Debt will rise to 90% of GDP by 2020

[Atreus21]

http://www.washingtontimes.com/news/2010/mar/26/cbos-2020-vision-debt-will-rise-to-90-of-gdp/

CBO report: Debt will rise to 90% of GDP

By David M. Dickson

President Obama's fiscal 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next 10 years, $1.2 trillion more than the administration projected, and raise the federal debt to 90 percent of the nation's economic output by 2020, the Congressional Budget Office reported Thursday.

In its 2011 budget, which the White House Office of Management and Budget (OMB) released Feb. 1, the administration projected a 10-year deficit total of $8.53 trillion. After looking it over, CBO said in its final analysis, released Thursday, that the president's budget would generate a combined $9.75 trillion in deficits over the next decade.

"An additional $1.2 trillion in debt dumped on [GDP] to our children makes a huge difference," said Brian Riedl, a budget analyst at the conservative Heritage Foundation. "That represents an additional debt of $10,000 per household above and beyond the federal debt they are already carrying."

The federal public debt, which was $6.3 trillion ($56,000 per household) when Mr. Obama entered office amid an economic crisis, totals $8.2 trillion ($72,000 per household) today, and it's headed toward $20.3 trillion (more than $170,000 per household) in 2020, according to CBO's deficit estimates.

That figure would equal 90 percent of the estimated gross domestic product in 2020, up from 40 percent at the end of fiscal 2008. By comparison, America's debt-to-GDP ratio peaked at 109 percent at the end of World War II, while the ratio for economically troubled Greece hit 115 percent last year.

"That level of debt is extremely problematic, particularly given the upward debt path beyond the 10-year budget window," said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget.

For countries with debt-to-GDP ratios "above 90 percent, median growth rates fall by 1 percent, and average growth falls considerably more," according to a recent research paper by economists Kenneth S. Rogoff of Harvard and Carmen M. Reinhart of the University of Maryland.

CBO projected the 2011 deficit will be $1.34 trillion, not much different from the administration's estimate of $1.27 trillion. However, CBO's estimate of the 2020 deficit at $1.25 trillion significantly exceeds the administration's $1 trillion estimate.

"The biggest part of the deficit difference is lower tax revenue due to the different economic assumptions," said James R. Horney, a federal-budget analyst at the liberal Center on Budget and Policy Priorities. "The administration assumes GDP and incomes will be higher, and that translates into higher revenues than CBO expects. Relatively small differences in economic assumptions can add up to big differences over 10 years."

While Ms. MacGuineas agreed that "economic forecasts have a large impact on budgetary projections," she cautioned that such differing assumptions, often called the "rosy scenario," could account for just $350 billion of the 10-year, $1.2 trillion difference between the White House and CBO.

I have only a rudimentary understanding of economics. But at what point does debt percentage of GDP translate into a change in the lifestyle of individual Americans?

Seriously, why do presidents even make budgets anymore? Isn't the whole idea of a budget to track spending for the purpose of trying to stay within a certain amount? Are they even trying?

 

[nonlnear]

http://www.washingtontimes.com/news/2010/mar/26/cbos-2020-vision-debt-will-rise-to-90-of-gdp/

I have only a rudimentary understanding of economics. But at what point does debt percentage of GDP translate into a change in the lifestyle of individual Americans?

It's really not that simple; there is no magic number. What really matters is how credible American debt is compared to the debt of the rest of the world.

As much as I wish this were not the case, the solution that will be followed (and will end up being fairly effective) is simply making sure that many other countries follow a similar trajectory. This is why heads of state over the last year have been talking about how important it is that everybody "stimulates" their economy at coordinated levels. The line sold to the public was that countries who decided not to were "cheating" by hitching a free ride at the expense of countries who chose to remortgage their children. The real truth is that if all the large economies did not act in concert then the credibility of international debt would have to fall under real scrutiny because there would actually be significant variation in the quality of nations' debts. As long as everybody is in the same boat, the boat probably won't fall apart. Probably...

Now if any large economy decided to actually start reducing their debt, you would see a radical re-balancing of global politics. Fortunately(!) this debt reduction thing is virtually impossible for anyone to do.

 

[Hacp]

http://www.washingtontimes.com/news/2010/mar/26/cbos-2020-vision-debt-will-rise-to-90-of-gdp/



I have only a rudimentary understanding of economics. But at what point does debt percentage of GDP translate into a change in the lifestyle of individual Americans?

Seriously, why do presidents even make budgets anymore? Isn't the whole idea of a budget to track spending for the purpose of trying to stay within a certain amount? Are they even trying?

Very little if we stop having annual deficits. You have a certain debt, it'll slowly decrease as a % of GDP if you keep growing. However, if you're growing but you're in the red every year, you'll go broke, kinda like how California is :awe:.

 

[rudder]

My children's taxes will be go more towards debt service than for national security.

 

[nick1985]

Sickening

 

[EagleKeeper]

Most economists will accept deficit spending during a recession to jump start the economy. To plan to have deficit spending that far outward indicates that such is built into the overall plan and there is no desire to stop.

 

[nonlnear]

Most economists will accept deficit spending during a recession to jump start the economy. To plan to have deficit spending that far outward indicates that such is built into the overall plan and there is no desire to stop.

A good proportion of those economists also hold the fallacious belief that they practice a science and not a humanity. All opinions from such crackpots (those who misunderstand the nature of their field) must be treated as worth less than the paper they are printed on.

 

[dullard]

I have only a rudimentary understanding of economics. But at what point does debt percentage of GDP translate into a change in the lifestyle of individual Americans?

Much of Europe is in the 50%-80% range. Italy and some smaller countries are in the 100% range. Japan has been approaching the 200% range. So far, none have defaulted recently. Although Greece with 113% debt to GDP is approaching a financial crisis.

Our debt/GDP ratio peaked at ~120% in the 1950s and we were just fine. Under Reagan / Bush Sr. our debt/GDP ratio went from ~35% to ~70%. Big swings in this number are certainly common.

Of course, the move to 90% is a move in the wrong direction and something to be concerned with. When will it translate into a lifestyle change? The day politicians have the guts to fix the problem. Taxes must go up slightly. Spending must go down slightly. And most importantly, SS needs to be fixed. Do those things, and this isn't a problem. Ignore those things, and we'll be in a lot of hurt in the 2030s.

I say slightly in the numbers above, because to return to a surplus, we don't need to change taxes or spending that much. For example, if taxes raise by 2.5% of GDP and governmental spending drops by 3% of GDP, we'll be break even over the next 10 years.

 

[Moonbeam]

Whatever plan we have to fix this the Republicans will just say no.

 

[MotF Bane]

Whatever plan we have to fix this the Republicans will just say no.

Anyone with an ounce of honesty will acknowledge that both parties spend drunkenly, as long as their magic credit card doesn't get denied, and have no plans to change. Politicians have no plan to fix this.

 

[jstern01]

anyone with an ounce of honesty will acknowledge that both parties spend drunkenly, as long as their magic credit card doesn't get denied, and have no plans to change. Politicians have no plan to fix this.

^^^^^

qft

 

[alchemize]

This is unpossible. I've seen graphs that prove deficits only go down under Dem leadership. Rove must have tampered with the spreadsheet.

 

[zephyrprime]

http://www.washingtontimes.com/news/2010/mar/26/cbos-2020-vision-debt-will-rise-to-90-of-gdp/
I have only a rudimentary understanding of economics. But at what point does debt percentage of GDP translate into a change in the lifestyle of individual Americans?

Seriously, why do presidents even make budgets anymore? Isn't the whole idea of a budget to track spending for the purpose of trying to stay within a certain amount? Are they even trying?

The point at which it happens is now.

http://static.seekingalpha.com/uploads/2010/3/23/saupload_diminishing_productivity_of_debt__2_.jpg

Let me tell you what this chart means. Keynes was right that deficit spending has a stimulator effect on the economy. However, this tactic cannot be used ad infinitum. Like all things, stimulus is subject to diminishing returns. The problem is, all prior stimuluses leave behind a legacy of debt. Eventually, that legacy outweighs the benefit of stimulus. Deficit spending is inflationary but debt service is deflationary. Also, as debt to gdp rises, we get closer and closer to the maximum money multiplier limit of 9x built into our banking system with a fractional reserve ratio of 10.0. As you get closer to the limit, new debt has less and less of a knock on effect on the rest of the economy.

As you can see from the chart, we are currently at the limit. Other developed countries around the world are at the limit also. Japan is already past the limit and that's why they've been stuck in a depression for the last 18 years. (however, China is not at this limit because it is at an earlier stage of it's development. Their stimulus will work and create inflation).

Current stimulus efforts will not work. They will produce a first order stimulus effect but that stimulus will not propagate through the economy because we have reached debt saturation. After the Government finishes spending money this year on stimulus, the economy will fall back into recession again next year. Unless a crisis explodes before then, of course.

 

[ShawnD1]

These projections are always stupid. How many times have we seen people estimate things like "at the current growth rate, the earth will be covered in a 3 inch layer of mosquitos!" by completely ignoring anything that might change the trend.

If you tried making a trend line of spending in maybe 1944, you'd say "by 1965 America will be 87 quadrillion dollars of debt!!"

 

[sandorski]

The last sane proposed Fiscal Policy was centered on the word, "Lockbox". What did the opponent of that Candidate do?

 

[nonlnear]

The last sane proposed Fiscal Policy was centered on the word, "Lockbox". What did the opponent of that Candidate do?

That is only sane to the naive. A truly functional lockbox requires that the legal framework be enforceable. The government is incapable of imposing contractual obligations on itself because it can always rewrite the rules. Ergo the government can never create a lockbox that it is incapable of raiding.

 

[sandorski]

That is only sane to the naive. A truly functional lockbox requires that the legal framework be enforceable. The government is incapable of imposing contractual obligations on itself because it can always rewrite the rules. Ergo the government can never create a lockbox that it is incapable of raiding.

That's all fine and dandy, yet it was sane for the simple reason that the choice not to Raid was being put forth.

 

[heyheybooboo]

The federal public debt, which was $6.3 trillion ($56,000 per household) when Mr. Obama entered office amid an economic crisis, totals $8.2 trillion ($72,000 per household) today, and it's headed toward $20.3 trillion (more than $170,000 per household) in 2020, according to CBO's deficit estimates.

This is why you lying peckerheads and your bullshit yellow journalism can never be trusted.

Can anyone else (with elementary knowledge of the Federal Debt) see what they did?

They start with 'Net Federal Public Debt' and end with Federal Debt that includes intergovernmental debt and projected Federal 'financial assets'.

The Net Federal Public Debt in 2020 should be between $14 --->$15 trillion, or around 65% of a projected GDP of $22.6 trillion.


Anything to score cheap-ass political points for the Washington Times, huh ?

That is only sane to the naive. A truly functional lockbox requires that the legal framework be enforceable. The government is incapable of imposing contractual obligations on itself because it can always rewrite the rules. Ergo the government can never create a lockbox that it is incapable of raiding.

I disagree.

Surplus funds (probably around $1.8 trillion over the next 10 years) may be loaned to state and local gov'ts for infrastructure improvements; thereby guaranteeing the future repayment of principle (with interest).

Which also provides positive cash flow in future years ass the loans are repaid.

I believe most Americans would dare Congress to repeal such a system.




--

 

[nonlnear]

That's all fine and dandy, yet it was sane for the simple reason that the choice not to Raid was being put forth.

I'm with you on that: acting like it was a lockbox would have been wonderful - and sane. However believing that it truly is a lockbox is delusional!

 

[ElFenix]

A good proportion of those economists also hold the fallacious belief that they practice a science and not a humanity. All opinions from such crackpots (those who misunderstand the nature of their field) must be treated as worth less than the paper they are printed on.

if you ran break even during expansions you would need to run deficits during recessions in order to maintain the same level of government services with the reduced tax level. and usually the need for government services goes up during recessions because more people tend to qualify for welfare programs. that's just a simple mathematical identity.

 

[nonlnear]

if you ran break even during expansions you would need to run deficits during recessions in order to maintain the same level of government services with the reduced tax level. and usually the need for government services goes up during recessions because more people tend to qualify for welfare programs. that's just a simple mathematical identity.

That's not a mathematical identity. And yes, I have a Ph.D. in mathematics.

 

[woolfe9999]

These projections are always stupid. How many times have we seen people estimate things like "at the current growth rate, the earth will be covered in a 3 inch layer of mosquitos!" by completely ignoring anything that might change the trend.

If you tried making a trend line of spending in maybe 1944, you'd say "by 1965 America will be 87 quadrillion dollars of debt!!"

You're generally right. At the end of GHWB's term, alarmists were projecting that the nation would go bankrupt by 1995. They assumed nothing would be done to alter the trajectory.

However, there is cause for greater concern this time around, not because the problem can't be fixed - it certainly can - but because it is much worse in dollar terms this time, and because anything in particular that must be done to fix it is politically unpopular in the extreme, and politicians rarely have the balls to risk not being re-elected for something that is in the long term best interests of the country.

- wolf

 

[ElFenix]

That's not a mathematical identity. And yes, I have a Ph.D. in mathematics.

:awe:

 

[nick1985]

That's not a mathematical identity. And yes, I have a Ph.D. in mathematics.

haha

 

[Pulsar]

This is why you lying peckerheads and your bullshit yellow journalism can never be trusted.

Can anyone else (with elementary knowledge of the Federal Debt) see what they did?

They start with 'Net Federal Public Debt' and end with Federal Debt that includes intergovernmental debt and projected Federal 'financial assets'.

The Net Federal Public Debt in 2020 should be between $14 --->$15 trillion, or around 65% of a projected GDP of $22.6 trillion.


Anything to score cheap-ass political points for the Washington Times, huh ?




I disagree.

Surplus funds (probably around $1.8 trillion over the next 10 years) may be loaned to state and local gov'ts for infrastructure improvements; thereby guaranteeing the future repayment of principle (with interest).

Which also provides positive cash flow in future years ass the loans are repaid.

I believe most Americans would dare Congress to repeal such a system.
--

I'm sorry, but do any of your insults or words really matter? The summary is, our country is going bankrupt. Our politicians are doing nothing. And most of YOU peckerheads are sitting around arguing percentages and babbling about growth.

Our country is OUT OF MONEY. The politicians DO NOT CARE. And the population seems to be too stupid to realize it.