Tag Archives: National Debt

America’s Greatest Crisis Upon Us…Debt-to-GDP Makes It Clear, by Chris Hamilton

The current trajectory of US government spending and debt growth is unsustainable. From Chris Hamiton at economica.blogspot.com:

America in the midst of the greatest crisis in its 242 years of existence.  I say this based upon the US federal debt to GDP (gross domestic product) ratio.  In the history of the US, at the onset of every war or crisis, a period of federal deficit spending ensued (red bars in graph below) to overcome the challenge but at the “challenges” end, a period of federal austerity ensued.  Until now.  No doubt the current financial crisis ended by 2013 (based on employment, asset values, etc.) but federal spending continues to significantly outpace tax revenues…resulting in a continually rising debt to GDP ratio.  We are well past the point where we have typically began repairing the nation’s balance sheet and maintaining the credibility of the currency.  However, all indications from the CBO and current administration make it clear that debt to GDP will continue to rise.  If the American economy were as strong as claimed, this is the time that federal deficit spending would cease alongside the Fed’s interest rate hikes.  Instead, surging deficit spending is taking place alongside interest rate hikes, another first for America.

The chart below takes America from 1790 to present.  From 1776 to 2001, every period of deficit spending was followed by a period of “austerity” where-upon federal spending was constrained and economic activity flourished, repairing the damage done to the debt to GDP ratio and the credibility of the US currency.  But since 2001, according to debt to GDP, the US has been in the longest ongoing crisis in the nation’s history.

But what is this crisis?  The chart points out the debt to GDP surges in order to resolve the Revolutionary war, the Civil War, WWI, and WWII. But the debt to GDP surges since 1980 seem less clear cut.  But simply put, America (and the world) grew up and matured, but the central banks and federal government could not accept this change.  Instead, the CB’s and Federal government wanted perpetual youth…growth without end.  The chart below shows the debt to GDP ratio but this time against the decelerating growth of the total US population as a percentage (black line) but also against the faster decelerating growth of the 0-65yr/old population (yellow line).

To continue reading: America’s Greatest Crisis Upon Us…Debt-to-GDP Makes It Clear

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That Moment

https://www.theburningplatform.com/2018/06/10/that-moment-3/

Breaking down America’s worst long-term challenges: #1- Debt. By Simon Black

Debt is the US’s worst long-term challenge, and it leaves all the others in the dust. From Simon Black at sovereignman.com:

On October 22, 1981, the national debt in the United States crossed the $1 trillion threshold for the first time in history.

It took nearly two centuries to reach that unfortunate milestone.

And over that time the country had been through a revolution, civil war, two world wars, the Great Depression, the nuclear arms race… plus dozens of other wars, financial panics, and economic crises.

Today, the national debt stands at more than $21 trillion– a milestone hit roughly two months ago.

This means that the government added $20 trillion to the national debt in the 37 years between October 22, 1981 and March 15, 2018.

That’s an average of nearly $1.5 BILLION added to the national debt every single day… $62 million per hour… $1 million per minute… and more than $17,000 per SECOND.

But the problem for the US government is that this trend has grown worse over the years.

It took only 214 days for the government to go from $20 trillion in debt to $21 trillion in debt– less than eight months to add a trillion dollars to the national debt.

That’s an average of almost $52,000 per second.

Think about that: on average, the US national debt increases by more in a split second than the typical American worker earns in an entire year.

And there is no end in sight.

At 105% of GDP, America’s national debt is already larger than the size of the entire US economy. (By comparison the national debt was just 31% of GDP in 1981.)

Plus, the government’s own projections show a steep increase to the debt in the coming years and decades.

The Treasury Department has already estimated that it will borrow $1 trillion this fiscal year, $1 trillion next year, and another trillion dollars the year after that.

They’re also forecasting the national debt to exceed $30 trillion by 2025.

To be fair, debt isn’t always bad. In fact, sometimes debt can be useful.

Businesses and individuals use debt all the time to shrewdly finance productive investments.

Real estate investors, for instance, often borrow most of the money they need to purchase a property once they determine that the rental income should more than cover the debt service.

In this way, when applied prudently, debt can actually help build wealth.

To continue reading: Breaking down America’s worst long-term challenges: #1- Debt

“Worse Than You Think” – 8 Reality-Checks From Last Week’s CBO Report, by David Nevins

CBO reports on the government’s finances make for grim reading, but probably not grim enough. From David Nevins at ffwiley.com:

For what they’re worth and for anyone who doesn’t mind digging through the weeds, here are my comments on last week’s budget outlook from the Congressional Budget Office, which I previewed here.

  1. In the baseline scenario that’s widely reported in the media (I’ll abbreviate it BS for this post), the CBO shows federal debt held by the public soaring from 76% of GDP at fiscal year-end in 2017 to 96% of GDP at the end of the ten-year forecast horizon in 2028.
  2. The CBO also restored its alternative scenario (AS), which adjusts for certain constraints on what it’s legally allowed to include in the BS, making it more realistic than the BS. Unfortunately, the AS didn’t appear in annual reports between 2014 and 2017—in those years, the CBO highlighted areas where its BS projections were likely to be wrong but without producing an alternative. Even though it gets only a fraction of the attention given the BS, it’s good to see the AS back. It shows debt held by the public rising to 105% of GDP by the end of 2028, compared to the baseline’s 96% of GDP.
  3. But the AS is also optimistic, partly because it uses the same rosy economic assumptions as the BS and partly because it includes less “emergency” spending than the BS.
  4. As for the economic assumptions, the CBO’s unemployment rate projections are lower than they were last year in every projection year. They show an average unemployment rate for the next ten years of 4.4%, which is almost a third lower than the 6.2% historical average over the past forty years (see the chart below) and at least 0.4% lower than in any other ten-year projection the CBO has ever produced.
  5. For perspective, consider that the Bureau of Labor Statistics shows only one historical ten-year period during which the average unemployment rate was as low as the CBO projects today. That one period was from 1948 to 1957, when the unemployment rate averaged 4.4% as in the CBO’s current projection, but it’s hard to imagine the average would have been that low had the Korean War not pushed unemployment firmly below 4% for 35 consecutive months.

To continue reading:  “Worse Than You Think” – 8 Reality-Checks From Last Week’s CBO Report

The Other Raiding Party, by David Stockman

Bush doubled the national debt, Obama doubled the national debt, and there’s a better than average chance that Trump will do the same. From David Stockman at davidstockmanscontracorner.com:

While the FBI was raiding the offices of Trump’s lawyer yesterday afternoon, the CBO published a blockbuster report evidencing the Donald’s own raiding party. To wit, in roughly 90 days of fiscal madness between December and February, Trump and his GOP allies piled $459 billion onto next year’s (FY 2019) deficit.

That eruption of red ink consisted of $285 billion for the tax bill and $174 billion of spending add-ons for defense ($56 billion), domestic programs ($105 billion) and additional debt service ($13 billion). For FY 2019 alone the added debt amounted to 2.3%of GDP, and turned an awful fiscal situation into an outright disaster.

Indeed, the real “watershed moment” yesterday was not that Mueller went after the keeper of Trump’s legal skeletons, but that CBO let the real monsters out of the fiscal closet, translating Trump-O-Nomics into the scariest budget numbers ever seen.

Namely, a public debt that reaches $33.85 trillion (130% of GDP) by 2028 and that’s not our projection; it’s right there on p.87 of the CBO’s official report.

Moreover, that’s the good news part of the report. But to believe that the public debt is only heading for 130% of GDP during the next 10 years, you have to believe in Rosy Scenario economics and be OK with the crooked book-keeping forced on CBO by our estimable legislators.

As we show below, grab some sober economics and honest fiscal book-keeping—and the public debt number 10-years out is actually $40 trillion and 150% of GDP. And there’s no conceivable way to dig out from under it because the tsunami of baby-boom retirements and the associated Welfare State fiscal costs are insuperable.

The CBO report lets some skeletons out of the closet on that point, too. Thus, combined social security and medicare costs will rise from $1.8 trillion in FY 2019 to $3.3 trillion by FY 2028 owing to the rolls rising from 60 million to 80 millionbeneficiaries, as well as cost of living adjustments and medical care inflation.

Needless to say, the remaining accounting “solvency” of the OASHDI (old age, survivors, hospital and disability) trust funds will quickly evaporate under this spending wave. In fact, the trust funds’ cash deficit in the coming year will total $108 billion, rise to $504 billion by 2028 and then head into the trillions shortly thereafter. And that’s per year!

In short, what’s coming is a monumental Welfare State crisis owing to the fact that the vaunted trust funds are rapidly going bust. Just in the FY 2019-2028 period they will be collecting nearly $2.8 trillion less in income from the payroll taxes than the benefit costs which the retired population will be entitled to under law.

To continue reading: The Other Raiding Party

Treasury Admits It Lost $1.2 TRILLION in 2017, by Mark Nestmann

The US is broke, and the Treasury’s own report admits it. From Mark Nestmann at nestmann.com:

In 1971, President Richard Nixon told an ABC News reporter that he was “now a Keynesian in economics.”

Nixon’s statement was an acknowledgment that he agreed with the ideas of John Maynard Keynes. Keynes was an economist whose theories once underpinned the economies of every major country.

Nixon’s endorsement of Keynesian economics was shocking. To understand its impact at the time, consider how the world would react today if the leader of ISIS converted to Christianity. Or if the National Rifle Association endorsed a ban on semi-automatic weapons.

Nixon’s statement was astonishing because one of the fundamental precepts of Keynesian economics is that governments must intervene in the economy to ensure “optimal outcomes.” To economic conservatives, this was dangerously close to socialism or even communism.

Keynes believed that business cycles – periods of expansion followed by recessions – are the inevitable consequence of capitalism. Free-market economists believe governments should not intervene in the business cycle support economies in recession. Keynes thought intervention was a fundamental duty of government.

During the Great Depression of the 1930s, Keynes advocated for governments to reduce taxes and increase public spending to spur employment. Keynes acknowledged that this policy might require deficit spending. But he believed budget surpluses when prosperity returned would make up for the deficits.

Once Nixon embraced Keynesianism, resistance by economic conservatives – and the Republican Party – faltered. The last Republican president who didn’t endorse Keynesian economics was Dwight Eisenhower, who left office in 1961. Ronald Reagan, George Bush Sr., George Bush Jr., and now Donald Trump have all embraced cutting taxes to spur the economy.

That brings us to 2018. February 15, 2018, to be exact. That’s the day that Treasury Secretary Steven T. Mnuchin signed off on a report with the mind-numbing title Fiscal Year 2017 Financial Report of the United States Government.

To continue reading: Treasury Admits It Lost $1.2 TRILLION in 2017

US Gross National Debt Spikes $1.2 Trillion in 6 Months, Hits $21 Trillion, by Wolf Richter

The numbers on the US debt clock spin faster and faster. It seems like just yesterday that we hit $20 trillion. From Wolf Richter at wolfstreet.com:

These dang trillions are flying by so fast, they’re hard to see.

The US gross national debt jumped by $72.8 billion in one day, on Thursday, the Treasury Department reported Friday afternoon. This March 16 is a historic date of gloomy proportions, because on this date, the US gross national debt punched through the $21 trillion mark and reached $21.03 trillion.

Here’s the thing: On September 7, 2017, a little over six months ago, just before Congress suspended the debt ceiling, the gross national debt stood at $19.84 trillion.

In those six-plus months – 132 reporting days, to be precise – the gross national debt spiked by $1.186 trillion. I tell you, these dang trillions are flying by so fast, they’re hard to see. And we wonder: What was that? Where did it go?

Whatever it was and wherever it went, it added 6% to the gross national debt in just 6 months.

And with 2017 GDP at $19.74 trillion in current dollars, the gross national debt now amounts to 106.4% of GDP.

In the chart below, the flat spots are the various debt-ceiling periods. This is a uniquely American phenomenon when Congress forbids the Administration to borrow the money that it needs to borrow in order to spend it on the things that Congress told the Administration to spend it on via the appropriation bills. So that’s where we are, on this glorious day of March 16, 2018:

This was the largest spike in the gross national debt over a period of 132 reporting days, going back to 2011. Perhaps during the depth of the Financial Crisis, when all heck was breaking loose, and when credit was freezing up, and when millions of people lost their jobs, and when the government stopped receiving payroll deductions from them, and when capital gains turned into losses, and when corporations were drowning in red ink and not paying taxes either, in other words, when tax receipts collapsed due to the crisis, and expenditures for unemployment and other things jumped, well then the debt might have increased more sharply in a time span like this. But not since then.

To continue reading: US Gross National Debt Spikes $1.2 Trillion in 6 Months, Hits $21 Trillion