Bell Curve The Law Talking Guy Raised by Republicans U.S. West
Well, he's kind of had it in for me ever since I accidentally ran over his dog. Actually, replace "accidentally" with "repeatedly," and replace "dog" with "son."

Thursday, October 02, 2008

$1 .01 x 1013

The US National Debt exceeded $10 trillion dollars last week. The breakdown is approximately 50% publicly held (e.g. owed to Social Security Trust Fund), 25% privately held (domestic), and 25% privately held (foreign / international investors). To give this some perspective, we can compare it to total US net worth and indebtedness:

US household net worth (assets - liabilities): $56 trillion
US household debt: $14 trillion (76% mortgages, 19% consumer credit)
US GDP 2008 (estimate): $14.6 trillion
US business debt: $27 trillion (60% financial, 40% non-financial sectors)
(Federal Reserve Board 2008 Q2 statistics)

In the past twelve months, the federal government has been borrowing (on average) another $4 billion each day. Nearly 30% of all federal income taxes (individual and corporate) goes just to pay interest on national debt--nearly half a trillion dollars. Over 2/3 of the increase in our national "credit card" balance last fiscal year was due to finance charges alone. If we plowed the entire defense budget into paying off the deficit, it would only pay the interest on debt already owed.

It was tough, but nearing the end of his term, Clinton managed to balance the budget and even started to pay down the debt. Bush, on the other hand, has taken the debt from $5.7 trillion to $10 trillion with no end in sight. Have we finally passed the point of no return?

19 comments:

Spotted Handfish said...

Oh. My. God. With the recent financial trouble are we seeing the start of people asking the US to repay their debt? The numbers are incredible. A billion here, a billion there...

The UK went into WWI as the richest nation on the planet, and came out in debt. Are we seeing something of magnitude in the shift in world wealth?

Raised By Republicans said...

Yes the debt is a problem. People have been talking about paying it down for decades. In fact in the 1990s, as Dr. S. pointed out, we started to. But Spotted Handfish, rumors of our demise are exaggerated.

To put our debt problem in perspective: The US government debt is currently 68.5% of our annual GDP. In fact, it is only since the Bush administration came to power that our debt to GDP ratio exceeded the EU's requirement (weakly enforced) of 60% to qualify for joining the EURO.

Italy's debt is 106% of its GDP down from 125% 10 years ago. http://www.forbes.com/markets/feeds/afx/2007/05/04/afx3685980.html

France's debt is 65.7% of its GDP and rising.
http://www.cnbc.com/id/26952646/for/cnbc

Japan's debt is over 150% of its GDP.
http://www.iht.com/articles/2006/02/27/bloomberg/sxpesek.php

The OECD in general is expected to have far higher debt to GDP ratios over the next decade or so.
http://www.marginalrevolution.com/marginalrevolution/2004/04/crude_extrapola.html

This is a problem. And we should fix it. A big reason capital for investment is becoming hard to find is because governments are soaking so much of it to service their own debt. But it would be a mistake to say that the US is the worst offender here (relative to economy size) or that our debt problem is out of step with other OECD countries.

The Law Talking Guy said...

I was so angry when Sarah Palin said "we have to learn to live within our means" to ordinary Americans. Joe Biden should have retorted, "Bush and McCain have racked up the most massive debt in this Country's history, and John McCain will only make it bigger with massive tax cuts to the wealthiest Americans and continuing to spend $1 billion or more a week in Iraq. Nobody takes Republicans seriously when they talk about living within our means. Clinton balanced the budget and gave you guys a budget surplus. We can work to make that happen again. You Republicans just take out the credit card and charge, charge, charge, and leave all the debts to our grandchildren. Shame on you."

Anonymous said...

What is the danger of being in debt? Seems like every country is in debt, based on your stats...

Anonymous said...

It is time for Jubilee...eliminate all debts and everyone starts over...that is the only way this will end...this was part of Bush 42's New World Order...the entire world has been on a deregulation fest for 20 years and here we are....screwed!

USwest said...

The "living within our means" comment from Palin was dumb. What I wish Biden would have said more clearly was, "Well people whose real wages are sitting at 1976 (or whatever year it is now) levels can't really 'live within their means' when the bills come due. The credit most people are using isn't for frivolous purchases, but for food, medical bills, gas, etc." He said that, but quickly, and not a clearly.

I think part of what is happening is that many nations are moving up in the world. It wasn't so long ago where the word "billion" was rare. Everyone talked in "million" (except the US under Reagan when "trillion" came into the parlance. Now "billion" Is chump change, in large part because economies have grown so much.

So everyone's debt is rising as their GDPs rise. It is sort of (excuse the bluntness) a cluster f@#k. This isn't necessarily a bad thing. It does create a certain web of dependence for everyone and it is the result of exploding growth. Just look at Asia. 20 years ago, it wasn't even in the game. Now it is a game changer. That is what we wanted, right? For everyone to develop? So while the Chinese or the Saudis may be lending us money, they can't really rock the apple cart either. They need us as much as we need them. That is what is going on around the globe. Maybe it is a new type of "mutual destruction" that can bring some stability to the world. Actually, if you take a larger view, the world over all, is much more stable now than it was in the 1970s.

It is true that the UK was pretty broke after both its wars. But let's take a lesson from them . . . they did manage to rebuild without loosing much influence in the world, in part because they allied themselves to the US. We may have to take a page from that book, which means diplomacy and cooperation with others rather than "maverick" politics..

Spotted Handfish said...

I think RBR you miss the main point here. The debt that I am most amazed at is the levels of private debt. I didn't state that very well. Household debt is now at the same level as GDP.

Besides, saying that you are better than France, Italy and Japan is not a good measure. That's like trying to limbo under a basketball hoop.

Raised By Republicans said...

Spotted Handfish,

Perhaps you should check the stats for Australia. I was trying to be nice. If we are going to talk about private debt, Australia's PRIVATE debt to GDP ratio is 165%.
http://www.brisbanetimes.com.au/news/planning/profile-steve-keen/2008/08/25/1219516368463.html

The US ratio for that would be less than 100%.

To anonymous. The problem with governments carrying lots of debt is that servicing that debt sucks money out of the capital markets and makes investment capital more scarce. What we're seeing now is that private debt is exacerbating that problem too.

Raised By Republicans said...

I will restate my point. Yes, the US has a debt problem. So do most OECD countries including those countries that pride themselves at having rival approaches to managing their economies to ours. This is a problem with modern advanced democracies. This isn't only an American problem.

So all you folks in France or Australia who are tempted to feel oh so superior to us right now, should take a good long look in the mirror because we're all in this together and there is plenty of blame for all of us to share.

In a few days when I have more time, I'll post about how this housing bubble, the crash of which is a big part of this crisis, was a global phenomenon too - not just an American one.

Dr. Strangelove said...

RbR, thanks for the statistics on the debt in other nations!! That was illuminating.

The US debt is very large in an absolute sense. However other "near-peer" nations have debt that is larger relative to their GDP. Which leads me to wonder: is fraction of GDP the right measure?

Incidentally, I checked the article re Australia, and the private debt-to-GDP ratio of 165% referred to all private debt, household plus business. Using the figure cited above, the equivalent US figure would be 170%. (It might actually be as 280%, but I think "private" debt for businesses usually includes only the non-financial sectors. But I could be mistaken in that.) At any rate, ours is worse.

Raised By Republicans said...

Dr. S.

I think the relative measures are the point. If I owe $300,000 to various banks but make $180,000 a year and own a house worth $380,000. I'm in a different situation than someone who owes $100,000 and makes $30,000 and owns no house.

The US GDP is about 3 times the size of the next largest national GDP. Comparing ANY economic numbers from the US to other countries in strictly absolute terms is extremely misleading. That is really lesson number one from every political economy class I ever took.

OK, so if you play games with the ratios you can make it look like Australia has less of a debt problem. But not by much. The similarity - not the childish "my country is better than yours" stuff that Spotted Handfish wants to get into - is my point. There is a lot of similarity between all OECD countries with this.

Dr. Strangelove said...

RbR: I completely agree that comparing the debt in absolute terms is extremely misleading. You are quite right. I also agree that relative percentages you quoted are a more revealing measure for comparison. But is that the best measure?

Dividing debt by GDP implies that a linear relationship between the two is sensible. But that might not be so. I mean, maybe the square of the debt divided by GDP is more sensible. Or maybe the debt-to-liquidity ratio is more sensible. No, those are not serious proposals for good measurements. All I was asking is, different measures can provide different insights. We agree that the raw debt is not too revealing, and that debt-to-GDP is much better--but other measures might be more revealing still.

Incidentally, your example goes right to the heart of what I was saying: owning a $380,000 house is a measure of assets, not income, and therefore would not be included in GDP. Even though, as you point out, it makes a big difference in the situation. China may have high GDP growth, and may even exceed our GDP in the coming years, but it will take much longer for their total net worth to surpass ours, and longer still for their net worth per capita to exceed ours.

Just to be clear, I did not "play games" with ratios, RbR. I just corrected your math. You stated that the comparable US private-debt-to-GDP ratio would be less than 100%, but I think you left the business debt out of your calculations--and the comparable Australian figure included the business debt too.)

Spotted Handfish said...

I have never said the debt situation in Australia is better. In fact I know it is worse: there has been minimal unwinding of the property bubble, and that bubble has inflated higher than the US. My particular interest is in the overall debt -- from where-ever -- and what effects the current market turmoil will have given that sources of private funding are disappearing.

Maybe, RBR, you should calm down and stop reading everything as an attack. You are mistakenly reading my comments of simple surprise at the numbers, and my intent was never what you imply. Quite frankly I think you should apologise: you brought up the '"my country is better than yours" stuff' and the childishness is yours.

Raised By Republicans said...

Spotted Handfish starts with a sarcastic comment about how Americans have been ignoring their debt problems "Oh. My. God. With the recent financial trouble are we seeing the start of people asking the US to repay their debt?"

To that I posted something about how the US debt situation is similar to several other "peer" nations (NOTE: not better than just not worse than) to which Spotted Handfish responded....

"I think RBR you miss the main point here. The debt that I am most amazed at is the levels of private debt. I didn't state that very well. Household debt is now at the same level as GDP.

Besides, saying that you are better than France, Italy and Japan is not a good measure. That's like trying to limbo under a basketball hoop."

Ilyas said...

after the beginning of this post, I thought you were going to calculate the US' credit score. Seems like the kind of thing you guys might do...

Spotted Handfish said...

My first comment on this thread was simply expressing my honest surprise at the scale of the figures. My second was to clarify that my main surprise was at the level of private debt, and to point out that RBR's comparison of US public debt was to three countries ranked 3rd, 7th and 23rd in terms of percentage of GDP, all of which are worse the US so I assumed the comparison was to show the US was better. My third comment was asking for an apology for which you attack again.

The view that my first comment was sarcastic is yours RBR. The view that my comments were combative are your interpretation and not my intent. You have accused me of a childishness which is from your own imagination and you should apologise.

Raised By Republicans said...

I'm not going to get into an argument with you about whether the tone of your comments has frequently been taunting and "attacking" of Americans and the United States. It's what you do. If you are saying now that a statement like

"Oh. My. God. With the recent financial trouble are we seeing the start of people asking the US to repay their debt?"

isn't sarcastic and combative then you have a different idea of what those words mean.

If your intent is not to be combative and sarcastic then perhaps you should reconsider your own tone.

I'll retract the word "childish" but I continue to assert that your comments frequently tend to be sarcastic and combative.

Pombat said...

Ok, I'm sorry, but I've got to weigh in now, regardless of what bias you're going to accuse me of.

RbR: firstly, it is impossible to accurately gauge something such as sarcasm from a written media. Spotted H has (truthfully!) stated that his "Oh. My. God." was an expression of surprise - say it out loud and think about it - and not one of sarcasm. You should take that assertion at face value, and accept what he's saying.

Secondly, you launched into name calling with the "childish" call, and also argued with him directly about his assertions, telling him he meant something other than what he was saying he did. He is the only person who can know what he meant, so your aggressiveness towards him was uncalled for. Despite "retracting" the word "childish", you've still not apologised for your stance, and I also believe that you should.

Your first paragraph in this latest post also falls neatly into the name calling category. For what it's worth, from our point of view, what we're doing is providing a MUCH needed outsiders' viewpoint and opinion on events within the US. We assumed that the Citizens would appreciate such a view, as we thought it would add an extra dimension to the debates on here, which could not be easily sourced otherwise.

Thirdly, and nearly lastly, stop taking criticism of the USA so god-damned personally! If I told you that I found LA a stressful place, and was also quite shocked at the consumerism I saw in places (we went to Costco...), I would not be surprised if you then had a go at me for being anti-American. You really need to stop doing this - a criticism of something that is happening in the country you live in is not a direct personal criticism of you, nor is it a statement of another country being superior. In fact, on that note, assuming that any criticism of your country equates to a statement that that person's country is superior reflects badly on you - it implies that if you criticise another country, you are in fact saying that the USA is superior. There are those of us on here who are capable of criticism of something we see as bad without needing direct comparisons to "better" things or places.

And lastly, before telling other people to reconsider their tone, go back, read through some of your more aggressive posts, and reconsider your own.

Dr. Strangelove said...

RbR took umbrage at Spotted Handfish's very first comment above, reproduced here:

"Oh. My. God. With the recent financial trouble are we seeing the start of people asking the US to repay their debt? The numbers are incredible. A billion here, a billion there... The UK went into WWI as the richest nation on the planet, and came out in debt. Are we seeing something of magnitude in the shift in world wealth?"

Now try a little experiment: Pretend for a moment that the above comment had been penned by LTG or USWest. Would RbR have taken that comment as anything other than simply an expression of shock and amazement? Of course not! Indeed, my original post--which actually did imply strong criticism of the US--aroused no such note of concern from RbR!

But because it was Spotted Handfish who wrote this, RbR accused him being sarcastic, combative, anti-American, and somehow was claiming Australia was superior to the US. (Where did Spotted Handfish even mention Australia?! This is all in RbR's head. Seriously.)

Look: in Spotted Handfish and Pombat we have a couple of thoughtful people who go out of their way to read our posts and comment on them. We should honor that, as they honor our blog. It is evident that RbR and Spotted Handfish dislike each other. That cannot be helped. I value their outside perspective--for exactly the reasons Pombat describes. But surely we can avoid picking needless fights. From now on, I suggest we try to read each others words blindly, without regard to who wrote them, as much as we can.

RbR provided some very interesting, complementary data on foreign debt that was exactly the sort of discussion I was hoping to provoke with my main post. It changed how I look at US debt! It is a real shame that got lost in the scuffle.