just funny.

Bait taken...now insert chart with actual data showing how tax rates have spent the last decade well below the long term average, starting in 2000, and have spent nearly 5 years at the lowest levels since 1950.

 

We don't have a spending problem. We have record low tax receipts. But because that's been accomplished by cutting the highest-level rates and the corporate rates, no one feels it.

[caulfield12]

Bait taken...now insert chart with actual data showing how tax rates have spent the last decade well below the long term average, starting in 2000, and have spent nearly 5 years at the lowest levels since 1950.

 

We don't have a spending problem. We have record low tax receipts. But because that's been accomplished by cutting the highest-level rates and the corporate rates, no one feels it.

 

 

That's where Balta's numbers are a little bit misleading, haha.

 

A lot of the reason why those numbers look better at the end of the Clinton Years...and I say this as a lifelong Democract, are because of the extraordinary revenues coming in from capital gains taxes when the stock market was just flying along (although there was the 1998 Asian crisis, we were more insulated then compared to the huge one a decade later) and the fact that the economy was humming along like a well-oiled machine.

 

There's just no way to correct for 9/11, the impact of two unfunded global wars, lowering of taxes (look at the estate tax scales, for example) and the unfunded Medicare prescription drug plan.

 

You can blame 2/3rd's of the debt expansion on the Bush Years, and the right will say George Bush wasn't a true conservative or that the Democratic Congresses were also to blame, forgetting the political atmosphere at that time when anyone who was against the war in Iraq was branded as a traitor (see the Dixie Chicks) or to the left of Obama.

Edited October 20, 2013 by caulfield12

[Balta1701]

The Medicare Drug benefit has as much to do with the ratio between tax receipts and GDP as Yasiel Puig's celebrations do.

 

It's actually kind of remarkable how you say there's no way to correct for ..... "lowering of taxes"...that's the ****ing point.

 

What might be worth noting though is that the increase in the 1990's happened right after a series of Tax increases, including Bill Clinton's 1993 budget, and it dropped rapidly the second we started cutting taxes. 2 major tax cuts, in 2001 and 2003, and suddenly we went from a situation where we were getting the budget situation in line for what was necessary given upcoming demographic changes to one where we were underfunding everything at a federal level while simultaneously feeding another large investment bubble.

 

Also worth noting...the 2000's housing bubble was much larger than the stock bubble in the 1990's, but it never produced tax receipts coming anywhere near the same fraction of the economy observed in the 1990's...because taxes were slashed.

[caulfield12]

The Medicare Drug benefit has as much to do with the ratio between tax receipts and GDP as Yasiel Puig's celebrations do.

 

It's actually kind of remarkable how you say there's no way to correct for ..... "lowering of taxes"...that's the ****ing point.

 

What might be worth noting though is that the increase in the 1990's happened right after a series of Tax increases, including Bill Clinton's 1993 budget, and it dropped rapidly the second we started cutting taxes. 2 major tax cuts, in 2001 and 2003, and suddenly we went from a situation where we were getting the budget situation in line for what was necessary given upcoming demographic changes to one where we were underfunding everything at a federal level while simultaneously feeding another large investment bubble.

 

Also worth noting...the 2000's housing bubble was much larger than the stock bubble in the 1990's, but it never produced tax receipts coming anywhere near the same fraction of the economy observed in the 1990's...because taxes were slashed.

 

 

I'll just say this, most Republicans run and hide when you bring up the obvious "senior pandering" element of the medicare drug benefit and the fact that it wasn't funded. When everyone's running around screaming about balanced budgets and irresponsible government spending, that never seems to come up.

 

Or Republicans will say it was all due to the "peace dividend of Clinton cutting military spending" because he was a draft dodger and hated the military, lol.

 

But Balta, out of all those government tax receipts in 1997-1998-1999-2000, how much of it is attributable to capital gains?

 

If anything, if you look at the growing chasm between the rich and poor and the hollowing of the middle class, all the tax cuts/advantages to the rich as well as corporations in the last decade and finally the cutting of capital gains and estate taxes...well, you reap what you sow, as they say.

 

The problem is those rich people and CEO's need someone on the demand side to buy their products. China and India can't keep growing at 8-10% every year, those numbers are going to slow eventually, it's a mathematical certainty, like the Titanic sinking after 5/8 watertight compartments were filled. What then? Brazil? Indonesia? Because it's not going to come from the US or Europe at the rate things are going currently.

 

 

[Balta1701]

But Balta, out of all those government tax receipts in 1997-1998-1999-2000, how much of it is attributable to capital gains?

Between 1994 and 2000 it went from 0.13% of GDP to 0.18% of GDP. In other words, it's smaller than the lines on those plots.

 

(It might have made a slightly larger difference but there were repeated cuts to capital gains taxes over that time, both when capital gains were increasing and when they plummeted after bubbles bursting).

[caulfield12]

Between 1994 and 2000 it went from 0.13% of GDP to 0.18% of GDP. In other words, it's smaller than the lines on those plots.

 

(It might have made a slightly larger difference but there were repeated cuts to capital gains taxes over that time, both when capital gains were increasing and when they plummeted after bubbles bursting).

 

 

Or, put another way, a 38% increase.

 

 

That said, Clinton deserves at least some of the credit for helping to create an environment that led to such productivity.

 

The reverse point of view is that Clinton/Rubin/Greenspan helped to create (as well) the beginning of the reckless home loans/mortgage environment...and the lack of financial regulations/oversight (which can be blamed on BOTH parties, but probably 60-65% on the GOP since they were literally writing some of the bills, along with companies like Countrywide Loans/Mozilo).

Edited October 20, 2013 by caulfield12

[Texsox]

Now that is just funny.

 

I'll agree with you. We decided that with the relection and eventual Sainthood of Reagan. His two greatest contributions to the GOP was the Teflon™ he wore with the press, which led to the "liberal press out to get us strategy" (it makes all GOP teflon™ ) and allowing the Dems to spend all they wanted as long as the GOP could spend all they wanted and kept taxes low. The GOP and DEMS won as long as voters continued to demand that the government borrows money and gives us stuff.

[NorthSideSox72]

The discussion of debt load versus GDP/GNP is important, however what I think Y2HH was getting at is absolutely a valid point: debt service as a percentage of federal budget. As interest payments have to increase, the ability of government to spend money productively goes down. That is simple reality. Take a look at the future projections of how much of federal spending is likely to be eaten up by interest payments. That, more than creditworthiness or debt costs, is the key problem with the size of the debt.

 

That of course can be addressed numerous ways - and contrary to what some of the hyper-conservatives think, simply cutting spending itself is not a good idea, especially right now. But there IS a reality there that Balta and SS are apparently ignoring, instead choosing to label such fears as "oh that's a big number!", which no one here is arguing.

 

[Y2HH]

The discussion of debt load versus GDP/GNP is important, however what I think Y2HH was getting at is absolutely a valid point: debt service as a percentage of federal budget. As interest payments have to increase, the ability of government to spend money productively goes down. That is simple reality. Take a look at the future projections of how much of federal spending is likely to be eaten up by interest payments. That, more than creditworthiness or debt costs, is the key problem with the size of the debt.

 

That of course can be addressed numerous ways - and contrary to what some of the hyper-conservatives think, simply cutting spending itself is not a good idea, especially right now. But there IS a reality there that Balta and SS are apparently ignoring, instead choosing to label such fears as "oh that's a big number!", which no one here is arguing.

 

This. And thank you for posting this, I was going to respond but I figured there was no point, since they've overlooked the very point I tried to make in the first place, which you probably made easier to understand.

 

And let's not forget interest rates will not remain near 0 forever, which all budget projections and people arguing that the debt isn't an issue simply assume in every argument they make defending it.

Edited October 21, 2013 by Y2HH

[Balta1701]

But the thing you guys are missing is that none of these things are going to happen until the economy gets back somewhere close to full employment, at which time the deficit mostly does close itself. That's why the CBO now says that the deficit as a fraction of GDP is now stabilized for the next decade plus; the interest rate spike prediction (which by the way we've been hearing from the same people incorrectly since 2009 for exactly the same reason, the fact that the economy has a giant un filled hole in it) only matters when people are getting back to work, paying taxes, and leaving unemployment.

 

And also to note...the 30 year treasury rate is under 4% and has stayed there for years now. The actual market thinks that this interest rate spike will not happen in the next decades. (And no, this isn't because of the fed, when they would stop buying things prices barely changed).

[caulfield12]

But the thing you guys are missing is that none of these things are going to happen until the economy gets back somewhere close to full employment, at which time the deficit mostly does close itself. That's why the CBO now says that the deficit as a fraction of GDP is now stabilized for the next decade plus; the interest rate spike prediction (which by the way we've been hearing from the same people incorrectly since 2009 for exactly the same reason, the fact that the economy has a giant un filled hole in it) only matters when people are getting back to work, paying taxes, and leaving unemployment.

 

And also to note...the 30 year treasury rate is under 4% and has stayed there for years now. The actual market thinks that this interest rate spike will not happen in the next decades. (And no, this isn't because of the fed, when they would stop buying things prices barely changed).

 

 

There's also been this fear that China and Japan would dump their reserve notes...but, in the case of China, that's stupid because their monetary policies are pegged to the US dollar, so they would just be shooting themselves in the foot as well by making their own products more expensive in terms of future exports.

 

I feel like I've read Balta's comments from Paul Krugman at the NY Times about 100 times, but there's a lot of truth to it.

 

None of the economies in Europe undergoing forced austerity policies have recovered well....most are actually worsening, even the "best case scenario" of Ireland with unemployment around 12-13%.

 

The problem is agreement on "full employment." Is it 5%? 4%? 6%?

 

Corporations are refusing to hire new workers and are just sitting on profits.

 

FWIW, this whole ObamaCare solution's going to have a huge impact on shrinking those deficits (or blowing them up even further). The GOP was stupid to shut the government down or they could credibly argue the roll out's been a disaster already. As smart as he (Obama) is, you'd think they would have learned from Mitt Romney's "data disaster" to hire the best and brightest (McCain's idea was a Silicon Valley recruiting trip on Air Force One) to implement the computer systems and data management.

 

I'm not big on outsourcing, and I think Larry Ellison's one of the biggest pricks in the world, but there's no way Oracle or any credible private company could have messed this up as badly as government contractors. It's fine to use the best in the world to implement a system, and that's most assuredly NOT the government. But it's also the role of government to protect its weakest citizens, and that can never happen if every service in the country is privatized.

 

[NorthSideSox72]

But the thing you guys are missing is that none of these things are going to happen until the economy gets back somewhere close to full employment, at which time the deficit mostly does close itself. That's why the CBO now says that the deficit as a fraction of GDP is now stabilized for the next decade plus; the interest rate spike prediction (which by the way we've been hearing from the same people incorrectly since 2009 for exactly the same reason, the fact that the economy has a giant un filled hole in it) only matters when people are getting back to work, paying taxes, and leaving unemployment.

 

And also to note...the 30 year treasury rate is under 4% and has stayed there for years now. The actual market thinks that this interest rate spike will not happen in the next decades. (And no, this isn't because of the fed, when they would stop buying things prices barely changed).

You keep ignoring the key point here. Nowhere in your posts are you dealing with the debt service as a percentage of federal spending.

 

[Balta1701]

You keep ignoring the key point here. Nowhere in your posts are you dealing with the debt service as a percentage of federal spending.

I'm pretty sure I did. It's half of what it was in the 1990's right now and despite 5 years of proclamations about how it is going to keep getting worse, it's been trending downwards. Here's a different version. And none of that mentions how right now 1/3 of the interest being paid on the debt is being returned to the treasury by the Fed.

 

There is substantial room for growth in that number before it has any significant impact on the economy...and based on the interest rate on the 30 year bonds right now, the market believes that increases in that number over the next 30 years will be minimal.

 

The reality is there are only 2 things that could drive that number up; a group of insane congresspeople forcing the U.S. into default for no good reason or significant economic expansion. But...significant economic expansion would drive increasing tax revenues that would offset significant fractions of that growth, muting the effect. They can't go up independently unless you default; every mechanism you could suggest for why interest rates would start to rise is a mechanism that requires significant economic growth to get us out of the hole first.

 

This is literally the "in the long run we're all dead" quote. We have a major economic hole right now. If we fill that hole...some bad things might happen causing us to have to adjust policies slightly, fine...but that's no reason to keep a gigantic hole in the economy now.

 

The only thing to worry about, literally the only one in the long-term budget projections is health care spending. If private spending continues going up at 7-8% a year like it was before the PPACA was passed, then we have a major long term problem with that issue. If the PPACA is successful in slowing cost growth (and there is some evidence it already has been somewhat successful in doing so), then the time when we have to deal with that problem moves farther and farther into the future.

[southsider2k5]

But the thing you guys are missing is that none of these things are going to happen until the economy gets back somewhere close to full employment, at which time the deficit mostly does close itself. That's why the CBO now says that the deficit as a fraction of GDP is now stabilized for the next decade plus; the interest rate spike prediction (which by the way we've been hearing from the same people incorrectly since 2009 for exactly the same reason, the fact that the economy has a giant un filled hole in it) only matters when people are getting back to work, paying taxes, and leaving unemployment.

 

And also to note...the 30 year treasury rate is under 4% and has stayed there for years now. The actual market thinks that this interest rate spike will not happen in the next decades. (And no, this isn't because of the fed, when they would stop buying things prices barely changed).

 

Mortgage rates spiked about 125 BPS just on the rumor that the QE3 was ending. The only reason the actual markets didn't change is exactly because of the fed buy down. Rates aren't going anywhere as long as the 800 pound gorilla is artificially keeping rates down.

[Y2HH]

I'm pretty sure I did. It's half of what it was in the 1990's right now and despite 5 years of proclamations about how it is going to keep getting worse, it's been trending downwards. Here's a different version. And none of that mentions how right now 1/3 of the interest being paid on the debt is being returned to the treasury by the Fed.

 

Unless I'm reading that wrong, one of those charts shows it at 1.3%, the other at 6%. That's kind of a massive difference which makes me question the validity of either.

 

But regardless of their accuracy, the point those charts are making is predicated upon everything going to the plan that interest rates will never rise again. Unfortunately, interest rates WILL rise again someday, whether you or Krugman believe that, it WILL happen. I'm not saying it will happen today, or tomorrow, or that they will rise to the levels they were at in the 80's, but it WILL happen, and since this debt will remain on our books long term, being that we never pay down any principal, a day will come when interest rates affect it in a very very bad way.

 

Which goes back to my original point, that SOMEDAY, and I don't know when, but someday, these interest payments are going to be so massive, that a unsustainable amount of federal outlays will be used specifically to pay them. The only way around that is to bring that debt level down before it grows to a point that we can't keep up with it.

 

If we've learned anything about the economy over the last 100 years, it's that it NEVER goes according to plan, if it did, we'd NEVER have recessions or depressions to study.

Edited October 22, 2013 by Y2HH

[NorthSideSox72]

Unless I'm reading that wrong, one of those charts shows it at 1.3%, the other at 6%. That's kind of a massive difference which makes me question the validity of either.

 

But regardless of their accuracy, the point those charts are making is predicated upon everything going to the plan that interest rates will never rise again. Unfortunately, interest rates WILL rise again someday, whether you or Krugman believe that, it WILL happen. I'm not saying it will happen today, or tomorrow, or that they will rise to the levels they were at in the 80's, but it WILL happen, and since this debt will remain on our books long term, being that we never pay down any principal, a day will come when interest rates affect it in a very very bad way.

 

Which goes back to my original point, that SOMEDAY, and I don't know when, but someday, these interest payments are going to be so massive, that a unsustainable amount of federal outlays will be used specifically to pay them. The only way around that is to bring that debt level down before it grows to a point that we can't keep up with it.

 

If we've learned anything about the economy over the last 100 years, it's that it NEVER goes according to plan, if it did, we'd NEVER have recessions or depressions to study.

 

Because he is conflating two subjects again. One is a measure of interest payments as part of GDP, the second one is a percentage of federal outlays (which is what we actually care about here).

 

What he's not showing is that, per the CBO, net interest payments as a percentage of budget is projected to more than double in the next decade and keep going up from there.

 

The idea that interest rates will be low forever is of course a farce. The only reason that would happen is if the economy stays in the doldrums for that long, which is a whole different problem.

 

 

[Balta1701]

Because he is conflating two subjects again. One is a measure of interest payments as part of GDP, the second one is a percentage of federal outlays (which is what we actually care about here).

 

What he's not showing is that, per the CBO, net interest payments as a percentage of budget is projected to more than double in the next decade and keep going up from there.

Here's the CBO number which can be compared to the St. Louis Fed number I showed earlier. In the early 1990's the debt interest/GDP ratio was about 3%. The CBO projects that it'll take over 10 years to get to that number again (and that's assuming accelerating economic expansion, which they continue to be wrong about).

The fact that it is becoming a problem in the mid-2020's means, as I keep saying, it is not being driven by the short-term budget situation in the least, it is being driven by that brown line; spending on health care, which is assumed to keep going up at 7% a year, a rate that by everyone's agreement is simply unsustainable.

 

However, as the CBO has noted as well, the rate of health care cost increases is dramatically beneath their previous estimates since the PPACA was passed; medicare costs only grew at 3% last year. This has already improved the budgetary situation in the decade of the 2020's by about a trillion dollars. It's not enough to bring the system fully into balance yet because the projections still assume costs will resume growing at 7-8% a year, but we can already see the impact in the form of hundreds of billions of dollars of improvement to the budgetary estimates.

The idea that interest rates will be low forever is of course a farce. The only reason that would happen is if the economy stays in the doldrums for that long, which is a whole different problem.

Which is exactly what worrying about long term interest payments and deficits 10+ years from now has helped create; a job market that has been stagnant for 3+ years.

[Texsox]

So which number is critical, the amount we can collect in taxes, the amount we spend, or the amount of the deficit?

 

In other words,

 

Do we have to collect only the amount we collect, or could be collect more?

Do we have to spend everything that we spend?

Do we have to run a deficit or if we could increase A while decreasing B and eliminating C?

[Balta1701]

So which number is critical, the amount we can collect in taxes, the amount we spend, or the amount of the deficit?

 

In other words,

 

Do we have to collect only the amount we collect, or could be collect more?

Do we have to spend everything that we spend?

Do we have to run a deficit or if we could increase A while decreasing B and eliminating C?

How about "none of the above, the fact that we're still stuck above 7% unemployment and every year that goes by without getting out of the hole is another $2 trillion dollars that the economy could have produced but doesn't"?

 

That's the big problem and we continue to ignore it in favor of a focus on the deficit.