Deficits Explained: Costs and Benefits of Red Ink

Stunt

Diamond Member
Jul 17, 2002
9,717
2
0
So I am shamelessly promoting my blog, I'm not going to comment on my own opinion; so have at it guys!

Source: The Pragmatic Reformist

As you are well aware, our governments are capable of running deficits, surpluses and debt. Many believe it is the government?s job to strive for surpluses and to minimize our debt, such that our children are not paying for our spending habits. With this piece I want to explain the positives and negatives of both deficits and surpluses; how they have an effect on our lives and what we should do about them.

The first thing I want to address is the effects money has on our way of life. When government gives money to departments, to administer social programs, funds are given to people, education, and infrastructure in the forms of schooling, hospitals, roads, and defense. When government gives money back to its citizens through tax cuts; funds again are used for goods, services all requiring people, education, and infrastructure.

Our economy as a whole is highly dependent on growth, investment and maintenance of those important factors; people, education, and infrastructure. Trying to reduce funding of these essential areas will have a significant impact on people?s lives. This is the main reason I condemn policies used to stop deficit spending (see Clinton, Harris), as it will have no effect other than creating sub-par education, medical care, over taxation, and other infrastructure in times of recession. Much like bull economies are cyclical, people?s livelihoods will become cyclical as well. Over time, as long as our country?s wealth, productivity, and quality of life increase; and our debt to gdp ratio goes down, there should be no reason to worry about temporal effects of deficits and surpluses.

Now lets fast forward to today. Canada currently has record surpluses, just had its 8th consecutive year in the black and is touted as a shining light of fiscal balance in the first world. The US on the other hand is in the red with record deficits and is seen by people around the world as being in serious fiscal trouble. Just the sound of these two assessments alone it seems Canada is ahead of the game.

Looking closer, Canada as a whole has a debt to gdp ratio of 67%, compared to the US?s 65%, EU?s 76%, and Japan?s 164%. This means that the US is generating wealth at a far greater rate than its debt accumulation; interestingly, with all the deficits the US has posted over the years, the debt to gdp ratio has been declining as the nation invests more money in people, education, and infrastructure. Another aspect one must consider is the US?s phenomenal GDP growth; over the last 5 years, the economy has been growing at a pace of 2 to 5%. The Canadian economy on the other hand has been largely stagnant besides the increase in Oil prices from $20 to $60 in the same time period. This shift in economic focus is easily seen in the recent elimination of the Albertan debt, and the large fiscal deficits in Canada?s manufacturing regions.

It?s easy to compare the US to Canada; but in the end, Canada is the most overtaxed nation in the first world, our surpluses are creating a stagnant economy due to our lack of investment and our surpluses are will make it more difficult to generate wealth and raise our standard of living over the long term. Don?t get me wrong, large deficits can really hurt an economy, but the long term benefits can significantly outweigh the satisfaction of having money in the bank for a rainy day. Our government is really putting a stranglehold on our struggling manufacturing sector and denying hardworking people the ability to be productive individuals.

For those obsessed by the US deficit, and want to know how much too much is, there really is no answer to that. What I can do is show different country?s deficits (-) and surplus (+) relative to their productivity; Canada +0.7%, US -2.7%, UK -3.5%, France -4.3%, Germany -4.2%, Italy -3.1%, Japan -9.3%. As you can see, even though the US has a ?massive? deficit, it is in no more fiscal trouble than many other first world countries.
 

dmcowen674

No Lifer
Oct 13, 1999
54,889
47
91
www.alienbabeltech.com
Originally posted by: Stunt
So I am shamelessly promoting my blog, I'm not going to comment on my own opinion; so have at it guys!
[/quote]

Why was the last thread locked???

Anyway, hopefully there is enough of the Red from the U.S. that has spilled over north of the border to take down Canada along with the U.S.

Misery loves company.
 

Pabster

Lifer
Apr 15, 2001
16,986
1
0
Originally posted by: dmcowen674
Anyway, hopefully there is enough of the Red from the U.S. that has spilled over north of the border to take down Canada along with the U.S. Misery loves company.

What is your beef with Canada now?

Too many Republicans? :p

 

Strk

Lifer
Nov 23, 2003
10,197
4
76
Originally posted by: Pabster
Originally posted by: dmcowen674
Anyway, hopefully there is enough of the Red from the U.S. that has spilled over north of the border to take down Canada along with the U.S. Misery loves company.

What is your beef with Canada now?

Too many Republicans? :p

Maybe the excessive use of "eh" gets to him? ;)
 

BaliBabyDoc

Lifer
Jan 20, 2001
10,737
0
0
One-third of the US budget is consumed by two items:

1) $521B in defense spending . . . more than the total defense spending of every other country in the world . . . COMBINED.

2) $321B in interest payments on the national debt.

Imagine the benefits of directing a fraction of that money towards sustainable infrastructure . . . or even tax cuts . . . for you supply-siders. Prudent deficit spending clearly can be beneficial but only fools would argue current US spending is prudent.
 

alent1234

Diamond Member
Dec 15, 2002
3,915
0
0
the reason defense spending is so high is that our GDP allows us to spend that much. Our defense spending as a percentage of GDP is less than that of most countries.

The deficit serves one function. It supplies the world with dollars. If we get our deficit to 0, then the value of the dollar will skyrocket, our exports will plunge and a recession will follow. As it is now, our deficit is close to 3% of GDP which is less than most countries and is a nice number for growth. The federal debt is also useful for organizations that need a safe investment vehicle for their money. And the $800 billion you posted is not a real number since close to 20% of it goes back into the treasury in the form of tax revenue.
 

Tab

Lifer
Sep 15, 2002
12,145
0
76
So, even if we completely remove the national debt that wouldn't be a good thing either?

Why is Japan's debt so high?
 

BaliBabyDoc

Lifer
Jan 20, 2001
10,737
0
0
Originally posted by: alent1234
the reason defense spending is so high is that our GDP allows us to spend that much. Our defense spending as a percentage of GDP is less than that of most countries.

The deficit serves one function. It supplies the world with dollars. If we get our deficit to 0, then the value of the dollar will skyrocket, our exports will plunge and a recession will follow. As it is now, our deficit is close to 3% of GDP which is less than most countries and is a nice number for growth. The federal debt is also useful for organizations that need a safe investment vehicle for their money. And the $800 billion you posted is not a real number since close to 20% of it goes back into the treasury in the form of tax revenue.

Dude, you realize most of that is poo? A variety of factors affect the value of the dollar, but even in a rising tide if America produces products that the world wants . . . they will pay a premium to buy it. If you don't believe it, think about how much you paid to put gas in your car during September and October.

Our deficit is NOT 3% of GDP, it was 5% in 2002 and 2003. Unless of course you believe we are not planning to make good on our SS committment; ie FICA is a grant program from US taxpayers to the federal government.

Last I checked, prudent organizations did a fine job in finding safe investment vehicles for their money. Despite the end (now resurrected by Bush deficits) of the 30yr bond, everybody did just fine.

Considering the portion of total tax receipts paid by US corporations has been on the decline for decades and many US corporations report minimal or zero profits . . . only children and the mentally retarded expect a 20% yield on DOD spending.

Much of our debt is foreign-held which means there's no tax on those dividends.

The reason DOD spending is high is retarded policies . . . just like Medicare, Medicaid, DOT, DOE, etc. GDP is up . . . let's subsidize Viagra for sex offenders . . . we can afford it!
 

desy

Diamond Member
Jan 13, 2000
5,442
212
106
OK lots wrong there
Canada is not the highest taxed country on earth
12th actually As a % of GDP
Even though I used GDP in the above its a p1ss poor way to monitor an economy , gunshot wounds in hospitals count as GDP and on and on
So from these numbers there is a 6% difference in the way we are taxed which means we are taxed at about 94% the same hardly something to cry about

Problem isn't with the debt the US has, its the deficit and no plan to get it back under control, huge tax cuts and foriegn wars its what is driving down the US dollar and why every currency in the world is rising against it. Why? cause the people who know about money aren't buying.

Also what is missing is what happens to the debt when interest rates rise and less and less tax goes actually doing something other than service debt? Now that the rates are low is an excellent time to hammer down the principle.

The argument for deficit spending is the 'parodox of thrift' where every yr in the 30's Canada had a balanced budget and human misery was at its highest.
Spending at the right time for the right reasons is OK trouble is figuring out when that is.
 

BaliBabyDoc

Lifer
Jan 20, 2001
10,737
0
0
Originally posted by: charrison
Originally posted by: BaliBabyDoc
Originally posted by: alent1234

Much of our debt is foreign-held which means there's no tax on those dividends.

If by much you mean less than 25% your statement is accurate.

government debt report
How about a lot owed to foreign interests? Is nearly $2 Trillion a lot?

Of the $7.6 Trillion in total Federal government debt outstanding at the end of 2004, approximately $4.4 Trillion was owed to the public (foreign and domestic) in the form of tresury bonds and T-bills. Of that $4.4 trillion, nearly half, $1.94 Trillion, was owed to non-Americans.

The left chart shows foreign parties control 44% ($1.9 trillion) of $4.4 trillion in outstanding in Treasury bonds and t-bills dominated debt - at the end 2004.

This means each man, woman and child owes $6,434 in federal debt to foreign interests.

A family of 4 owes $25,736 in this regard - - 38% of the total is owed to Japanese.

Note the rapidly rising trend since 1992, as the share of foreign holdings more than doubled.

Who was the idiot that said about debt, "We owe it to ourselves, so its no big deal if debt goes up." This chart proves Americans owe a huge amount to foreign interests - - and that's a very serious 'deal."
Last I checked, we were still borrowing liking drunken monkeys from China, Japan, and Korea.
 

Stunt

Diamond Member
Jul 17, 2002
9,717
2
0
BBD, you are seem obsessed with the foreign ownership of US assets...what you fail to understand is this has nothing to do with Bush, Clinton over his term (your article even says "Note the rapidly rising trend since 1992") experienced a similar trend. Not trying to politicize the issue, it's just that this has little to do with the federal government and more to do with the global economy.

I think if you went to find information on US ownership of foreign assests, you will see an even more drastic trend. Also, before you criticize the US for borrowing like drunken monkeys from Japan, do a little google search on Japanese debt.

I think you may get a small taste of reality.
 

ElFenix

Elite Member
Super Moderator
Mar 20, 2000
102,374
8,499
126
Originally posted by: BaliBabyDoc
One-third of the US budget is consumed by two items:

1) $521B in defense spending . . . more than the total defense spending of every other country in the world . . . COMBINED.

2) $321B in interest payments on the national debt.

Imagine the benefits of directing a fraction of that money towards sustainable infrastructure . . . or even tax cuts . . . for you supply-siders. Prudent deficit spending clearly can be beneficial but only fools would argue current US spending is prudent.

the defense department is one of the few pieces of government that invests money on basic scientific research. the benefits of that are never certain, are far off into the future, but there are benefits. people always want to cut the dod's budget but it is probably one of the wiser investments we can make, due to the investment it creates not only in technology but people.

and as anyone with a basic background in finance could tell you, if you can get a better return by doing something with the money than the interest rate on the debt that you retire early you should do something with the money (i.e. if your credit card is charging you 2% and you have a savings account at 4% then you should stick the money in the savings account and just pay minimums on the credit card each month). just about everything is a better rate of return than a US treasury bond, so the government should not move to retire debt early. (and in fact this is borne out seeing as how every time they've tried to retire debt early the economy has tanked)

far better to cut would be imprudent infrastructure like the bridge to nowhere.
 

ElFenix

Elite Member
Super Moderator
Mar 20, 2000
102,374
8,499
126
Originally posted by: BaliBabyDoc
Our deficit is NOT 3% of GDP, it was 5% in 2002 and 2003. Unless of course you believe we are not planning to make good on our SS committment; ie FICA is a grant program from US taxpayers to the federal government.
the democrats sure as hell don't want to make good on the SS committment
Considering the portion of total tax receipts paid by US corporations has been on the decline for decades and many US corporations report minimal or zero profits . . . only children and the mentally retarded expect a 20% yield on DOD spending.
maybe not 20%, but there are plenty of people employed and they all pay income taxes, property taxes, and sales taxes.

 

BaliBabyDoc

Lifer
Jan 20, 2001
10,737
0
0
Bad investments are always bad. Bad investments with borrow money is terrible.

An economy that's fundamentally dependent on borrowing to pay for current expenditures and has developed structural deficits that will likely expand is a trainwreck in the making.

DOD investment in basic science has far less consequence than comparable sums invested at DOE or NIH. During the most recent funding cycle, grant approvals in certain sections at NIH approached single digits. In essence, quality research and quality training programs for future scientists are being CUT . . . yet DOD has billions to "misplace" in Iraq.

Imagine the economic impact of having most of the Iraq spending going towards infrastructure projects in the US. It would mean jobs, people paying taxes, property taxes, and sales taxes.

Now think about the thousands of US soldiers returning to America that have permanent physical and mental disabilities. What a great investment!
 

Hacp

Lifer
Jun 8, 2005
13,923
2
81
THe fact that we have to pay 300billion in INTREST payments for our debt is staggering. I mean, in 2000, we were talking about finally trying to pay off some of the national debt and now we are looking at increased debt. Thanks to what? Bush tax cuts.
 

charrison

Lifer
Oct 13, 1999
17,033
1
81
Originally posted by: BaliBabyDoc
Originally posted by: charrison
Originally posted by: BaliBabyDoc
Originally posted by: alent1234

Much of our debt is foreign-held which means there's no tax on those dividends.

If by much you mean less than 25% your statement is accurate.

government debt report
How about a lot owed to foreign interests? Is nearly $2 Trillion a lot?

Of the $7.6 Trillion in total Federal government debt outstanding at the end of 2004, approximately $4.4 Trillion was owed to the public (foreign and domestic) in the form of tresury bonds and T-bills. Of that $4.4 trillion, nearly half, $1.94 Trillion, was owed to non-Americans.

The left chart shows foreign parties control 44% ($1.9 trillion) of $4.4 trillion in outstanding in Treasury bonds and t-bills dominated debt - at the end 2004.

This means each man, woman and child owes $6,434 in federal debt to foreign interests.

A family of 4 owes $25,736 in this regard - - 38% of the total is owed to Japanese.

Note the rapidly rising trend since 1992, as the share of foreign holdings more than doubled.

Who was the idiot that said about debt, "We owe it to ourselves, so its no big deal if debt goes up." This chart proves Americans owe a huge amount to foreign interests - - and that's a very serious 'deal."
Last I checked, we were still borrowing liking drunken monkeys from China, Japan, and Korea.

linkage

The facts dont back up your claim. It appears the UK is the big buyer, if you are looking for the big buyer..