Article on U.S. debt

[untateve]

US debt will soon be unsustainable without higher taxes and spending cuts, even with recovery

By Tom Raum, AP

 

February 14th, 2010 WASHINGTON — It’s bad enough that Greece’s debt problems have rattled global financial markets. In the world’s largest economic and military power, there’s a far more serious debt dilemma.

 

For the U.S., the crushing weight of its debt threatens to overwhelm everything the federal government does, even in the short-term, best-case financial scenario — a full recovery and a return to prerecession employment levels.

 

The government already has made so many promises to so many expanding “mandatory” programs. Just keeping these commitments, without major changes in taxing and spending, will lead to deficits that cannot be sustained.

 

Take Social Security, Medicare and other benefits. Add in interest payments on a national debt that now exceeds $12.3 trillion. It all will gobble up 80 percent of all federal revenues by 2020, government economists project.

 

That doesn’t leave room for much else. What’s left is the entire rest of the government, including military and homeland security spending, which has been protected and nurtured by the White House and Congress, regardless of the party in power.

 

The U.S. debt crisis also raises the question of how long the world’s leading power can remain its largest borrower.

 

Moody’s Investors Service recently warned that Washington’s credit rating could be in jeopardy if the nation’s finances didn’t improve.

 

Despite election-year political pressure from voters for lawmakers to restrain spending, some recent votes suggests that Congress, left to its own devices, probably isn’t up to the task of trimming deficits.

 

Both the Obama administration and Democratic leaders have put job creation ahead of deficit reduction for now.

 

The Senate faces an important vote after it returns on Feb. 22 from its President’s Day recess on a bill intended to stimulate job growth. The legislation offers a $13 billion payroll tax credit for companies that hire unemployed workers, including an additional $1,000 tax credit for workers retained for a full year.

 

Proposed belt-tightening steps by President Barack Obama, including a freeze on some nondefense, nonentitlement spending, would make only a small dent in the mountain of debt.

 

The budget he submitted to Congress this month proposes record spending of $3.8 trillion for 2011. Taxes in next year’s budget will support only $2.5 trillion of that spending, leaving $1.3 trillion to be borrowed.

 

The president’s budget is a best-case outlook, from the administration’s vantage point.

 

It doesn’t take into account future liabilities from the growth of entitlement benefits and is based on projected economic growth that depends on a solid recovery. It assumes Congress will pass all of Obama’s initiatives, including spending cuts and tax increases previously rejected by Congress.

 

Congress already has rejected a bipartisan deficit commission that could have forced Congress to take painful steps on tax increases and entitlements.

 

The commission would have been modeled on one that makes military base-closing decisions, forcing Congress to take up or down votes. The Senate turned aside the legislation last month after some original Republican supporters jumped ship once Obama endorsed the plan.

 

Proponents say this type of commission is the only way to make painful debt decisions. Obama says he’ll create a bipartisan commission by presidential order instead.

 

“In the end, solving our fiscal challenge — so many years in the making — will take both parties coming together, putting politics aside, and making some hard choices about what we need to spend, and what we don’t,” Obama said in his weekly Saturday radio and internet address.

 

Still, his commission wouldn’t have the power to force a congressional vote.

 

Obama’s call for fiscal austerity came at the same time he signed legislation lifting the cap on government debt from $12.4 trillion — which is close to being breached — to $14.3 trillion to permit more borrowing.

 

The same law puts in place new budget rules praised by deficit hawks that would require future spending increases or tax cuts to be paid for with higher taxes or other spending cuts. “After a decade of profligacy, the American people are tired of politicians who talk the talk but don’t walk the walk when it comes to fiscal responsibility,” Obama said.

 

It’s not clear when the debt’s day of reckoning will arrive. But the overall national debt over the next few years will rise to 100 percent of the gross domestic product — a level viewed as alarming by the International Monetary Fund and international economists.

 

The Social Security system, the biggest social spending program, has begun paying out more in benefits than it collects in payroll taxes. For the past quarter-century, Social Security had produced a surplus that helped finance the rest of the government.

 

Medicare, the health care program that now covers 45 million elderly and disabled people, is in worse shape. It’s been paying out more than it takes in since 2008 and its trust fund is projected to run out of money in 2017.

 

Carmen Reinhart, an economics professor at the University of Maryland and a former IMF official, suggested the nation’s fast-growing indebtedness may not have a visible impact at this point on ordinary Americans. But some day it will pounce.

 

“One thing we can say with a fair amount of certainty,” she said. “We never know when the wolf will be at our door. The wolf is very fickle and markets can turn very quickly. And a high debt level makes us very vulnerable to shifts in sentiment that we cannot predict.”

 

http://blog.taragana.com/business/2010/02/...recovery-31245/

 

It would appear that we are living beyond our means.

[bpwallace49]

http://blog.taragana.com/business/2010/02/...recovery-31245/

 

It would appear that we are living beyond our means.

 

Unfortunately that has been the American way for far too long . . .

 

Remember the movie Wall Street? "Greed is good?"

[dmarc117]

you should be very afraid.

[Avernus]

you should be very afraid.

 

you were supposed to say....

 

"be afraid, be very afraid"

 

we were in need of higher interest rates for the last couple of years - especially in the housing market so people would stop trying to buy a new house and start saving more...

 

"statistics" have shown that people are saving more, but that should be a no-brainer for anyone with half a brain and this "recovery" is a joke, we'll see how much of a recovery this is in about 6 months..

 

not to mention green energy jobs being the future....is living overseas the future too?

[Jackass]

you were supposed to say....

 

"be afraid, be very afraid"

 

we were in need of higher interest rates for the last couple of years - especially in the housing market so people would stop trying to buy a new house and start saving more...

 

"statistics" have shown that people are saving more, but that should be a no-brainer for anyone with half a brain and this "recovery" is a joke, we'll see how much of a recovery this is in about 6 months..

 

not to mention green energy jobs being the future....is living overseas the future too?

 

Higher interest rates to get people to save more? That's one i've never heard before.

[TimC]

Social Securty, Medicare, Prescription Pills....old people are bankrupting this country with their endless greed and voting themselves every entitlement in the book. You've gotta promise to keep the old people happy if you're going to get elected. They should be ashamed bankrupting their grandchildren they pretend to love. God help you if a politician even whispers scaling these unsustainable programs back. These people had their entire lives to take care of themselves and yet they still feel we all should be working to keep them around forever. Disgusting.

[Perchoutofwater]

We are in big trouble. We've let entitlements get way out of hand and now they are an anchor around our collective necks.

[The Holy Roller]

Social Securty, Medicare, Prescription Pills....old people are bankrupting this country with their endless greed and voting themselves every entitlement in the book. You've gotta promise to keep the old people happy if you're going to get elected. They should be ashamed bankrupting their grandchildren they pretend to love. God help you if a politician even whispers scaling these unsustainable programs back. These people had their entire lives to take care of themselves and yet they still feel we all should be working to keep them around forever. Disgusting.

 

Old people Rock!!

[Avernus]

Higher interest rates to get people to save more? That's one i've never heard before.

 

for loans...

[Brentastic]

Higher interest rates to get people to save more? That's one i've never heard before.

RIght, that's what the Federal Reserve does, they manipulate money supply which ultimately manipulates interest rates. So when the Fed determines the economy needs stimulation, they artificially stimulate the economy by lowering interest rates - because lower rates prompts MORE borrowing. BUT, the problem we're seeing now (IMO) is that you can't sustain constant economic growth (which is the ideal that supports Keynesian theory) by this continual manipulation. So a few years ago, as the housing bubble was inflating to historic proportions the Fed should have been increasing interest rates because higher rates means it costs more to borrower, and ultimately result in less borrowing or more saving. Instead the Fed kept dropping rates which only made the problem worse.

 

In the end we should learn a valuable lesson (as an economy) - and that lesson is that you can't manipulate the economy in order to maintain an 'IDEAL' level of growth and unemployment and spending. In the end, the truth will win and in fact, the constant manipulation will only make the last straw that much worse. The more government stimulus and monetary manipulation that occurs will only delay and magnify the correction process. Since we didn't learn this lesson after the Great Depression I am doubtful we will learn the lesson this time around.

Edited February 15, 2010 by Brentastic

[wiegie]

So a few years ago, as the housing bubble was inflating to historic proportions the Fed should have been increasing interest rates because higher rates means it costs more to borrower, and ultimately result in less borrowing or more saving. Instead the Fed kept dropping rates which only made the problem worse.

uh, the Fed began increasing interest rates in 2004

Edited February 15, 2010 by wiegie

[Brentastic]

uh, the Fed began increasing interest rates in 2004

Oh did they? How long did that last? Because I'm not talking about a 6 month period of time, I'm talking the rate trend over several years. If you look at a historical chart over the last 25 years, you will see a constant down trend. Sure there are minor blips up, but the trend is DOWN - in fact 2004-2009 was a sideways movement. AND, right now interest rates are the lowest they've been in over 40 years.

 

I know you're dying to prove me wrong with your fancy economics degree, but you're really disappointing me because you offer zero analysis. You've only responded twice and both times were a failed attempt to make me look bad. I expected more from our resident economics guru. Like most economists, I suspect you will only show your face in hindsight. I on the other hand am throwing it all out there for criticism before anything happens because when you're dealing with investing, you cannot make money in hindsight, nor can you recover losses in hindsight. I can take the heat because I have probability on my side and the fact that most of you disagree only reaffirms my forecast. That and I don't give a frock what anybody thinks.

[wiegie]

you're really disappointing me because you offer zero analysis.

really, what do you want me to say? You have latched onto some nonsense theory that makes no sense. (seriously) I don't offer any specific analysis on the stock market because I don't think I can predict it.

 

But, if you want to make some easy money off of me, I'll make a bet with you: For every point that the DOW is below 7500 on December 31, 2010, I will give you one dollar and for every point above that the DOW is above 7500 on December 31, 2010 you give me a dollar. How does that sound? (To be fair, if you want, we can cap the bet at 1000 on the low side and 14000 on the high side.)

[millerx]

Social Securty, Medicare, Prescription Pills....old people are bankrupting this country with their endless greed and voting themselves every entitlement in the book. You've gotta promise to keep the old people happy if you're going to get elected. They should be ashamed bankrupting their grandchildren they pretend to love. God help you if a politician even whispers scaling these unsustainable programs back. These people had their entire lives to take care of themselves and yet they still feel we all should be working to keep them around forever. Disgusting.

+1

 

Ever see the John Stossel interview for 20/20 he did with a panel of retirees in Fla.? When asked whether or not they should have all the entitlements, the majority said "probably not"... then when asked what would happen if these entitlements were reduced, they said the politician responsible would be out on his arse in the next election.

[bushwacked]

BrentLadyHawketastic?

[TimC]

+1

 

Ever see the John Stossel interview for 20/20 he did with a panel of retirees in Fla.? When asked whether or not they should have all the entitlements, the majority said "probably not"... then when asked what would happen if these entitlements were reduced, they said the politician responsible would be out on his arse in the next election.

 

It's funny....every time Grandpa buys his little Grandbaby a present, he's basically reaching in and stealing money from their future earning power. You bet these young people will not have the same standard of living that their Grandparents did because they stole it from them. It might be a little different if they were a decent generation, but they weren't even close to their WWII parents. Not even in the same ballpark.

[wiegie]

It's funny....every time Grandpa buys his little Grandbaby a present, he's basically reaching in and stealing money from their future earning power. You bet these young people will not have the same standard of living that their Grandparents did because they stole it from them. It might be a little different if they were a decent generation, but they weren't even close to their WWII parents. Not even in the same ballpark.

:heart:

http://forums.thehuddle.com/index.php?s=&a...st&p=580236

[cre8tiff]

really, what do you want me to say? You have latched onto some nonsense theory that makes no sense. (seriously) I don't offer any specific analysis on the stock market because I don't think I can predict it.

 

But, if you want to make some easy money off of me, I'll make a bet with you: For every point that the DOW is below 7500 on December 31, 2010, I will give you one dollar and for every point above that the DOW is above 7500 on December 31, 2010 you give me a dollar. How does that sound? (To be fair, if you want, we can cap the bet at 1000 on the low side and 14000 on the high side.)

 

I'd have to give Brentastic some sort of award.

 

Getting an economist to BET? Even with a sure thing, I thought wiegie's sort send up clouds of dust when they open their wallets!

[wiegie]

Getting an economist to BET? Even with a sure thing, I thought wiegie's sort send up clouds of dust when they open their wallets!

What is really funny is that after I hit "add reply" I immediately realized that I had made the bet for $1 per point instead of $1 per 10 points like I had intended. (Note to Brent, I am fine either way.)

[Brentastic]

really, what do you want me to say? You have latched onto some nonsense theory that makes no sense. (seriously) I don't offer any specific analysis on the stock market because I don't think I can predict it.

 

But, if you want to make some easy money off of me, I'll make a bet with you: For every point that the DOW is below 7500 on December 31, 2010, I will give you one dollar and for every point above that the DOW is above 7500 on December 31, 2010 you give me a dollar. How does that sound? (To be fair, if you want, we can cap the bet at 1000 on the low side and 14000 on the high side.)

Weige, I'm sorry, I really am. I just appears to me that you are trying to make me look bad, but whatever. I can see how from your point of view I look like a rambling quack. I guess there's a reason the EWT isn't very popular so I shouldn't expect anyone with classical economic training to jump on board right away. For me, it all makes complete sense, for many others it does not. I guess I was just hoping for you to chime in with hardened facts and direct reasons why my thoughts are incorrect.

 

As for the betting, no thanks. I'm already betting against the market.

[CaP'N GRuNGe]

Weige, I'm sorry, I really am. I just appears to me that you are trying to make me look bad, but whatever. I can see how from your point of view I look like a rambling quack. I guess there's a reason the EWT isn't very popular so I shouldn't expect anyone with classical economic training to jump on board right away. For me, it all makes complete sense, for many others it does not. I guess I was just hoping for you to chime in with hardened facts and direct reasons why my thoughts are incorrect.

 

As for the betting, no thanks. I'm already betting against the market.

 

Why do you hate America?

[Brentastic]

Why do you hate America?

[Pope Flick]

It's funny....every time Grandpa buys his little Grandbaby a present, he's basically reaching in and stealing money from their future earning power. You bet these young people will not have the same standard of living that their Grandparents did because they stole it from them. It might be a little different if they were a decent generation, but they weren't even close to their WWII parents. Not even in the same ballpark.

 

 

+1

[The Holy Roller]

It's funny....every time Grandpa buys his little Grandbaby a present, he's basically reaching in and stealing money from their future earning power. You bet these young people will not have the same standard of living that their Grandparents did because they stole it from them. It might be a little different if they were a decent generation, but they weren't even close to their WWII parents. Not even in the same ballpark.

 

"Get a job, Grandbaby. Then have the goberment take a chunk of every paycheck you earn, while promising you you'll get it back later. Then they spend it on other stuff and get all panicky when it's time to give back what they took."

[CaP'N GRuNGe]

Is that you Brent?