Why is America in debt and how can we fix it?

[William White]

BUT 20 trillion in debt does seem excessive. What are they going to do if interest rates go back up to 10%?

if you owe a million you are in trouble, if you owe a trillion your creditors are in trouble

 

[mheslep]

if you owe a million you are in trouble, if you owe a trillion your creditors are in trouble

In the case of national debt "you" and the "creditors" are largely the same thing.

 

[William White]

In the case of national debt "you" and the "creditors" are largely the same thing.

ah, that depends on who "you" are.

who is really going to call in the USA's debt...? nobody... storm in a teacup.

its only money. there was a time when there was no money. today there is more money than 100 years ago. Its ponzi.

 

[mheslep]

See Greece. Nobody calls national debt. What happens is that the payments on the debt grow so large they eat tax revenues and government borrowing crowds out credit to private enterprise that slows the music. Suddenly citizens find their pensions cut off, the government employees are laid off. The government's only resort is to go beg for more loans to keep the music playing, and then the loans come under stringent conditions.

 

[Hornbein]

Alexander Hamilton thought it very important that the government be in debt. The creditors would support the system, thus stabilizing the government.

The US govt is the ultimate too-big-to-fail.

 

[WWGD]

David Vine argues US has way too-many overseas bases and there is no serious cost-benefits analysis on these bases, most of which he argues could close causing little if any harm to preparedness. He claims that $200 billion is a conservative estimate for the cost of keeping a total of around 800 overseas bases open. May not fully solve the problem, but $200 billion/year is a nice chunk of change.

http://www.davidvine.net/base-nation.html

 

[Vanadium 50]

He claims that $200 billion is a conservative estimate for the cost of keeping a total of around 800 overseas bases open

Then he's an idiot. That's greater than the entire Navy and Marine Corps budget. That's greater than the Air Force budget. It's almost equal to the Army budget. There is no way that this costs what he says. I do agree with him on one point - "there is no serious cost-benefits analysis on these bases." Including his.

 

[Hornbein]

who is really going to call in the USA's debt...? nobody... storm in a teacup.

The gov't is continually paying off bonds as they mature. It sells new bonds to pay off the maturing bonds.

The US gov't can't sell all the bonds it needs to at an interest rate that it thinks it can afford. So the Federal Reserve pretends to buy 900 billion US bonds a year, with imaginary money. It's call "quantitative easing." It used to be called "printing money."

 

[russ_watters]

He claims that $200 billion is a conservative estimate for the cost of keeping a total of around 800 overseas bases open.

Then he's an idiot. That's greater than the entire Navy and Marine Corps budget. That's greater than the Air Force budget. It's almost equal to the Army budget. There is no way that this costs what he says.

Since a good fraction of those "bases" are several hundred embassies and consulates, with a small handful of USMC guards, maybe he's including most of the State Department budget ($57b) in that estimate?

A lot of the others are probably one or two mid-level officers hanging around foreign cities and allied bases, acting as liaisons.

 

[PeterDonis]

David Vine argues US has way too-many overseas bases and there is no serious cost-benefits analysis on these bases, most of which he argues could close causing little if any harm to preparedness.

It's easy to say that when there's nothing going on in those parts of the world. But if there is, those bases suddenly become very valuable, and not having them certainly does harm preparedness.

The problem with trying to do cost-benefit analysis on the military is that you pay the costs every year, but you only get the benefits if there's a war.

 

[mheslep]

a conservative estimate for the cost of keeping a total of around 800 overseas bases open.

Those who would use these large figures are playing loose with the definition of "base" by including the like of a single 12'x12' room leased by the US DoD in Canada (http://www.acq.osd.mil/ie/download/bsr/bsr2010baseline.pdf , or ~60'x60' of space in Aruba.

 

[phyzguy]

I think it's interesting to look at the debt of the US and the UK over historical time. Paul Krugman is fond of pointing out that the UK has been continuously in debt since the 1600's, and is still there and prospering, so obviously it isn't a problem to be in debt per se. Also, the statement that is often made that debt just inexorably grows with time is just not true, at least when looked at as a percentage of the economy. I think the attached charts help keep it in perspective. The US was in greater debt after WW2 as a percentage of the economy than it is today, and the period after WW2 wasn't an economic disaster, in fact it was an economic boom that has been unmatched before or since. Countries are different from individuals. An individual has to eventually pay off debt, since an individual has a finite life. But there is no reason that a country can't be in debt indefinitely.

 

[WWGD]

Alexander Hamilton thought it very important that the government be in debt. The creditors would support the system, thus stabilizing the government.

The US govt is the ultimate too-big-to-fail.

It's easy to say that when there's nothing going on in those parts of the world. But if there is, those bases suddenly become very valuable, and not having them certainly does harm preparedness.

The problem with trying to do cost-benefit analysis on the military is that you pay the costs every year, but you only get the benefits if there's a war.

Why don't you read at least the argument offered for why this is not the case. You may not agree with it, but Vine argues otherwise, using research from the Rand Corp., not what you would call a bunch of peaceful hippies.

And then there is the fact that they do not exactly create good will towards the U.S. How about letting, say, Poland have a basis near Miami?

Still, I expected people to actually read the excerpts or cite references in disagreeing with my posts.

EDIT: Seems on the far left one cannot criticize the poor, and on the far right, one cannot criticize the military. Thought we were above that here in PF.

 

[WWGD]

Then he's an idiot. That's greater than the entire Navy and Marine Corps budget. That's greater than the Air Force budget. It's almost equal to the Army budget. There is no way that this costs what he says. I do agree with him on one point - "there is no serious cost-benefits analysis on these bases." Including his.

So please give us the details on how these bases are funded, because there are many sources who state it even higher. Who knows, they maybe funded from the $1 trillion+ military budget.:

http://fpif.org/the_cost_of_the_global_us_military_presence/

https://www.laprogressive.com/defense-budget/

There are some who believe it is around $100 billion

http://www.forbes.com/sites/lorenth...lgium-sweden-or-switzerland-spend-on-defense/

 

[mheslep]

WWGD, you are confusing the cost of bases and the cost of the foreign deployment of US forces, to include hundreds of thousands of soldiers, airmen, marines, and seamen, and their equipment. Those links (1st and 3rd at least) do not claim the US "bases" themselves cost hundreds of billions. And the $1 trillion estimate for the US military budget, which includes a large share of healthcare and pensions, is high by ~$200B.

Edit: Of the current ~$814B/yr - 2014 spent on defense, $161B/yr in 2014 goes to veterans.

 

[PeterDonis]

US was in greater debt after WW2 as a percentage of the economy than it is today, and the period after WW2 wasn't an economic disaster

Your graph shows that, while the debt was greater after WW2 than it is now, it went down pretty fast in the post-WW2 period. That's not happening now.

there is no reason that a country can't be in debt indefinitely.

Yes, there is. The reason the US has not had to pay off its debt is that its debt is denominated in its own currency, dollars. That means the US can reduce the real value of its debt by printing more dollars, which it has been doing at a pretty impressive clip. But printing dollars doesn't create wealth, and it certainly doesn't give wealth back to the people who loaned it to the US in exchange for dollar-denominated debt. At some point, the people holding US dollar-denominated debt are going to realize that, and stop taking on that debt.

 

[PeterDonis]

Why don't you read at least the argument offered for why this is not the case.

As far as I can tell from the links given here, I would have to buy his book to do that.

 

[PeterDonis]

And then there is the fact that they do not exactly create good will towards the U.S.

They don't create good will, right up until the point where the people in those locations want US protection. Then the bases suddenly create a lot of goodwill. Nobody was complaining about US overseas bases when they wanted us to enter WW II. The complaint then was that we were too isolationist.

 

[Hornbein]

The reason the US has not had to pay off its debt is that its debt is denominated in its own currency, dollars.

All nations are in debt permanently. The debt creates the money supply. Andrew Jackson paid off the debt, and it was a fiasco. There weren't enough dollars. States and banks started to create their own money, and it was a mess.

The smallest debt is North Korea, which has a national debt of ten million dollars or so.

I'm curious how communist countries did it. Did they have banks at all?

 

[Hornbein]

All nations are in debt permanently. The debt creates the money supply. Andrew Jackson paid off the national debt, and it was a fiasco. There weren't enough dollars. States and banks started to create their own money, and it was a mess.

The smallest debt is North Korea, which has a national debt of ten million dollars or so.

I'm curious how communist countries did it. I would think that banks would be merely a place to keep your money safe. They didn't have mortgages because the state owned all housing. Did banks lend money at all? I would think not. Where can I get info about this?

In a truly communist country its not even clear that you would have money.

 

[WWGD]

They don't create good will, right up until the point where the people in those locations want US protection. Then the bases suddenly create a lot of goodwill. Nobody was complaining about US overseas bases when they wanted us to enter WW II. The complaint then was that we were too isolationist.

Still does not change the fact that many bases may not be overall useful costs-benefits-wise (and of course, any such reasonable analysis would consider what happens if there is a war.) There may be better ways. Still, would you like for, say, Japan , to have a base in New York state or somewhere else in the U.S?

 

[WWGD]

As far as I can tell from the links given here, I would have to buy his book to do that.

Fair enough. I will look up some links containing more info, sorry.

 

[PeterDonis]

would you like for, say, Japan , to have a base in New York state or somewhere else in the U.S?

No, because we don't need Japan to provide military protection to the US. And if Japan were to decide that they didn't need the US to provide them military protection, I would have no problem with us not having bases there. The same for Europe and all the other places where we have bases.

 

[WWGD]

No, because we don't need Japan to provide military protection to the US. And if Japan were to decide that they didn't need the US to provide them military protection, I would have no problem with us not having bases there. The same for Europe and all the other places where we have bases.

But there is reason to believe --I will try to document this better -- that installing bases may often be seen as an aggressive move, and may cause an escalation, rather than keeping the peace.

 

[mheslep]

Still does not change the fact that many bases may not be overall useful costs-benefits-wise (and of course, any such reasonable analysis would consider what happens if there is a war.) There may be better ways. Still, would you like for, say, Japan , to have a base in New York state or somewhere else in the U.S?

No, because we don't need Japan to provide military protection to the US. And if Japan were to decide that they didn't need the US to provide them military protection, I would have no problem with us not having bases there. The same for Europe and all the other places where we have bases.

Indeed, when American did need military assistance during the revolutionary war it did grant France a safe harbor of sorts.

As it happens I'm of the opinion that the U.S. should reduce some of its permanent foreign military presence, starting with Germany. There are valid reasons for and against. I don't count among the valid such notions as a silly base count of 800 or that the U.S. is too strong, is a mean imperial empire attempting to rule the world so that world be fine if the U.S. just went home everywhere.

 

[PeterDonis]

there is reason to believe --I will try to document this better -- that installing bases may often be seen as an aggressive move, and may cause an escalation, rather than keeping the peace.

When the US has "installed" bases, in every case that I can think of, it was as a result of a war that had already taken place, so while there certainly might have been something that could be seen as an aggressive move, it wasn't the bases being installed.

 

[m k]

Has anybody asked where is the corresponding wealth?

China has built much and added billions of population have eaten some.

I remember reading that yearly money exchange for real economy is done in days, yet exchange continues thrue the year.

How much of it is thin air?

 

[Hornbein]

When the US has "installed" bases, in every case that I can think of, it was as a result of a war that had already taken place, so while there certainly might have been something that could be seen as an aggressive move, it wasn't the bases being installed.

Right. And when the Philippines decided to deny the US the big Subic Bay naval base, it happened. I think that most of those bases are there because the host countries want them there.

The bases in Germany are no longer necessary, but the Germans make money off of them. I lived in Bavaria in 1963 and the US military was more visible there than it was in the USA.

 

[mheslep]

Deficit: $400B (real dollars) and increasing, out past 2020.

 

[m k]

I tried to understand things deeper but failed.

Quite difficult to find what is eaten and what is invested.
And what seems to be invested but is actually wasted.

Is global budget somewhere?

If majority is eaten and economy of reals to debt is topping the planet simply don't have assets.
That, of course, is not a problem for the economy but humans have, or at least have had, limited life span.

 

[russ_watters]

Still does not change the fact that many bases may not be overall useful costs-benefits-wise... There may be better ways.

The same can be said about pretty much any expenditure of money by anyone, anywhere. That is a criticism largely devoid of meaning.

Still, would you like for, say, Japan , to have a base in New York state or somewhere else in the U.S?

Absolutely: I think the dozens of foreign military "bases" in and around Washgington DC are essential to our relations with most countries.

there is reason to believe --I will try to document this better -- that installing bases may often be seen as an aggressive move, and may cause an escalation, rather than keeping the peace.

Again, a broad statement that may or may not have any relation to reality. Of course (per the first part of the post) a cost-benefit analysis should be ongoing for all of our expenditures, but the circumstances behind our actual foreign bases existence is often beneficial and desirable to foreign nations. For example, though the US installed bases in Germany and Japan after WWII, for the most part these were essential to peacekeeping and defense during the Cold War for Germany and against China (even today) for Japan. I believe we've reduced our presence in Germany due to the end of the Cold War, but our presence in Japan is essential, what with them only acquiring a full-function military just last month.

 

[WWGD]

The same can be said about pretty much any expenditure of money by anyone, anywhere. That is a criticism largely devoid of meaning.
<Snip>
.

Not so, given I watched a presentation and went over the evidence, all suggesting that there is substance to the claim. I did not decide to just randomly splatter it in here for the fun of it.

 

[AgentSmith]

All nations are in debt permanently. The debt creates the money supply. Andrew Jackson paid off the national debt, and it was a fiasco. There weren't enough dollars. States and banks started to create their own money, and it was a mess.

The smallest debt is North Korea, which has a national debt of ten million dollars or so.

I'm curious how communist countries did it. I would think that banks would be merely a place to keep your money safe. They didn't have mortgages because the state owned all housing. Did banks lend money at all? I would think not. Where can I get info about this?

In a truly communist country its not even clear that you would have money.

North Korea has no debt by keeping its citizens so poor they will eat grass soup. No credit cards, no consumer debt, no vacations abroad, poor infrastructure. Most of the money goes to support the military and the ruling class, excuse me, Vanguard of the Proletariat. People don't have mortgages but they do pay rent. Other communist countries had/have debt, including USSR/Russia and China.

 

[J. L. A.]

There are far more variables in calculating the benefits and negatives of a government operating with a deficit. Obviously it would be optimal to have no debt, but there are so many factors which override this simple idea. There is inflation, there is the fluctuating value of the currency, there are trade deficits, there is the cost of debt, whether the economy is growing or contracting (that has it's own cycles). Operating a budget without debt is nearly impossible because everything is a moving target. There is so much more. This information is easily verified with a little research. It is basic macro economics.

I agree with Choppy though that the 'question' smells of a troll. Unfortunately many people are unwilling to do the work to understand the economy, and would rather parrot cheap dogma peddled by politicians to people who don't know better.

 

[phyzguy]

Obviously it would be optimal to have no debt, ...

It's not at all obvious that the optimum strategy is for the government to have no debt. If the government can borrow money cheaply, as is the case today, and invest in infrastructure that increases the rate of economic growth, then it may be that the overall welfare of the people in a country will be higher if the government goes into debt than if it stays debt-free. This should be studied using macroeconomic theory and models.

 

[J. L. A.]

"It's not at all obvious ..."

Well, I'm your huckleberry. The only thing cheaper that borrowing money cheaply - is not borrowing money at all. I am not at all disputing the assertion that investing in infrastructure can increase economic growth, and improve the overall welfare of the people. PoliSci 101 - the health or condition of a country's infrastructure is an indicator of the health of the country as a whole.

I did not pose my statement as an either or. My statement still stands that it is optimal - if possible - for a government to have no debt. For example, if it were possible to invest in infrastructure without having to incur debt, that would be optimal. However, as I stated, there are other factors. And it is highly unusual in the entire history of civilization for governments to have no debt. Even with the ability of modern governments to print money, there are still limits on resources.

 

[AgentSmith]

Infrastructure does not have to be built or financed by government. We are so used to government doing it today that we forget that. Governments don't build parking lots or factories or warehouses; they don't have to build roads or water systems. The best thing governments can do is provide a tax and regulatory environment conducive to safe construction of infrastructure. I can attest from personal experience that government financed and supervised infrastructure construction is not usually the best in terms of quality and cost.

 

[phyzguy]

Infrastructure does not have to be built or financed by government. We are so used to government doing it today that we forget that. Governments don't build parking lots or factories or warehouses; they don't have to build roads or water systems. The best thing governments can do is provide a tax and regulatory environment conducive to safe construction of infrastructure. I can attest from personal experience that government financed and supervised infrastructure construction is not usually the best in terms of quality and cost.

I disagree. Name a country where the fundamental infrastructure (roads, water supply, sewage removal and treatment, ...) has been built and financed by private companies.

 

[PeterDonis]

Name a country where the fundamental infrastructure (roads, water supply, sewage removal and treatment, ...) has been built and financed by private companies.

It's pointless to look at countries, because they are run by governments; that's what a country is.

Instead, you should be looking for examples of communities where the people living there, instead of expecting the government to build fundamental infrastructure, have private companies do it. There are plenty of them out there, and there would be more if governments didn't stomp on such efforts wherever they can.

 

[BWV]

r. My statement still stands that it is optimal - if possible - for a government to have no debt. For example, if it were possible to invest in infrastructure without having to incur debt, that would be optimal.

No, its absurd - just think about your local school district - say that a new factory opens in your town and a lot of new families move in so new schools are needed. The funds come from local property taxes. Does it really make sense for the district to wait and put aside property taxes each year to 'save up' to buy the new school? Is it supposed to have raised property taxes in the past so it could build up savings so it could build new schools for cash if they were needed? No, this is absurd - instead the district issues bonds backed by future property tax revenues to build the school. Sure there is an interest cost in the bonds, but what about the drain on the local economy of higher tax rates so schools can be purchased for cash?

A good rule of thumb is that any macro economic argument that appeals to 'common household financial sense' is crap because aggregation leads to issues that don't apply to individual households and businesses. A business using debt to finance a productive asset is not inherently a bad thing and neither is government borrowing. Investment is the deployment of savings into productive uses, whether it comes from the private or public sector. A school district issuing a bond to build a school puts the savings of people into a productive investment for society. Sure there are all sorts of public choice issues regarding government spending, but they are only indirectly related into how governments choose to finance that spending.

 

[davidmoore63@y]

One of the reasons people get confused is that they think the economics of government are similar to the economics of individuals. Hence, they think that if the US has a large amount of debt it's something to be worried about, as you would if you had a large personal debt. The crucial difference is that the debt of the US is denominated in US dollars, which is a currency that the US can create with the push of a keystroke at the Federal Reserve. Hence, the US can never be forced into bankruptcy, since it can create dollars in any quantity it pleases. Once that is understood, it's easy to see that it's possible to run a permanent, growing deficit (for example, one that keeps total debt to GDP at a constant percentage).

The consequence of running an excessive debt (at an ever increasing percent of gdp say), is that ultimately the US may be forced to create more dollars to repay holders of the debt such as foreign creditors, Social security recipients etc. This potentially creates inflation whereby the value of dollars versus everything else decreases. The decision to do that is essentially a political one, since inflation causes a transfer of value between classes of people (from lenders to borrowers of fixed rate debt).

But my main point is that this is NOT like the economics of an individual person, a company or even a State. Those entities can't print dollars.

 

[phyzguy]

It's pointless to look at countries, because they are run by governments; that's what a country is.

Instead, you should be looking for examples of communities where the people living there, instead of expecting the government to build fundamental infrastructure, have private companies do it. There are plenty of them out there, and there would be more if governments didn't stomp on such efforts wherever they can.

Can you give me an example of a community where the infrastructure is privately owned and financed? Note that having a private company do the building is not the same as the infrastructure being privately owned. The interstate highways were primarily built by private companies, but they were financed and are owned by the federal government.

 

[gfd43tg]

All I know is that the airports in the USA look like garbage compared to China (at least the major Chinese cities). We are woefully behind in our city metro rail systems as well, far far behind China. How did this happen??

 

[phyzguy]

All I know is that the airports in the USA look like garbage compared to China (at least the major Chinese cities). We are woefully behind in our city metro rail systems as well, far far behind China. How did this happen??

I agree. Somehow we have gotten the idea in the US (as expressed by PeterDonis and AgentSmith in this thread) that we don't need the government to invest in basic infrastructure, like roads, railroads, airports, etc. In my opinion, this is crazy. As a consequence, our infrastructure is falling apart. The solution is simple and obvious. We need to pay more taxes, so that the government can invest in these things, like we did in the past.

 

[PeterDonis]

All I know is that the airports in the USA look like garbage compared to China (at least the major Chinese cities). We are woefully behind in our city metro rail systems as well, far far behind China. How did this happen??

Because we expect governments to manage these things, but unlike China, we don't allow our government to treat the population of the country as expendable labor.

Somehow we have gotten the idea in the US (as expressed by PeterDonis and AgentSmith in this thread) that we don't need the government to invest in basic infrastructure, like roads, railroads, airports, etc

Um, you do realize that airports, for example, are almost always owned by a government? Same for roads, railroads, etc. That's why they so often suck.

I'm not saying that investment in basic infrastructure is not needed. Of course it is. I'm saying that we should not want governments to do it, because the only way for governments to do it efficiently is for them to be like the government of China: as above, they have to be able to treat the population of the country as expendable labor. Governments have been doing that to build large infrastructure since Cheops was a little boy.

But in the US, we have this idea that the government is supposed to serve the people, not the other way around. That means our government can't be the kind of authoritarian entity that it is in China. And that means our government will never be able to manage infrastructure as efficiently as private entities in our society.

Btw, this does not mean I'm a fan of China's government either. I'm not. That should be evident from the language I used to describe how they treat their country's population. But even apart from that, the problem with the China model, like any model of authoritarian central planning, is that it fails miserably as soon as the central authority makes a wrong decision about what to build--"wrong" in terms of the actual value it will provide, as opposed to something useless like the prestige of the ruler. (How much value did ordinary Egyptians get from the pyramids?) And that will always happen; it's just a matter of time.

 

[PeterDonis]

Can you give me an example of a community where the infrastructure is privately owned and financed?

Any gated community. Also, historically, company-owned towns were fairly common at one time in the US.

Furthermore, when you get down to the size of a town, the divide between a "government" and a "private community" owning infrastructure is not as clear. Towns themselves are a sort of hybrid between private communities and governments. Historically, in the US, they were more like private communities; they built and managed their own infrastructure based on decisions made at town meetings and with funds voluntarily contributed by the residents, and did not rely on forced taxation or on grants or other sources of funds from governments at higher levels. That model is less common now only because governments at higher levels have aggressively expanded their power.

 

[gfd43tg]

I agree. Somehow we have gotten the idea in the US (as expressed by PeterDonis and AgentSmith in this thread) that we don't need the government to invest in basic infrastructure, like roads, railroads, airports, etc. In my opinion, this is crazy. As a consequence, our infrastructure is falling apart. The solution is simple and obvious. We need to pay more taxes, so that the government can invest in these things, like we did in the past.

I think part of the skepticism comes from the fact that the money seems to keep going into new wars instead of infrastructure

 

[gfd43tg]

By the way, my comment doesn't apply only to China. The same thing goes for Hong Kong, their airport and metro is way better than a US major city. And they don't have an authoritarian government

Sorry for comparing with the Jones

 

[mheslep]

I disagree. Name a country where the fundamental infrastructure (roads, water supply, sewage removal and treatment, ...) has been built and financed by private companies.

The US. Built, financed, and operated.
https://en.m.wikipedia.org/wiki/Private_highways_in_the_United_States
Also France.

 

[phyzguy]

Any gated community. Also, historically, company-owned towns were fairly common at one time in the US.

Your mention of gated communities is where I have a fundamental problem with the whole concept of privatizing basic infrastructure. If you follow it to its logical conclusion, you end up with a country where the wealthy live in gated communities with exceptional infrastructure, and the poor live in the rest of the country, with its crumbling, decaying infrastructure. If you happen to be born into a wealthy family, things are great, but if you have the misfortune to be born poor, there is no hope to rise out of poverty, because you don't have access to education, health care, and all of the many other things that you need to develop. This is fundamentally opposed to the idea on which America was built - that anyone who works hard can become successful. I certainly don't want to live in the country that will result if we continue along this path. In addition to the gates you will require to keep out the people that haven't paid for your infrastructure, you will probably need bodyguards if you venture outside your gates.