## US Debt now > GDP

 Quote by Gokul43201
I have to wonder how the CBO can make projections?
http://news.yahoo.com/blogs/ticket/c...174736897.html

"The last time the Senate passed a traditional year-long budget was April 29, 2009. While this is considered a vital role for congress, the promotions arguably overstate the gravity of this failure to act. The congressional budget is just an outline for recommended spending levels, and does not direct appropriators to divvy out funds in any exact manner. As the Peter G. Peterson Foundation explains, "While budget resolutions are not laws, and the Congress can act on funding and revenue legislation without first adopting budget resolution, they can enforce good fiscal discipline."

In the days leading up to Obama's address, Republicans appeared to delight in being able to point out all that has happened in the world within 1,000 days. "912 days elapsed b/t Pearl Harbor & D-Day," read a post Tuesday morning on the Republican Study Committee's Twitter feed. "It's been #1000days since Senate Dems passed a budget."

"The last time they passed a budget, you had never heard of the iPad," a post on the group's website read, complete with a video hammering the point home. "Tiger Woods was only known for his golfing abilities. General Motors had never declared bankruptcy. You had never heard of Swine Flu. And the national debt was $4 trillion smaller than it is today." " my bold  I reasoned the US debt is 70% GDP, so I think everybody can stop worrying. The US position is -I think- completely comparable to someone who has$70 debt, and knows that he will spend $30 in the future. Since he knows that, he writes an IOU of$30, and gives himself $30. His total debt now is$100, but he owns $30. All interest on the debt of$30, he just pays to himself. For the rest I think the US is just borrowing against the $2T Europe probably lost on the housing bubble, so the US can buy for another twenty years of trade deficit against Europe. Looks to me the US is super healthy, and I am starting to believe Europeans are complete idiots.  God, now I am confused, or I was? The question is of course, did you spend the$30?

Mentor
 Quote by MarcoD I reasoned the US debt is 70% GDP, so I think everybody can stop worrying. The US position is -I think- completely comparable to someone who has $70 debt, and knows that he will spend$30 in the future. Since he knows that, he writes an IOU of $30, and gives himself$30. His total debt now is $100, but he owns$30. All interest on the debt of $30, he just pays to himself. Oh, ok - so we could just decide to simplify the balance sheet by taking that$70+$30-$30=\$70. I'm sure all the bondholders won't have a problem with that.
 Nah, I am an idiot, it seems. Miscalculation.
 Lets put this into perspective. U.S. debt is 100%~ its GDP. Japan's is 200% of its GDP.

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 Quote by jduster Lets put this into perspective. U.S. debt is 100%~ its GDP. Japan's is 200% of its GDP.
And what were the consequences of that debt, which they began acquiring in the '90's?

I'd like for the US to avoid 'lost decades' if it can.

Also, Japan has severely curtailed its deficit spending relative to the US:

As of 2008 nobody except Greece was going in the hole faster than the US, including the other troubled EU countries like Spain, Italy, and the UK.

 Quote by mheslep As of 2008 nobody except Greece was going in the hole faster than the US, including the other troubled EU countries like Spain, Italy, and the UK.
Interesting the chart ends in 2008... When I see stuff like that my gut reaction is that we're all going down the drain. I know we ended up with a deficit due to the housing collapse, not sure what happened afterwards.

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 Quote by MarcoD Interesting the chart ends in 2008... When I see stuff like that my gut reaction is that we're all going down the drain. I know we ended up with a deficit due to the housing collapse, not sure what happened afterwards.
Clearly all are not going down the drain. Germany is not. Norway is not. Switzerland is not. Even one of the original PIGS, Ireland, has turned its spending around and is recovering.

 Quote by MarcoD The odd thing is that despite the growing public debt, the interest on public debt remains really low -probably that low that value is being destroyed,- for which I have no explanation except for that the money doesn't have anywhere else to go. Is there anyone who really understands that phenomenon? I have an hypothesis that with the housing bubble that much money was created that, after it deflated, all that money has to move from private to public debt or otherwise the financial system blows up. But that hypothesis may well be horsedung.
The interest payments are low because the interest rates are being held low by the fed.

Of course this results in devaluation of the dollar and eventual inflation.

It's the deliberate but unstated policy of the federal reserve to inflate the currency since it transfers wealth from bondholders. You borrow a dollar of value today from the Chinese government but pay them back with an inflated dollar and a tiny interest rate in the future. It's actually a net transfer of wealth from the lender.

This policy counteracts the imbalance of trade resulting from the Chinese pegging the Yuan to the dollar and enables massive deficits to take place (a higher interest rate would require the borrowing of smaller amounts.)

 Quote by Antiphon The interest payments are low because the interest rates are being held low by the fed.
I am not sure. Greenspan stated that when he was at the Fed they tried to fight lowering interest but failed. He didn't understand that.

Low interest rates inflate bubbles, like the housing bubble. I am not sure Bernanke is that happy with it because now he has two choices: let the rates rise, in which case the debt becomes unsustainable, or keep the rates low, in which case the debt levels are sustainable but other bubbles may be created.

Maybe there's just less he can do about it than most people think.

The balance sheet of the Fed looked pretty okay to me, though.

 Quote by Antiphon Of course this results in devaluation of the dollar and eventual inflation.
Yah, I think so too.

 Quote by Antiphon It's the deliberate but unstated policy of the federal reserve to inflate the currency since it transfers wealth from bondholders. You borrow a dollar of value today from the Chinese government but pay them back with an inflated dollar and a tiny interest rate in the future. It's actually a net transfer of wealth from the lender.
In short: the Chinese produced, got currency, and now hold bonds which decrease in worth. I see that.

 Quote by Antiphon This policy counteracts the imbalance of trade resulting from the Chinese pegging the Yuan to the dollar and enables massive deficits to take place (a higher interest rate would require the borrowing of smaller amounts.)
I know it's an unpopular view, but I personally agree with the Chinese. What's more fair than pegging a currency? If the currencies are interchangeable, you actually buy -and get back- a true amount of goods for a certain amount. If the US doesn't want a trade deficit, it should buy less, or produce more, against the counter party.
 A balanced budget each year isn't necessary, as debt is all relative. As long as the economy is growing faster than the debt, than it is okay.

 Quote by MarcoD I know it's an unpopular view, but I personally agree with the Chinese. What's more fair than pegging a currency? If the currencies are interchangeable, you actually buy -and get back- a true amount of goods for a certain amount. If the US doesn't want a trade deficit, it should buy less, or produce more, against the counter party.
I forgot to say that it works two ways too, IMO. If China wants to sit on a dwindling pile of cash instead of buying US goods, yeah, whatever.

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 Quote by jduster A balanced budget each year isn't necessary, as debt is all relative. As long as the economy is growing faster than the debt, than it is okay.
Not really. The greater the debt to economic output ratio, the more sensitive the system becomes to shocks. Lenders to governments know this, know that even robust economies growing faster than the debt will sooner or later have a downturn in which the debt continues to grow while the economy does not. When the interest payments on the debt grow large enough that they could possibly consume all revenue in a downturn, as they did in Greece, then lenders have good reason to suspect they won't be paid, they demand higher interest rates quickly making the suspicion a reality.
 Most people in Europe will have the gut reaction, well I do, that if you run a trade deficit and a large public debt/deficit, that the economy will tank at some point. I've no idea what people think about the US at the moment, but I know there has been some speculation that the US is destroying the dollar intentionally. But then again, Ireland has had a 100% GDP debt sometimes and worked back from that. I really wouldn't know.

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 Quote by MarcoD ... But then again, Ireland has had a 100% GDP debt sometimes and worked back from that.
Yes they did, by cutting by spending. Ireland's interest rates have dropped dramatically since mid-summer last year.
http://www.bloomberg.com/quote/GIGB10YR:IND