http://www.economist.com/node/18928600America's debt
Shame on them
The Republicans are playing a cynical political game with hugely high economic stakes
IN THREE weeks, if there is no political deal, the American government will go into default. Not, one must pray, on its sovereign debt. But the country will have to stop paying someone: perhaps pensioners, or government suppliers, or soldiers. That would be damaging enough at a time of economic fragility. And the longer such a default went on, the greater the risk of provoking a genuine bond crisis would become.
There is no good economic reason why this should be happening. America’s net indebtedness is a perfectly affordable 65% of GDP, and throughout the past three years of recession and tepid recovery investors have been more than happy to go on lending to the federal government. The current problems, rather, are political. Under America’s elaborate separation of powers, Congress must authorise any extension of the debt ceiling, which now stands at $14.3 trillion. Back in May the government bumped up against that limit, but various accounting dodges have been used to keep funds flowing. It is now reckoned that these wheezes will be exhausted by August 2nd.
The House of Representatives, under Republican control as a result of last November’s mid-term elections, has balked at passing the necessary bill. That is perfectly reasonable: until recently the Republicans had been exercising their clear electoral mandate to hold the government of Barack Obama to account, insisting that they will not permit a higher debt ceiling until agreement is reached on wrenching cuts to public spending. Until they started to play hardball in this way, Mr Obama had been deplorably insouciant about the medium-term picture, repeatedly failing in his budgets and his state-of-the-union speeches to offer any path to a sustainable deficit. Under heavy Republican pressure, he has been forced to rethink.
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Now, however, the Republicans are pushing things too far. Talks with the administration ground to a halt last month, despite an offer from the Democrats to cut at least $2 trillion and possibly much more out of the budget over the next ten years. Assuming that the recovery continues, that would be enough to get the deficit back to a prudent level. As The Economist went to press, Mr Obama seemed set to restart the talks.
The sticking-point is not on the spending side. It is because the vast majority of Republicans, driven on by the wilder-eyed members of their party and the cacophony of conservative media, are clinging to the position that not a single cent of deficit reduction must come from a higher tax take. This is economically illiterate and disgracefully cynical.
A gamble where you bet your country’s good name
This newspaper has a strong dislike of big government; we have long argued that the main way to right America’s finances is through spending cuts. But you cannot get there without any tax rises. In Britain, for instance, the coalition government aims to tame its deficit with a 3:1 ratio of cuts to hikes. America’s tax take is at its lowest level for decades: even Ronald Reagan raised taxes when he needed to do so.
And the closer you look, the more unprincipled the Republicans look. Earlier this year House Republicans produced a report noting that an 85%-15% split between spending cuts and tax rises was the average for successful fiscal consolidations, according to historical evidence. The White House is offering an 83%-17% split (hardly a huge distance) and a promise that none of the revenue increase will come from higher marginal rates, only from eliminating loopholes. If the Republicans were real tax reformers, they would seize this offer.
Both parties have in recent months been guilty of fiscal recklessness. Right now, though, the blame falls clearly on the Republicans. Independent voters should take note.
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I'm inclined to agree. If a deal doesn't get done because the republicans refuse to budge from their "100% cuts" position, it is on them. The question though is whether republicans have been touting that position because that's really all they'll agree to? Or are they thinking that they can get something better than 83%-17% by getting Obama to blink?
One important point is wrong. At the end of FY 2010, the debt was 93.2% of GDP. It is expected to be 102.6% when FY 2011 of tabulated.
I say just print the money to cover the expenditures. Devalue the dollar against all foreign currencies. This will make imports more expensive and become part of the equation to bring manufacturing here again.
Based on their tone today, it sounds like the Republicans are finally moving on closing tax loopholes. We'll see, but I'm feel pretty confident a deal will be made after what I heard today.
Sorry man, you're going to have to provide a link. I just really haven't seen any good information out of you. Note the article referenced net debt.
All along I've been expecting a bunch of pandering with a deal "miraculously" getting reached at the last minute. Looks like that's what we're going to get.
Can't do that without going through some hyperinflation and basically destroying the current standard of living.
You know it. With a couple of bravado-laden political speak interspersed here and there...
You're right but that only means it's not counting the debt owed to government retirement plans, Social Security, and the likes. The gross debt is what's important. Using the smaller number to make it seem unimportant may as well be a lie.
link:
Whitehouse/OMB: Table 7.1—Federal Debt at the End of Year: 1940–2016
Who to believe? hmmm Economist blogger, or you... hmmmmm
Link?
The article may be close in pointing out 65% net of GDP. The OMB numbers for the public debt are 62.2% for 2010 and estimate 72% for 2011. 65% is between these numbers, however, with the lower unemployment than expected, I'll predict about 70% now and about 75% and the end of the fiscal years.
Sure like to know why they are so generous for 2013+. The last few years trend is >10% increase average. 40.3% for 2008, 53.5% for 2009. The average increase for the last three tabulated years is 10.95%. May as well call it 11 and predict 73% for 2011, 84% for 2012, 95% for 2013, etc.
So you pulled the number out of thin air?
So... the debt that the government owes itself is equally important as debt owed to en ies outside the government?
Could the government, if it decided to, more easily negotiate the terms of the debt it owes itself than the terms of debt it owes to someone else?
Yes, this debt is equally or more important. Most of it is pension funds and Social security excesses. An investor assumes even a slight risk buying bonds and notes. There should be even less risk in SS and pensions. We are now at a point that the SS is paying out more than it's taking in because of this stupid reduction to 4.2%.
So you think economic performance of the period 2007-2009 will be the same as the period 2011-2014?
Given that we will be fully divested of Iraq, drawing down Afghanistan, and no rampant fiscal/economic crisis seems in the offing in the US, that seems to be something of a leap.
Given how much you like to criticize straight-line projections when climate scientists do it, I would think you would be a bit more hesitant to do so yourself.
LOL...So you think economic performance of the period 2007-2009 will be the same as the period 2011-2014?
Given that we will be fully divested of Iraq, drawing down Afghanistan, and no rampant fiscal/economic crisis seems in the offing in the US, that seems to be something of a leap.
Given how much you like to criticize straight-line projections when climate scientists do it, I would think you would be a bit more hesitant to do so yourself.
I have heard various revised numbers of Obamacare costs. I may easily be low balling the numbers.
"Obamacare costs."
Ryancare will increase the deficit and "death panel" 10s of 1000s to poverty, disease, and death.
Obama folds faster than patio furniture. It looks like a good bet to me.
A solid prediction.So you think economic performance of the period 2007-2009 will be the same as the period 2011-2014?
What will your excuse be if it doesn't pan out?
You might want to invest in some tap shoes now, 'cause there is a good chance you are going to need them in 2015.
Indeed, with congressional Republicans that appears to be his negotiating style.Obama folds faster than patio furniture.
Believe as you wish. At least it is a "grandfathered" plan. the democrats want to strip things right away.
Time will, tell, and yes... I could be wrong. However, with the track record of CBO projections, I think I'm on pretty solid ground.
Seriously? These mother ers aren't going to negotiate at all?
http://www.cnn.com/2011/POLITICS/07/...html?hpt=hp_t1
From what I read, the WH offered $4 trillion over the next decade in spending cuts + some tax increases, but Boehner rather take a $2 trillion (over a decade) spending cut deal with no tax increases that was offered by Biden a while back.
Which to me signals that the GOP is more concerned about the popular perception of the measures than actually finding a solution to balancing the budget, a necessary step before you can move on to an actual surplus to pay off debt. Not unexpected, tbh, with an electoral season looming.
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