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How much debt can the U.S. handle? A new paper quantifies an 80% public debt to GDP ratio -...
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Saturday, February 23, 8:25 AM ETHow much debt can the U.S. handle? A new paper quantifies an 80% public debt to GDP ratio - where the U.S. is right now - as the point at which a nation reaches a potential tipping point; once a nation has debt above that level, it becomes vulnerable to the kind of self-reinforcing vicious cycles that have crippled others. Two responses from Fed officials see the analysis as simplistic and eurocentric.
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Hubris is a very apt word to describe Ben. I might add arrogance as well.
Hilarious!
My ex never lived so large. Pun intended.
All time high 1st qtr 1991 14.04%
All time low 3rd qtr 2012 10.53%
1st qtr 1980 10.95%
1st qtr 1990 13.68%
1st qtr 2000 12.56%
1st qtr 2010 12.14%
If you can stand being screwed 80% of the time, then anything less than that is just fine. Never mind asking if you should be screwed at all.
If people could only understand Bastiat's "seen and unseen".
What about under normalized interest rates?
Are the current rates sustainable.
Have we stopped adding to the principal balance yet?
http://bit.ly/YKTfQb
http://bit.ly/131y3Lr
What has this migration done for the people of those green states? Yes, rich people will migrate to wherever they get the most disproportionately positive treatment -- but do they bring many benefits with them?
Have the business friendly environments of Nevada or Delaware turned them into powerhouses of employment or other metrics of the overall well-being of the population? (Hint: no.)
What about Ireland or the Cayman Islands, which literally has more registered businesses than people? (Hint: again, no.)
These governments fall for the trap every time. They pamper businesses and the rich in the hope (and that's all it is) of reaping benefits by bringing them to their state/country, but time and time again, those benefits never materialize.
You can't just get blinded by the numbers, you have to consider the actual benefits to real societies.
OK the converse of your thesis is that if we get rid of all the rich people and companies then we can be prosperous. Does that lack of capital and capital flight work? (Hint: no.)
You are also cherry picking a few examples and then extrapolating that to a general rule. Go back to Stats 101.
Never mind Ireland did tremendously well for a long time until the housing sector was blown up in a bubble which brings us back to government and banking Frankenstein policies.
Net of all this is that you are peeing into the wind and trying to create your own narrative on pure force of willpower. You are just blinding yourself.
http://bit.ly/131Hg6D
> rich people and companies then we can be prosperous.
That is not in fact the converse of my thesis, it is actually a strawman that you kids love to put up when you can't defend your arguments logically.
And since you like stats:
http://bit.ly/131JC5x
http://bit.ly/XSDZhY
http://bit.ly/131JC5B
That's not peeing into the wind, that's peeing all over your misinformation. :-)
What would be interesting to see is a study that shows the states with the highest taxes and regulations are the states that have had the fastest growing economies over the last 20 years and the greatest job creation.
Good governance policy should ask, "what's good for everyone" (that's not an unfunded handout), and not "what's good for my biggest campaign donors". :-)
"you have to consider the actual benefits to real societies."
By whom and for whom?
You said "They pamper businesses and the rich in the hope (and that's all it is) of reaping benefits by bringing them to their state/country"
I nailed the converse of your argument dead on. And then you give me stats on federal taxes to obfuscate I guess.
Your problem is that you don't believe in markets.
( Hint: nothing.)
In addition to this, these new state agencies would also pay for lobbyists to lobby the heavy welfare states to constantly increase their welfare benefits, lower residency status to 1 day, raise taxes (especially corporate and personal income taxes), eliminate sales taxes, unionize all state workers, and then constantly increase their benefits.
Finally these new state agencies would contact businesses and high net worth people in these states and inform them that they qualify for a tax credit if they move to the new state away from the high welfare state.
http://bit.ly/REqlPq
I think that premise is sort of hard to argue with. You and others will (rightly!) want to hold the poor to that same kind of social contract, why do you give the rich a pass?
Just like the unemployed ought to have to do some kind of work to receive unemployment benefits (a concept you'd agree with, no?), the rich should have to add proportional societal value to receive their societal dispensations -- or else they should not receive them.
Your problem is that you don't believe in logic. :-)
> on anyone but yourself while advocating bigger government.
More straw men -- do all you kids live on farms? ;-)
Who said anything about higher taxes? I just don't think governments should be giving tax /breaks/ without requiring a proportional value contribution, such as good jobs created or other positive effects.
> for the "'good for everyone' (that's not an unfunded handout)"
> has been demonstrated by the current administration.
I said the government "should" work for the good of everyone -- I didn't say that it "does". ;-)
> in the next ten years without having to call out the military to
> quell the ensuing riots?"
The size and scope of are also red herrings -- easy things to focus on for the small-minded, but not actually very meaningful in themselves.
But by all means, we should certainly focus on the *efficiency* and the *effectiveness* of government, and if that results in a smaller size and scope, then so be it. But let's focus on the real causes and effects, not just the side-effects.
And if nothing can be done, perhaps there is an investment opportunity in some sort of Riot Quelling ETF? ;-)
Sometimes you are willful idiot.
Rich people don't work that is why they are called rich. So they can invest their capital and pay taxes where they want. You don't want them? No problem they go where they are wanted. Basic human nature.
The word you are trying to keep out of your argument is "fair."
It's not fair.............go ahead and say it.
Why /should/ I want them?
See, the word you keep trying to leave out is "value" -- go ahead and say it: they don't add value. At least not as much as they expect to get back...which perhaps is also why they're rich. :-)
But if I'm a local government, why would I want to bend over backwards to attract someone who won't add proportional value to my locale? Typically the realistic answer is kickbacks and campaign contributions, but more philosophically, why 'should' I want to do that?
If I put measures in place to ensure that those rich folks that I'm handsomely rewarding will bring with them a proportional amount of jobs, economic growth, peace, prosperity, rainbows, and unicorns, then sure, I'll happily bend over backwards.
But if not...come on Tommy, you of all people ought to be opposed to banking on "hope". :-D
See, historically this has been the problem with government "incentives" for businesses: the governments hope that those businesses will come to their countries/states/count... and bring prosperity with them.
What more often happens in practice is that the businesses, who are not constrained by borders as the governments are, will reap the benefits but bring little of the assumed prosperity to the offeror of those benefits, resulting in a very one-sided bargain.
Therefore it's a race to the bottom for the governments and the non-rich that happen to live there too. They have to offer 100 units of value in incentives in the hopes that they get 1 unit of value in return -- a great investment play for the rich, sure...but not so much for the guys on the other side of that trade. :-)
What you are saying is that governments don't know how to negotiate or manage because they are a bunch of idiots. They cannot negotiate and they cannot create jobs. And they don't know value.
No surprise to me. About time you admitted it.
Subsidies are definitely something to stay away from. The same thing happens for unions with things like the Wagner act. The subsidies are basically wealth transfer (stealing) via the gov, and as such, the incentives are created to grow that stealing. This leads to a bubble in that asset class, like the auto industry, the unions need more and more subsidies to keep the asset prices up, and at some point people stop buying in the quantities necessary to support the asset price with the pv of predicted future cash flows. Then the asset is damaged, the market tries to force a reset of what the unions are receiving via their theft through gov, and then gov has to step in and engage in yet another wealth transfer via a tax to bailout the company.
What happens here is that cars sales, like in the case of GM, would create profit that would transfer directly to equity. So what happens is the gov taxes the populace to transfer the equity directly into the capital accounts of GM by taking the food out of the mouths of children to do so. Its as if the public had said, "we can't afford to buy these cars any more, the unions need to lower the price" and the gov said, "too bad, the unions pay for our campaigns, thus we are going to force you to buy their cars and thus save our sugar daddies". Of course the public doesn't even get the car. Their wealth is transferred directly to GM's equity account. Eventually, there will be no GM and gov guns will be used transfer wealth from the general populace directly to the bank accounts of union members.
So what you want to do to avoid all this stealing via gov, is to have a sales tax and no gov subsidy (stealing) programs. This makes your state capital friendly. And since capital is a force of nature, it will flow, like water, to the place of least resistance. The benefit of capital is that it makes labor more efficient. More efficient labor means more productivity. More productivity means more consumption, and more consumption means a higher standard of living.
> more consumption means a higher standard of living.
Almost. You missed a step.
More productivity only means more consumption if actual higher wages (or actual lower prices) come with that increased productivity. Over the past few decades, this has not generally been the case.
Switching back to our general topic of government incentives for businesses and the paltry real value that they typically add, NYT had a pretty good article on this very subject just a few months ago:
http://nyti.ms/XUpmLl
Be careful that it doesn't burn your eyes with all of its facts and figures and research -- I know how much that bothers some people -- but there is also a lot of well-deserved GM bashing which I'm sure you will find soothing. :-)
Yes, productivity is about making things better and faster. That's what price sensitivity is all about.
"Over the past few decades, this has not generally been the case."
Exactly, because we have been attempting to use gov to regulate prices. This gives business exactly what it wants - the economic incentives that allow them to capture gov so they can use its grant of force to give them what a free market never could - a cartel.
So where a free market that allows for maximum price sensitivity prevents the restriction of supply and the increase of prices (or lower wages), businesses then use gov coercion to create a cartel where they can restrict supply and increase price. Its the gov coercion causing the rich to get richer and the poor to get poorer. That's why thieves use coercion, becuase the theft transaction is all about making one person richer and the other person poorer.
If you want to have lower price and higher wages or whatever combination thereof our technology will allow to raise living standards, then get the gov and its grant of force out of regulating prices.
So if you apply this to our general discussion of states, the ones with the least price regulations (the least welfare, least labor rules, least corporate and income taxes, etc) will be the ones where the standard of living will be the highest via the lack of the ability for businesses to cartelize the system.
Its a myth that businesses want free markets. Only consumers want free markets. That means lots of supply and lower prices. Businesses hate free markets. They want cartels, so they can restrict supply and raise prices.
Don't let all that logic burn your eyes. I'm sure want plenty of opportunity to cartelize the system so you can steal from your neighbors.
http://bit.ly/X5QcTf
http://bit.ly/XUvuD8
Voting with your feet seems to be the only alternative left to people trying to keep more of the money they earn. I voted with my feet 2 years ago and moved from Maryland to Florida. I save $18,000 a year in state income tax alone and I have 20 years until I retire. You can legitimately argue how much Florida will gain from my move but there is no doubt Maryland lost $18,000 a year. For me, those savings could turn into $900,000 if my investments see the average returns on the stock market before I retire. I definitely prefer that my money be used to support me, rather than the parasites the State of Maryland believed deserved my money more than I did. I moved for ‘me’ but Florida will see at least some money from my residency; Maryland loses 100%.
I am not wealthy, but I have money in the bank and I live within my means. My house and car are paid for and outside my normal monthly bills, I don’t owe anyone anything. I take issue with any government entity telling me that they know what is best for my financial future when that same government entity has been broke for my entire life and borrows or prints 33 cents of every dollar it spends. That isn’t even remotely logical, but I am the one being labeled as insane. I want my government to eliminate wasteful spending before they talk about increasing taxes. I will agree I must be insane if I expect that to happen.
D_Virginia – if nothing else, although the green states on Hoop’s map may not be flush with cash, they aren’t in dire financial straits like many of those red states are. If nothing else, the additional taxpayers may be the only thing keeping them afloat right now.
One more ‘metric’ to throw into this discussion; the number of Americans renouncing their US Citizenship has increased almost 8 fold since 2008. Although it is illegal for someone to renounce citizenship to avoid paying US taxes, I think everyone is well aware of the reason these people are doing so. Government is repelling wealth rather than attracting it. The real trap is that higher taxes don’t always translate into more revenue.
http://onforb.es/I6pRPX
Now the why is anybodies guess but for sure lower taxes, lower cost of living, weather, job opportunities etc I would consider are the main drivers for migration. This map al;ong with the others will help provide a clearer picture of why the migrations
Care to elaborate on this?
I would say that the biggest problems have occurred where the opposite has been the case: too much deregulation has led to uncontrolled price increases via lack of competition, wage decreases for all but the top tier, and general market instability. For example, compare the relatively unregulated financial industry with the relatively regulated power utility industry.
Certainly, government should not regulate everything to N-th degree (no straw man for you!), but some reasonable bounds need to be established and enforced. Not that govt currently does a good job of either, but it probably 'should'. :-)
> to give them what a free market never could - a cartel.
I would say a completely free market ALWAYS results in a cartel, unless there are guaranteed low barriers to entry (we see this in some tech startups, for example, where a smart idea doesn't necessarily take a fortune to build a business from).
See, in competition, eventually someone wins. :-) Sure, that someone might be unseated at some point, but it will take a long time, and it will simply be unseated by a different cartel.
> standard of living will be the highest via the lack of the ability
> for businesses to cartelize the system
Again, I challenge this assumption, and I claim to have history on my side, including the monopolies of the late 1800s and early 1900s.
I agree with the lament that government is often used as tool by business to create cartels, but blindly removing government from the equation isn't going to magically fix that. Absent some reasonable regulation, business would simply use its own tools, as it has in the past, and the people would have less recourse to fall back on.
Interesting side note: how does one define standard of living? It's tricky to simply use cost of living or income without a ratio of the two, and other factors as well. Here's an interesting take on it, if a bit fuzzy, that does not highly rank many of the states highly ranked on your (very insightful) maps:
http://bit.ly/UXTERo
> more consumption means a higher standard of living
1/3 of the world's population is showing this is true.........China and India.
We have people and industries that cannot compete. That is not even in question any longer.
very well said......
Its a myth that businesses want free markets. Only consumers want free markets. That means lots of supply and lower prices. Businesses hate free markets. They want cartels, so they can restrict supply and raise prices
Deregulation of the airline and telco industries drove down prices so there are 2 major example that counter your thesis as stated below. Furthermore banks have heavy regulation on them rather than your characterization of them being deregulated. It would be interesting to take away the power grid from utility companies and let people buy power from any source through the grid. Prices would drop as competition is introduced. A lot of utility companies would go out of business.
"I would say that the biggest problems have occurred where the opposite has been the case: too much deregulation has led to uncontrolled price increases via lack of competition, wage decreases for all but the top tier, and general market instability. For example, compare the relatively unregulated financial industry with the relatively regulated power utility industry"
Any action by gov other than establishing property rights and protecting property rights is price fixing. There are two approaches to this. Gov can mandate that produce with 1, 2, & 3 features will cost X, or the gov can mandate that a product that currently costs Y must contain features 1, 2, & 3 which raises the price to X. Either route results in a restriction in supply and an increase in price.
"For example, compare the relatively unregulated financial industry with the relatively regulated power utility industry."
Unregulated? That's a laugh. From top to bottom, from stem to stern, the bank regulators run the banks in the US. They set rules for everything. Also, look at those utilities. Price is constantly being raised, and people are constantly told to reduce their lifestyle by conserving.
"and I claim to have history on my side, including the monopolies of the late 1800s and early 1900s."
History is not on your side. The point of a monopoly is to decrease supply and raise prices. Rockefeller constantly was lowering prices and increasing supply. This is what won him market share. This is why he finally turned to gov to have the system cartilized for him. Whenever he would get to 95% market share, he would attempt to raise prices and restrict supply. As soon as he did new market participants would enter, and drive the price back down.
"but blindly removing government from the equation isn't going to magically fix that. "
I'm not arguing that. I'm arguing to use logic and reason to determine how we use gov to regulate and what it actually can regulate. What you are attempting to do is to use specious reasoning that says, "Gov has a role, therefore we should let it do whatever it wants as long as the people with that power claim to have good intentions". That's a receipe for disaster.
Well, we're talking apples and oranges now, with regard to the type of "regulation". Sorry, my mistake for not being clearer.
More specifically, JH was arguing against "regulation of prices" via notions such as taxes, welfare, labor rules, and presumably other restriction on certain industries.
Your airline industry example is a perfect instance of over-regulation of a different sort, where the government basically tried to manage the whole industry. I fully agree this is undesirable. Kumbaya. :-)
However your telco example is a very bad one: how did that work out? From Ma Bell to the the collusive mini-monopolies of today, this is an example where a little more regulation might have gone a long way for John Q. Consumer:
http://bit.ly/VIkfB3
But back to JH's version, wherein he believes consumer welfare will flourish if companies pay little taxes and have little oversight with regard to labor, I claim this is false.
History tells us this. Remember monopolies? Sweatshops? Company towns? Fulltime child labor? These are the kinds of things that companies thought was "good business" a century ago, and would still use today if they could. And you can bet this is quite the norm in your beloved China and India.
Again, in competition, someone always eventually wins. And once they do, it's very hard to unseat them as they create their own barriers to entry in their industry, thoroughly harming the public consumer.
Also noteworthy: in a race to the bottom, do you really want to be the winner? :-)
This is completely wrong. There is no evidence to support any of these claims.
First the only monopoly that can exist are those that are granted by gov. The reason is that a monopoly ultimately needs force to keep it going. This is why govs granted monopolies, because competition always destroyed them.
Secondly, the conditions we live under today will seem primitive to conditions 100 yrs from now. All economies evolve as their technology evolves. So our working conditions today will seem like sweat shops 100 years from now. People will always demand better compensation (including work environments), and as technology allows it, the compensation will improve. Gov price fixing in this area will retard grow because it will set arbitrary fix costs that will result in less productivity and thus lower wages.
All you need gov to do is to make stealing expensive, and the human instinct to improve the standard of living will do the rest.
"Again, in competition, someone always eventually wins. And once they do, it's very hard to unseat them as they create their own barriers to entry in their industry, thoroughly harming the public consumer."
And this is way wrong too. History is littered with the carcasses of businesses that were once on top and are no more. Price sensitive private market regulation is far tougher than the politically driven regulations. Private market regulations quickly get rid of poor performers, whereas gov bails them out and guarantees they will be around a lot longer than price sensitive markets would allow.
Again, the role of gov is simple. Make stealing expensive and then people can only interact on a voluntary basis. That's when they are the most price sensitive, and that's when they are the most productive, and that's when their standard of living will go up. If gov could mandate an improved standard of living, why no just have it mandate no one has to work for unlimited consumption. What your are arguing is just not logical.
we need to tax consumption and don't tax savings and investment income to get this country moving again to create jobs
I was considering the deregulation of the 1980's with AT&T being broken up and long distance rates fell dramatically. There are more shoes to drop in this industry as consumers have more choices and will gravitate towards mobile devices and voice over IP. At some point we can get rid of some of the wires in the ground and on telephone poles.
That is a good story.
http://bit.ly/T1X40W
It takes time. Debt compounds faster than GDP until lenders recognize that it can't work any more. Hemingway said it best when asked how bankruptcy happens:
"Slowly...then all at once."
Yes the economy is growing for the bankers because they got their bailout money and the CEOs got the performance bonus for their superb work; are we getting our bonus?
Move along now.
what problems?? we can print our way out of any problem
"History suggests that once you are spending as much as a fifth of your revenues on debt service, you have a problem. It’s all too easy to find yourself in a vicious circle of diminishing credibility. The investors don’t believe you can afford your debts, so they charge higher interest, which makes your position even worse."
Anybody know the debt service to revenue number??
But while we're at it....
Interest in 2012 was ~$360B: http://1.usa.gov/qvYMRZ
And this 2011 article estimates debt service to GDP ratio at less than 2%: http://ti.me/131nDvm
Note, of course, that these figures do not account for any attempt to actually begin to *reduce* the debt, which is at least slightly problematic in the long- long- long-term.
1. Set interest rate to zero or
2. Print enough money to pay off all previous debts.
Either one of those would result in interest cost of zero. You can't have it both ways. Greece was fine too at the beginning of 2010 but in 2 weeks it's over.
To me it's a no win situation. Feds need to keep interest rates low to help jump start the economy. If the economy did happen to take off, interest rates would likely have to rise in order to keep inflation down.
Eventually we will hit critical mass, this 20% number. Who knows when that will be.
Feds need to keep interests low to help jump start the economy.
You still believe that line because green shoots went out of style; the economy to take off? they have been saying this since 08-09; the Fed needs to keep the interest rates low because if rates go high all the mortgages bonds, T bonds, and derivatives will go down in smoke and everything has to be marked to market; imagine the $ trillions of losses? the Fed keeps interest rates low by using interest rates swaps
I don't understand your logic; we are in trouble due to low interest rates, real rates below inflation, so that the consumer can spend freely and you say that if rates go to 5% we'll be in trouble; don't you agree we are in trouble with low rates? higher rates are the solution and a step in the right direction... we got bite the bullet and move in the right direction or follow Japan in their third decade
I'm betting that it won't, anytime soon enough to worry, and willing to accept the risk that I'm wrong. I could perhaps try and explain why if anyone is really interested, but for the record I've heard the tired old contrary-majority argument and I'm just not convinced by the evidence. But I'm still listening, because when the majority comes around to my way of thinking, that's a sign the game may have changed and the party might be coming to an end in the foreseeable future. So far, I'm still just not worried. I'm gonna party like its 1919.Or 1991.
In the last budget, the 400 billion in interest was about 12% of government revenue...
The debt interest payment of GNP is not germane...
Is that in one year, or 100? Because one is relevant to me and the other isn't.
Please do. I'm here to learn!
It's every man for himself now.
D.C. on the other hand, has printing presses.....
> themselves just fine.
This is a hilariously false statement. You clearly don't know anything about the state of personal or state finances in the U.S. :-)
So you believe the gov't official numbers of $1T annual deficits; then no surprise we are in this shape; if you include the interest payment on debt which is off the books, the cost of the wars again off the books, the use of cash from Social Security and other government retirement funds, I have seen numbers for the deficit jumping to $2T-$3T; we the people have had a deficit attention to the government numbers for the past 40 years and look where we are; we the people should start questioning those numbers now; I am sorry but we got start looking at real numbers and my problem is I got some training in auditing from engineering or finance
Consequently, it is irresponsible to 'tout' debt service of only 10.5% of GDP while the magnitude of the debt to be financed continues to spiral. Even a school child knows that a slight increase in interest rates - say from 2% to 3% - will have a devastating impact on our economic ability to service this debt.
A cut in government accounting is based on future projected budget...so it is not a real cut from today's budget; we the people have been reelecting those slime ball politicians giving us goodies
Let's get real; they will never admit to anything and they protect themselves;if you want go a step further, I suggest we take their PhD and MBA away for fraud and shut down by decertify the business schools for teaching fraud
But the military turns a blind eye; the military turns a blind eye.
If it were indeed "$500B" I would push my chips to the velvet table center, All In!
TK making funny noise now, elated, exhilarating, joyously dancing, cheering...
@anonymous#12 - I cannot agree with you more. 100% concurrence. Total agreement.
Go for it now, professor BB! Go BB Go!!!
The U.S. has a significant amount of unfunded liabilities, although many don't realize that 'entitlements' are not a "right." Paying into the system does not guarantee one future benefits, even though there are those currently drawing more benefits than they paid in. Ponzi schemes and bubble finance.
Interest rate:~1.5%
Debt service: ~250 Billion.
So, when interest rates move up to just 3%, debt service goes to ~500 Billion/year.
And we're all up and twisted over 50 Billion in sequester? Yeesh.
Pity math is a second language in the USA.
So we go from 250 Billion @ 2.3% to 500 Billion with a move to 4.6%, which is under the "norm." The ratio/concept still stands.
The question now is: "knowing these facts now, where do we place our material treasure to preserve/grow its value?"
Buehler?
Buehler?
If you are in your twenty's and have no heart you are not a liberal: If you are in your forty's and are not a Conservative, you have no brains...
The Dow was $700 in real US Treasury silver coins in 1964. In 2013 the Dow is $700 in the same exact silver coins or $14,000 in US debt notes. Our money IS debt. Gold and silver are a claim on the past. Debt notes are a claim on the future. The future is being over loaded with too many promises. Too many "over promised" pensions out there. Default is the way to clear the deck and reset.
The default will occur. Will it be inflation, hyper inflation, default and foreclosure, or what? I fear the Fed will expand it's balance sheet to ten or twenty trillion counterfeit dollars, purchase unlimited government bonds and debt for nothing, and foreclose on the United States, taking all the Federal Land after getting a rigged ruling from a loaded Supreme Court.
History is quite clear about currency debasement. It has never worked in any case and always ends in tears. Protect yourself.
Every suggestion has nasty consequences and we all better understand that..