Britain's tough love austerity measures vs USA's pandering

[Dari]

The percentage of tax revenue used to pay interest on debt is the main metric that is the problem. Japan is at 50% of tax revenue used to pay the interest on debt. If the interest rate were to double, Japan would utterly collapse. 100% of tax revenue going towards debt interest payments is game over for a country.

I think it is around 10% in the US. Not that bad.

Anyway, the catch-22 is if they use austerity to cut the debt, the tax revenues fall and the percent of tax revenue used to service debt increases anyway.

If they try to spend their way out, they increase debt and the percent of tax revenue used to service debt increases.

In reality there is something structurally wrong with the economy and a business cycle crash will clear out the inefficient businesses so new ones can take their place. Which is a painful process no one apparently has the balls to go through anymore.

Where are you getting your 50% from? Also, the difference between Japan and the US is that over 90% of Japanese debt is owed to Japanese citizens. So that money is recycled into their economy. In America, I think it is 67%.

 

[OverVolt]

Where are you getting your 50% from? Also, the difference between Japan and the US is that over 90% of Japanese debt is owed to Japanese citizens. So that money is recycled into their economy. In America, I think it is 67%.

Ah I'm 100% positive I heard it in a Niall Ferguson speech. I looked it up here:http://data.worldbank.org/indicator/GC.XPN.INTP.RV.ZS

They are saying 15.3% as of 2010 in Japan which is alot lower than I thought but 12.2% in USA, which is higher than I thought as of 2011.
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http://data.worldbank.org/indicator/GC.XPN.INTP.RV.ZS/countries/1W-JP-US-GB-ES-GR?display=graph

I just picked some countries of interest. The UK can do all the austerity it wants. It is going underwater in debt.

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I'm not sure if there is a different way of calculating tax revenue % toward debt servicing that gives 50% for Japan. I took it out of the first post because in searching it came up in my post on google as the first result, which creeped me out.

Going by this: http://www.stat.go.jp/english/data/handbook/c04cont.htm figure 4.1

National debt service is at 24.3% of expenditures.

I guess since 42.4% of their revenue is "special deficit financing bonds" and 46.9% is collected taxes you could say their debt servicing payments now equal half their taxes collected. What a convoluted way of balancing a budget though.

 

[OverVolt]

http://static.seekingalpha.com/uploads/2012/2/1/1108761-13281558723573992-Asa-Harrington_origin.jpg

As you can see from this graph, 42.5 % of all of Japan's tax revenue would have to be spent paying its debt service (bond coupon payments). If the slightest thing goes wrong for Japan, the scale of the crisis that ensues will be almost unmanageable. As you can also see from this graph, total debt service payments are steadily growing (blue line) and government revenues are steadily decreasing (red line), for two decades

http://seekingalpha.com/article/335741-checkmate-for-japanese-sovereign-debt

So not interest payments as % of revenue, but bond coupon redemptions.

I quit finance now

Niall Ferguson was saying if it hits 100% it is game over. Which makes sense. Because Japan wouldn't have enough tax revenue to pay bond coupon payments, AKA default. And if they default, I'm not sure who is going loan them the money to cover that there 50% revenue hole.

 

[klinc]

Where do a little piss Island get all its wealth from? From taxes? From a couple of pig farmers? No stolen stolen stolen stolen. They shall not leave the Commonwealth and if you do they shall be punished with a uprising

 

[Dr. Zaus]

And when that doesn't happen they'll just have to stick with the austerity just a little bit longer to get there won't they? Austerity is plain bad fiscal policy during a recession. Did you miss where the head of the IMF said this was one giant fuck up?
http://www.washingtonpost.com/blogs...s-much-worse-for-the-economy-than-we-thought/
Apparently the British government did too.
http://www.guardian.co.uk/business/2013/jan/24/osborne-dismisses-imf-caution-fiscal
But keep your eyes closed and your fists clinched and believe hard enough and one day those faith-based economics are bound to work.

Yep.

 

[Dari]

http://static.seekingalpha.com/uploads/2012/2/1/1108761-13281558723573992-Asa-Harrington_origin.jpg



http://seekingalpha.com/article/335741-checkmate-for-japanese-sovereign-debt

So not interest payments as % of revenue, but bond coupon redemptions.

I quit finance now

Niall Ferguson was saying if it hits 100% it is game over. Which makes sense. Because Japan wouldn't have enough tax revenue to pay bond coupon payments, AKA default. And if they default, I'm not sure who is going loan them the money to cover that there 50% revenue hole.

TBH, Japan is very lucky to be in the position it's in right now. For a while there people were paying them to buy their debt...

 

[zephyrprime]

I've wondered about that as well. I suppose I'm simple minded in that I've always thought that when you make less you spend less.
I get spending to keep the economy moving, but how far does it go? How much of our tax base has to go to debt service before we should stop? I'd like to see a real number attached to that. I also wonder about the reality of government spending to prop up our economy. If we have too spend a trillion dollars a year to keep it afloat, hasn't it already failed?

I don't much about economics, but if the answer to every single problem is to borrow more money, that leads me to believe most other people don't know much about it either.

The reason spending is the solution is only because of the peculiarities of our debt based monetary system. Since currency units (money) is only created by taking on more debt but nobody wants to take on more debt because of interest payments, there is always a chronic shortage of money and hence a chronic need for more spending with our debt based monetary system.

The solution is to print money without debt and to just give it out for free to the general populace. The powers that be will never allow that.

 

[zephyrprime]

There is a danger that not using austerity measures just increases the length and the pain of the Depression we are in. It did not do much for Japan.

There is no way in hell we can afford O'Bammacare. A one size fits all medical plan will not work and is inefficient. If the Government cant manage Medicar and SSN in an economical fashion, then how will it manage an entire's nation healthcare? Just take a look at how it manages the healthcare of veterans. That is what you are asking for.

Pretty soon a loaf of bread will be $50.00

Yeah but other countries that have a one-size-fits all medical insurance system have much lower spending than we do on health care.

 

[Engineer]

That surplus was a raid against social security during an extremely strong economic boom. We seized money from it, placed it into the general fund, called it revenue (a surplus) and returned home as happy drunks.

People still sing of it today, so maybe we should do it again.

We do it today. We take every time that comes into SS and loan it to the general revenue, just as we did then. Actually, we currently spend more on SS than what SS brings in but you get the point. We have used the entire amount of SS since the "trust fund" was created and simply loaned the excess to ourselves.