News Is the Ballooning US Debt a Threat to Our Future Economic Situation?

[Astronuc]

mheslep, Astronuc,

These people are just making a small investment, a few bars each. Maybe it is something of a fad or to be cool, I am not sure, but the fact that they are justifiably concerned about the future was my point. They are a well rounded, fun bunch to be around and interact with. Thoughts like this never entered my mind at that age, having fun and exploring was my focus.

Rhody...

As mheslep indicated, they are speculating that the price of silver will continue to increase, just as people expected housing prices to continue to appreciate, or stocks to continue to appreciate - until they didn't - and then the prices fell significantly.

I had a friend telling me in 2006/2007 that housing prices would continue going up. I disagreed and pointed out that was unsustainable and prices were likely to go down. I also said the same about the stock market.

Speculative bubbles often burst.

 

[turbo]

I had a friend telling me in 2006/2007 that housing prices would continue going up. I disagreed and pointed out that was unsustainable and prices were likely to go down. I also said the same about the stock market.

Speculative bubbles often burst.

My wife and I could see the housing market approaching the tipping point, and we bought this little log house in 2005, and finally unloaded our big old place in 2006, near the peak of the market. One of my friends (who was the agent who sold our place) and his wife followed suit soon after and bought a small fixer-upper, and sold their large renovated farm-house. Some of our friends questioned our judgement (and probably sanity), but not after 2006/2007 came down.

There were many on this forum who denied that we were in recession, long after it was quite clear that we were. Those of us who hunkered down early, down-sized, and diversified may come out of this nasty situation with most of our skin. Many won't, including middle-class cheerleaders for the GOP who had no idea what was coming down. The conservative fundamentalist Christians who bought our house defaulted and lost it to foreclosure. They paid top price, and got their loan through a mortgage company that was not a bank. The company loaned money, and sold the mortgages, keeping transaction fees, etc. That was a bad sign, when my own bank was reluctant about cashing the check we got at closing.

 

[PhilKravitz]

Is there a tread for US deficit as opposed to debt?

The numbers for the federal 2010 deficit from http://en.wikipedia.org/wiki/2010_United_States_federal_budget are:

total income 2381 billion
total out 3552 billion (including -800 billion of accounting provisions)
deficit 1171 billion

now if we say social security (at 667 billion for the year outlay) has it's own revenue stream (and 2,500 billion in the bank in US treasury bills) and is "off budget" we are left with:

total income 1703 billion
total out 2874 billion (including -800 billion of accounting provisions)
deficit 1171 billion

So the federal government sans social security borrows 40.7 cents of every dollar it spends.

My question is, who are we borrowing from? Do deficits matter? If so, why?

 

[rhody]

When I heard about this, News radio on the way to work yesterday, it took me here:

http://www.stansberryresearch.com/pro/1011PSIENDVD/PPSILCCJ/PR

If you want to read what is presented on the video, close the page and choose the cancel option, the verbatim text is displayed as html.

http://www.stansberryresearch.com/pub/psi/index.asp"

His speech gave me pause, however it turns out that Porter has solutions to the impending crisis. I don't dispute some of his background facts, although I am sure some will disagree. I am not going to be buying his Newsletter anytime soon.

What struck me the most was this, quote from about 1/2 way down the html text.

Like I said, most Americans don't believe the U.S. dollar could ever lose its spot as the world's reserve currency.

But I am here to tell you... this process is already well underway.

For example, although it went almost completely unreported in the U.S. press, last fall, a group of the world's most powerful countries, including China, Japan, Russia, and France, got together for a secret meeting – WITHOUT the United States being present or even knowing about the meeting.

This could all start by a group of foreign governments deciding to not accept dollars at the prevailing rates, imposing discounted rates. We would have to deal with the fallout, and it will not bode well for the average American, people on fixed incomes, etc... etc...

It kept me up when I first read it. Considering myself a pragmatic realist I felt I would share it with the folks in this thread. I am hoping what Porter describes does NOT come to pass.

Rhody...

 

[PhilKravitz]

Rhody, this guy seems to be saying the value of the dollar could decline significantly. But he did not say how much. Would a 50% devaluation bring enough manufacturing back from China that we would have a balanced foreign trade? Or would it take a 90% devaluation? I do not know how to calculate this number. Anybody have any references on how much devaluation will be needed to balance trade and make the deficit spending small enough (in real value) that nobody outside the US cares?

At 90% everybody on a pension or social security will have to go back to work.

 

[WhoWee]

Rhody, this guy seems to be saying the value of the dollar could decline significantly. But he did not say how much. Would a 50% devaluation bring enough manufacturing back from China that we would have a balanced foreign trade? Or would it take a 90% devaluation? I do not know how to calculate this number. Anybody have any references on how much devaluation will be needed to balance trade and make the deficit spending small enough (in real value) that nobody outside the US cares?

At 90% everybody on a pension or social security will have to go back to work.

He's selling gold - correct?

 

[PhilKravitz]

He's selling gold - correct?

He sells advice. He does recommend invests denominated in anything but dollars.

 

[WhoWee]

He sells advice. He does recommend invests denominated in anything but dollars.

Do you have personal knowledge of his position in gold futures?

 

[PhilKravitz]

Do you have personal knowledge of his position in gold futures?

No.

Soros also wants a controlled devaluation of the dollar. I expect if he does not get it he will enjoy the profits he makes selling the dollar short at the right time.

I remember a radio report from about 20 years ago in which a IMF or World Bank employee talked about the need for US wage rate to come in line with global wage rates.

 

[rhody]

WhoWee, Phil,

I am no expert in this matter, I will back and watch this thread develop for awhile, hopefully those posting will back their findings with facts, I don't like reading a bunch of fluff, no offense intended.

I am hoping those knowledgeable will weigh in here, those with advanced degree in economics, for instance.

Rhody...

 

[mheslep]

Is there a tread for US deficit as opposed to debt?

The numbers for the federal 2010 deficit from http://en.wikipedia.org/wiki/2010_United_States_federal_budget are:

total income 2381 billion
total out 3552 billion (including -800 billion of accounting provisions)
deficit 1171 billion

The total deficit for the two years 2009 and 2010 was almost $3100 billion. Items like TARP repayments from the banks complicate the accounting decision placing dollars; the White-house accounting places $1841 billion in 2009, and $1258 billion 2010.

So the federal government sans social security borrows 40.7 cents of every dollar it spends.

My question is, who are we borrowing from?

Still a majority from ourselves, but increasingly from foreign lenders such as the Chinese.

Do deficits matter? If so, why?

Because of, among other factors, interest payment on the debt by deficits:

The above is the business as usual plan. Once the interest alone on the debt reaches ~12% of GDP, here around ~2040, the rule of thumb is the lenders no longer lend, spiking up interest rates and the country defaults ala Greece, game over. At the moment the interest on the national debt is around ~1% of GDP, or ~$200B, in part because of the very low rates, and CBO forecasts it will hit 3% of GDP by 2020 or $500B in todays dollars, which is expensive but far from Greece like.

Big caveat: the above is based on the current interest rate of ~1.5% and a CBO estimate of a return to a ~5% historical average interest rate slowly over the next couple years. However, the Federal Reserve has increased the money supply by lending unprecedented sums out to the banks in hopes of providing monetary stimulus to the economy. The risk of that large money supply is eventual inflation, and the Fed's inflation prevention mechanism is to re-raise interest rates, a pattern the Fed has repeated successfully several times since the 80s. This time, however, if inflation gets ahead of the Fed with this huge amount of money, so that rates of maybe 7-8% are required to stem inflation, the curve for net interest above will rise dramatically faster. So the worst case, still unlikely, scenario the Fed may have a dilemma ahead: force the country into default or allow inflation to impoverish everyone.

 

[mugaliens]

A while back I made a post about our debt. I remain disgusted. It's so totally unnecessary. Why it continues is somewhat unbelievable.

 

[Al68]

A while back I made a post about our debt. I remain disgusted. It's so totally unnecessary. Why it continues is somewhat unbelievable.

This is why I pointed out in another thread that congress absolutely should not raise the debt ceiling without attaching legislation to solve the spending problem.

And yes, it's a spending problem. Even flat out refusing to raise the debt ceiling would merely limit federal government spending to about 17% of GDP. That's still a far too big and powerful government, but it would be a start.

Prediction: Claims of "radical extremism" referring to the idea that 17% of GDP is more than enough for the federal government. Anyone care to make a bet?

 

[mugaliens]

This is why I pointed out in another thread that congress absolutely should not raise the debt ceiling without attaching legislation to solve the spending problem.

Yes. Yet so many folks keep screaming for their share of the pie. I don't know what the solution is, but perhaps a 10% solution would be difficult, but over time, effective.

 

[mheslep]

A while back I made a post about our debt. I remain disgusted. It's so totally unnecessary. Why it continues is somewhat unbelievable.

This is why I pointed out in another thread that congress absolutely should not raise the debt ceiling without attaching legislation to solve the spending problem.

And yes, it's a spending problem. Even flat out refusing to raise the debt ceiling would merely limit federal government spending to about 17% of GDP. That's still a far too big and powerful government, but it would be a start.

Prediction: Claims of "radical extremism" referring to the idea that 17% of GDP is more than enough for the federal government. Anyone care to make a bet?

Agreed.

I see in the latest polling 71% of Americans oppose raising the debt ceiling. Should be an interesting vote. Wouldn't be the worst thing to have the ceiling increase rejected. Better than raising it another ten times.
http://www.newsmax.com/US/debt-ceiling-poll-increase/2011/01/12/id/382654

 

[PhilKravitz]

A while back I made a post about our debt. I remain disgusted. It's so totally unnecessary. Why it continues is somewhat unbelievable.

With social security off budget we are left with two main spending items in the federal budget
1) the military
2) health care

If the federal government did not borrow, borrow, borrow they would need to cut both of these items by at least 40%. It appears the military-industrial complex that president Eisenhower talked about has lots of power and lots of campaign money for politicians. If you de-funded the medical-pharm idustry by 40% you would have a lot of unhappy rich doctors and the government does nothing better than serve the interests of the rich. To quote Supreme Court Chief Justice Oliver Wendel Holmes "The law serves the convenience of the dominate group in society".

There is a "reason" it is politics not good society planning. Not the greatest good for the greatest number. It is the greatest good for the rich, now, short term.

 

[Evo]

If you de-funded the medical-pharm idustry by 40% you would have a lot of unhappy rich doctors and the government does nothing better than serve the interests of the rich.

The money doesn't go to doctors. Do you have any idea why funding for pharmaceutical companies is needed? How do you come to 40% as a reasonable figure? What could be cut without being detrimental to society? Please post the research that backs up your statement that a 40% reduction in federal funds is realistic.

 

[mheslep]

With social security off budget we are left ...

Social Security is not off my budget proposal. Raise the retirement age. Means test. Best of all, privatize it.

 

[PhilKravitz]

The money doesn't go to doctors. Do you have any idea why funding for pharmaceutical companies is needed? How do you come to 40% as a reasonable figure? What could be cut without being detrimental to society? Please post the research that backs up your statement that a 40% reduction in federal funds is realistic.

See post #33 for the 40% number. The source is wikipedia for the numbers as mentioned in #33.

I do not believe society should subsides pharmaceutical companies.

40% is not realistic it is just the number that makes the math work (i.e. balances the budget). It will never be cut by 40% it is not politically doable.

As to what would be good for society it depends on what kind of society one wants. I feel it would be good for society to cut the military by 80%. But that is my desire shared by few.

As to medical cuts it is more the structure of medical care that needs to change to lower cost. That is allow many tiers of competence. A nurse can sew up a cut no need for a doctor. This is simple common sense and lowers the cost from by the ratio of the doctor yearly income versus the nurses yearly income (a number bigger than 2). This is a budget thread the cost of medical care would make a good thread but not here.

 

[Evo]

See post #33 for the 40% number. The source is wikipedia for the numbers as mentioned in #33.

I do not believe society should subsides pharmaceutical companies.

40% is not realistic it is just the number that makes the math work (i.e. balances the budget). It will never be cut by 40% it is not politically doable.

Don't just pull things out of the air. What's 40% of the US budget for pharmaceutical companies?

As to what would be good for society it depends on what kind of society one wants. I feel it would be good for society to cut the military by 80%. But that is my desire shared by few.

And an 80% cut would result in what? Explain. What would the remaining 20% be?

As to medical cuts it is more the structure of medical care that needs to change to lower cost. That is allow many tiers of competence. A nurse can sew up a cut no need for a doctor. This is simple common sense and lowers the cost from by the ratio of the doctor yearly income versus the nurses yearly income (a number bigger than 2). This is a budget thread the cost of medical care would make a good thread but not here.

You said federal funds to pharmaceutical companies, now you've switched to private medical practices. How does the income of a doctor versus a nurse affect US debt levels?

I see all of these numbers being thrown around but I'm not seeing anything posted to back them up. Just needing a reality check.

 

[WhoWee]

As to what would be good for society it depends on what kind of society one wants. I feel it would be good for society to cut the military by 80%. But that is my desire shared by few.

Other than limiting national defense to a "nuclear only" response to ALL situations - how would you accomplish this cut?

 

[PhilKravitz]

I said there are two big items in the federal budget
1) military
2) health

Under health are many items hospitals, life long care of the cronically (sic) mentally ill, doctor visit for medicaid, medicare, prescription drugs. The pharm industry is just one part no they do not get all the health sending money of the federal government just some. But if we used only generic drugs they would get far less money and we society would spend far less money.

With social security off budget because it has its own revenue stream and 2500 billion in the bank (T bills). The only two major spending items are military and health spending.

 

[PhilKravitz]

How does the income of a doctor versus a nurse affect US debt levels?

If we spend less on medical care we will on net have less debt. Less money out => net money is more positive. Less deficit spending less total debt. If we can substitute cheap labor for expensive labor in appropriate situation we save money we are less poor more rich.

 

[WhoWee]

With social security off budget because it has its own revenue stream and 2500 billion in the bank (T bills).

Do you have a link?

 

[PhilKravitz]

Do you have a link?

Yes for the money in the bank see http://en.wikipedia.org/wiki/Social_Security_Trust_Fund

"It is instructive to note that the $2.5 Trillion Social Security Trust Fund has value, not as a tangible economic asset, but because it is a claim on behalf of beneficiaries on the goods and services produced by the working population. This claim will be enforced by the United States Government although the precise monetary mechanism of enforcement is yet to be determined. In order to repay the Trust Fund, the United States government has three options, which may all be pursued to varying degrees."

So 2.5T of the 13.5(?)T federal debt is ode to social security, people worked, they had their money taken from them and they expect to get it back, seems only fair.

for the tax that is the payroll tax. It was basically keeping even this year with ss payouts until they cut the payroll tax. Now it is short. One might think they are trying to kill social security by cutting is tax revenues.

 

[WhoWee]

Yes for the money in the bank see http://en.wikipedia.org/wiki/Social_Security_Trust_Fund

"It is instructive to note that the $2.5 Trillion Social Security Trust Fund has value, not as a tangible economic asset, but because it is a claim on behalf of beneficiaries on the goods and services produced by the working population. This claim will be enforced by the United States Government although the precise monetary mechanism of enforcement is yet to be determined. In order to repay the Trust Fund, the United States government has three options, which may all be pursued to varying degrees."

So 2.5T of the 13.5(?)T federal debt is owned to social security, people worked, they had their money taken from them and they expect to get it back, seems only fair.

for the tax that is the payroll tax. It was basically keeping even this year with ss payouts until they cut the payroll tax. Now it is short. One might think they are trying to kill social security by cutting is tax revenues.

Your post specifies the "Trust Fund" is empty. Also, the long term projections are that Social Security and Medicare distributions will increase.
http://www.gao.gov/cghome/townhall092905/img18.html

 

[PhilKravitz]

Your post specifies the "Trust Fund" is empty. Also, the long term projections are that Social Security and Medicare distributions will increase.
http://www.gao.gov/cghome/townhall092905/img18.html

The link says social security owns 2.5T of treasury bills. It is free to sell them on the open market to make ends meet. If you are says the federal government can not make good on its obligations well...

 

[WhoWee]

The link says social security owns 2.5T of treasury bills. It is free to sell them on the open market to make ends meet. If you are says the federal government can not make good on its obligations well...

Don't take my word for it:

http://www.ssa.gov/oact/progdata/fundFAQ.html#n7


http://www.washingtonpost.com/wp-dyn/content/article/2011/01/06/AR2011010603244.html
"Treasury Secretary Timothy F. Geithner warned lawmakers Thursday that the national debt could hit the legal limit on borrowing as soon as March 31, and he urged quick action to avoid a government default that would spark "catastrophic economic consequences that would last for decades." "

 

[Jimmy Snyder]

If we can substitute cheap labor for expensive labor in appropriate situation we save money we are less poor more rich.

I easily understand how I can become richer by spending less money. But I can't see how a country can do it. You make it seem that if everyone worked for a dollar an hour we'd all be rich.

 

[PhilKravitz]

Don't take my word for it:

http://www.ssa.gov/oact/progdata/fundFAQ.html#n7

from your link

"As stated above, money flowing into the trust funds is invested in U. S. Government securities. Because the government spends this borrowed cash, some people see the current increase in the trust fund assets as an accumulation of securities that the government will be unable to make good on in the future."

Are you saying the federal government is bankrupt and will not make good on is commitments? It has a AAA credit rating.