# Obama and National Debt

• News
Could someone familiar with the technical definitions of debt and deficit explain Obama's statement that the debt has been reduced by 50% (may not be remembering this accurately). How is debt reduced when the national debt has increased to over 17 trillion dollars? And what is the distinction between debt and deficit?

Office_Shredder
Staff Emeritus
Gold Member
No, he said the deficit was cut in half. Debt is the total amount of money that the United States owes to creditors. The annual deficit is how much the government spends in a single year, minus the amount it takes in via taxes.

The federal deficit for 2013 was 680 billion dollars, meaning that in 2013 the US debt debt increased by about 680 billion dollars (modulo accounting shenanigans). which is about half of what it was his first year in office , though that was an extraordinarily high deficit, so is not a good benchmark for declaring the current deficit good in any way.

russ_watters
Mentor
And of course it is arguable that since he had a lot to do with that first year's deficit, first doubling it, then halving it isn't exactly progress.

Debt Performance

Thanks guys. I was so impressed thinking the debt had been reduced. It sounded to me like he had something really worth highlighting and couldn't understand why people complain about his fiscal performance. Now, I'm not so sure the deficit reduction was that outstanding, given the fact that the debt still increased--just not as much as before.

Staff Emeritus
To put the "halve the deficit" statement in perspective, here's the history:

2000 $236.4 Billion Surplus 2001$127.3 Billion Surplus
2002 $157.8 Billion Deficit 2003$377.6 Billion Deficit
2004 $413 Billion Deficit 2005$318 Billion Deficit
2006 $248 Billion Deficit 2007$161 Billion Deficit
2008 $459 Billion Deficit 2009$1413 Billion Deficit
2010 $1294 Billion Deficit 2011$1299 Billion Deficit
2012 $1100 Billion Deficit 2013$680 Billion Deficit

russ_watters
Mentor
To put the "halve the deficit" statement in perspective, here's the history:

2000 $236.4 Billion Surplus 2001$127.3 Billion Surplus
2002 $157.8 Billion Deficit 2003$377.6 Billion Deficit
2004 $413 Billion Deficit 2005$318 Billion Deficit
2006 $248 Billion Deficit 2007$161 Billion Deficit
2008 $459 Billion Deficit 2009$1413 Billion Deficit
2010 $1294 Billion Deficit 2011$1299 Billion Deficit
2012 $1100 Billion Deficit 2013$680 Billion Deficit
2008 is lower than I realized. Do you happen to know if it includes TARP?

Staff Emeritus
These are fiscal years. TARP was signed into law in FY09.

These are fiscal years. TARP was signed into law in FY09.

SixNein
Gold Member
Thanks guys. I was so impressed thinking the debt had been reduced. It sounded to me like he had something really worth highlighting and couldn't understand why people complain about his fiscal performance. Now, I'm not so sure the deficit reduction was that outstanding, given the fact that the debt still increased--just not as much as before.

Deficit reduction was going to happen regardless of who was in office since a lot of the spending was recessionary. As the economy pulls out of the gutter, the recessionary spending goes down and tax revenues go up.

That's not to say I completely disagree with how Obama handled the economy. After all, we did pull through a major credit crunch.

Staff Emeritus
Well, if you take a $500B baseline deficit, the four years of stimulus 2009-2012 added$3T to the debt over the baseline. One can compare this to $420B in added debt over the deficit for the entire Great Depression (in today's dollars). The cost of "pulling through" is$40,000 per family, vs. $15,000 for the Great Depression. Whether you think we got a better deal now or then is up to you. Office_Shredder Staff Emeritus Science Advisor Gold Member Well, if you take a$500B baseline deficit, the four years of stimulus 2009-2012 added $3T to the debt over the baseline. One can compare this to$420B in added debt over the deficit for the entire Great Depression (in today's dollars).

The cost of "pulling through" is $40,000 per family, vs.$15,000 for the Great Depression. Whether you think we got a better deal now or then is up to you.

The typical argument is that the money was spent to avoid spending a decade in a great depression like state, not that we had to spend 3 trillion dollars to decrease unemployment by 3%. It is very difficult for a layperson to have the data and technical knowledge of how economies work to look at what happened and make any good conclusions one way or the other I think (I also am doubtful that the experts are capable of making any good conclusions)

Staff Emeritus
I have no idea if it worked or not. It's true that it cost more than forecast, and that the effect on unemployment was less than the Administration predicted, but neither of those addresses the question "where would we be had we spent less?". All I can do is compare it to historically similar situations: the New Deal lasted 2.5x as long and cost a third as much. But it also didn't end the Great Depression.

The stimulus money seems to have gone every place but the right place. Here is an example from just one company:

Whirlpool Corporation received a $19,330,000 stimulus grant from the Department of Energy to develop SmartGrid solutions. Perhaps a good idea but not really one that creates jobs. Whirlpool launched a special offer to encourage customers to take advantage of the stimulus program’s energy efficient appliance program. The company advertised that certain Whirlpool, Maytag and KitchenAid appliances are available for rebate through the$300 million rebate program authorized by the stimulus.

Ok so that was nice, but at that time people were looking for jobs not appliances.

Whirlpool also received two stimulus grants of $2,042,700 to develop next generation energy efficient refrigerators. http://thinkprogress.org/economy/2011/10/18/346148/herman-cain-stimulus-opponent/ Shortly after this little gift of R&D money Whirlpool closed down their Evansville Indiana plant and moved refrigerator production to Mexico. The plant had operated in Evansville since 1956. http://www.nytimes.com/2010/06/20/us/20whirlpool.html?pagewanted=all Stating in 2013 Whirlpool did start manufacturing a more efficient refrigerator. It is more efficient because it uses a new insulation made by Honeywell. http://www.midlandpower.coop/aspx/news.aspx?newsid=1904 [Broken] Last edited by a moderator: SteamKing Staff Emeritus Science Advisor Homework Helper With the Quantitative Easing policy gradually being phased out by the Federal Reserve now, the economy may slip back into recession. The stock market has been on a decline recently as the air is starting to leak out of the stock price bubble. Energy prices are still high, and the recent winter storms are putting much pressure on stocks of natural gas and propane (sorry Hank Hill), which will lead to higher prices for these fuels. Vanadium 50 Staff Emeritus Science Advisor Education Advisor The stimulus money seems to have gone every place but the right place. We received stimulus money. We were told that the one thing we were absolutely not allowed to do with it was hire people. SixNein Gold Member Well, if you take a$500B baseline deficit, the four years of stimulus 2009-2012 added $3T to the debt over the baseline. One can compare this to$420B in added debt over the deficit for the entire Great Depression (in today's dollars).

The cost of "pulling through" is $40,000 per family, vs.$15,000 for the Great Depression. Whether you think we got a better deal now or then is up to you.

Well if all things remain the same, perhaps that would be a good comparison. But its very hard to tell what comparisons can be made like this since for example, the financial world is far more complicated today. Would we get the same results with the same amount spent as we did in the great depression? I don't think there is a reason to suspect we'd get the same results.

In general, I think recessions are simply difficult to handle because of all the mass credit drying up in the market. Since credit makes up most of our spending, when we deleverage it can send us into a pretty nasty spiral. After all, one person's spending is another person's income. So the deleveraging process becomes worse and worse, incomes drop faster and faster, and credit gets dryer and dryer. It just sends shockwaves through the social, economic, and political institutions.

The problem with a savings argument is that it fails to really explain how saving is going to get us out of that death spiral.