How much national debt should the U.S. have?

[Dr. Zaus]

Originally posted by: SP33Demon

Originally posted by: Evan

Originally posted by: smashp
Total Obligations By the FED is 50 trillion if you include all the liabilities such as SS and medicare.

And the government will have taken in more tax revenue than that by the time they actually have to pay SS and medicare. It's not hard to pay for either one even if you don't raise taxes, since moderate spending reductions and increases in population more than pay for those entitlements (though I do hate that they were put in place).

Also, ideally, we'd be consistently in debt as long as it was manageable. A debt of zero makes no sense if you understand TVM and debt financing. Would be sanely stupid in the extreme to bring the debt down to zero.

So what is your tipping point until hyperinflation hits? 100 Trillion? And tell us why the Fed shouldn't give each of us $20,000 apiece (a 7Trill surplus to help our hard economic times)? Of course debt is good, but what is your number. And tell give us YOUR estimate of the inflation rate once SS and medicare are fully realized from baby boomers in 20 years (2028).

Any solid number would be impossible. You have to take into account the level of inflation that you feel is acceptable, the speed at which money is changing hands, the open-market operations of the fed the increase on both the supply and demand sides of the economy and overall joblessness vs total entrepreneurial spirit/ability.

If you change any one variable you can change the number that best supports economic growth while still controlling for inflation and even then it's a qualitative judgment.
... another way to put it is:

how much debt we should have is inversely related to how low interest rates should be.

 

[rchiu]

Any one here studied corporate finance? One of the most important topic in corporate finance is how much leverage, or debt should a company have. The answer to that really depend on the return on your investments. That is if you can keep on borrow and effectively invest those money in projects that give better return then the cost of borrowing, after considering all risks, you should keep borrow to achieve the best return until the return diminishes and the cost of borrowing = return on the investment.

Government debt is the same, first you have to ask is if the money is being invested in things that give you good return on those debt. And you have to ask can your government take on those debt consider possible risk like this economic down turn.

Zero debt is a dumb answer, that's like saying don't get a student loan and miss out going to college because of it. If you know the return is better then taking on a debt, you should always go for it.

 

[bamacre]

Originally posted by: halik
Well yes, if you think that government is inherently a waste of money, then you wouldn't be paying any taxes.

Uhh, no. Just because I disagree with some of the ways the federal government spends money doesn't mean I can just not pay taxes. Not without the IRS coming to get me.

But everything else held constant, with debt the government can provide you more for each $1 of your taxes paid (the tradeoff being some marginal increase of default risk)

That is ignoring the ways government spends money. For example, foreign aid doesn't benefit the vast majority of taxpayers.

If you are anything resembling happy with our current debt, and on what that money was spent, then there is something wrong with you.

 

[bamacre]

Originally posted by: Evan

Originally posted by: smashp
Total Obligations By the FED is 50 trillion if you include all the liabilities such as SS and medicare.

And the government will have taken in more tax revenue than that by the time they actually have to pay SS and medicare. It's not hard to pay for either one even if you don't raise taxes, since moderate spending reductions and increases in population more than pay for those entitlements (though I do hate that they were put in place).

Also, ideally, we'd be consistently in debt as long as it was manageable. A debt of zero makes no sense if you understand TVM and debt financing. Would be sanely stupid in the extreme to bring the debt down to zero.

The GAO disagrees with your assessment.
http://www.gao.gov/new.items/d08783r.pdf

 

[Dr. Zaus]

If you know the return is better then taking on a debt, you should always go for it.

This principle is sound, the only trouble is that you are offering a false dichotomy.

A government is not the only means by which 'returns' can be realized, the private sector to can realize returns, so you have to take into account the opportunity cost involved in higher interest/inflation vs the public sector benefit you will see from debt-financed spending.

The place of the government is to step in when the market is failing at doing something essential to the public welfare (such as fema or the epa) or to improve employment in the short-term while the private sector rebounds (such as the TVA).

But just because the government might make a return on something it has no business doing, such as drilling for oil, is not a good reason to have the government take over oil-drilling operations. (taxing wind-fall profits on the other hand is something that is reasonably debatable)

 

[sandorski]

Originally posted by: rchiu
Any one here studied corporate finance? One of the most important topic in corporate finance is how much leverage, or debt should a company have. The answer to that really depend on the return on your investments. That is if you can keep on borrow and effectively invest those money in projects that give better return then the cost of borrowing, after considering all risks, you should keep borrow to achieve the best return until the return diminishes and the cost of borrowing = return on the investment.

Government debt is the same, first you have to ask is if the money is being invested in things that give you good return on those debt. And you have to ask can your government take on those debt consider possible risk like this economic down turn.

Zero debt is a dumb answer, that's like saying don't get a student loan and miss out going to college because of it. If you know the return is better then taking on a debt, you should always go for it.

This makes sense, if there is some kind of Investment opportunity or Stimulus for a Downturn. The problem, as I see it, is that all too often Government just Spends because it can and not because it Needs to. If there were some new Technology that requires Infrastucture and provides some kind of Benefit, then sure, borrow to finance it, but for Day-to-Day operations Tax Revenues should be covering the Cost. This is where Bush really failed, he tried to Finance a significant portion of Day-to-Day operations.

During Good Times, Government should be Paying off Debts or, if need be, Investing in Infrastructure.

 

[PrinceofWands]

Should? 0. But that's not always possible, for a person or a nation. I guess the best answer is, the absolute least possible, for the shortest period of time. I could forgive having some debt if there were at least no deficit. That would be an indicator of bad times past, but fiscal responsibility in charge. Debt is an emergency measure only.

 

[rchiu]

Originally posted by: DixyCrat

If you know the return is better then taking on a debt, you should always go for it.

This principle is sound, the only trouble is that you are offering a false dichotomy.

A government is not the only means by which 'returns' can be realized, the private sector to can realize returns, so you have to take into account the opportunity cost involved in higher interest/inflation vs the public sector benefit you will see from debt-financed spending.

The place of the government is to step in when the market is failing at doing something essential to the public welfare (such as fema or the epa) or to improve employment in the short-term while the private sector rebounds (such as the TVA).

But just because the government might make a return on something it has no business doing, such as drilling for oil, is not a good reason to have the government take over oil-drilling operations. (taxing wind-fall profits on the other hand is something that is reasonably debatable)

Well again, it's like going to school, sometimes the benefit is hard to measure in money. However, it doesn't mean government should just throw money at welfare programs without asking if the money is being used wisely with good return. there has to be a scale to measure the return or the contribution from the programs and see what the returns are for all the debts we are borrowing. If you cannot justify spending on government program, and if the government is borrowing money to support that program, I don't see why we the tax payer have to support such program.

And there are thing government do that have clear cost/benefit figures, things like infrastructure that this country really need. In the end, what we need is a clear accountability for all our government spending, we have to get results from what we spend, given we spend with borrowed money, and there has to be clear benefit that out weight the cost. The answer is not don't borrow, the answer is to look into what we spend the money on.

 

[babylon5]

I am now sold on the idea US should have more debt, because our government run things so efficiently and invest so wisely, and we should have even more debts.

Party on people!

 

[Nemesis 1]

If our money was backed by Gold I would say 0 . But as long as its not backed by anything other than the fed. Who really cares . its just paper. Whats someone going to do beat us up if we don't pay. LOL.

Something still stands today as much as it did 100 years ago . WE the people of the united states can have a productive prosperiuos life without the rest of the world . Trueth is we don't need the Britts. russians China Nobody needs the Gauls . We just don't need them . We proved it befor and can prove it again. But they need us. The real problem is someone wants to play alexander the great . and rule the world as one government . This is the plan and its happening right in front of us. With only a few seeing the Mac truck coming . Actually its hard not to see something that big. unless ya keep your mind and eyes shut.

 

[OCGuy]

Originally posted by: Nemesis 1
If our money was backed by Gold I would say 0 . But as long as its not backed by anything other than the fed. Who really cares . its just paper. Whats someone going to do beat us up if we don't pay. LOL.

Something still stands today as much as it did 100 years ago . WE the people of the united states can have a productive prosperiuos life without the rest of the world . Trueth is we don't need the Britts. russians China Nobody needs the Gauls . We just don't need them . We proved it befor and can prove it again. But they need us. The real problem is someone wants to play alexander the great . and rule the world as one government . This is the plan and its happening right in front of us. With only a few seeing the Mac truck coming . Actually its hard not to see something that big. unless ya keep your mind and eyes shut.

I wouldnt even know where to start responding to that.

 

[Vic]

As little as possible except to act as a fiscal line of credit (i.e. like a personal credit card that gets paid off each month) or when absolutely necessary (like times of economic crisis or war).

Why? A number of reasons.
One, because deficit spending is a way of increasing the size of govt without voter/taxpayer permission.
Two, because the debt will have to paid off and the interest on it increases taxes.
Three, because much of our debt is foreign-owned and holding this debt gives these foreign countries/entities a dangerous amount of influence in both our govt and our economy.
And finally, because govt debt competes with other forms of debt on the credit markets. An excess of federal debt can have the effect of making other forms of borrowing more expensive.

 

[IronWing]

Originally posted by: Vic
As little as possible except to act as a fiscal line of credit (i.e. like a personal credit card that gets paid off each month) or when absolutely necessary (like times of economic crisis or war).

Why? A number of reasons.
One, because deficit spending is a way of increasing the size of govt without voter/taxpayer permission.
Two, because the debt will have to paid off and the interest on it increases taxes.
Three, because much of our debt is foreign-owned and holding this debt gives these foreign countries/entities a dangerous amount of influence in both our govt and our economy.
And finally, because govt debt competes with other forms of debt on the credit markets. An excess of federal debt can have the effect of making other forms of borrowing more expensive.

Deficit spending is voter approved as much as any other action of government is voter approved. Foreign debt holders only have clout if we want to borrow even more from them. What we currently owe them is clout on our part. I agree with your other points.

 

[ElFenix]

Originally posted by: rchiu
Government debt is the same, first you have to ask is if the money is being invested in things that give you good return on those debt.

problem, of course, is that the government has very few signals as to whether money is invested in things with good return on the debt

Originally posted by: Vic
Three, because much of our debt is foreign-owned and holding this debt gives these foreign countries/entities a dangerous amount of influence in both our govt and our economy.

are you going to prohibit them from buying dollars as well?

 

[First]

Originally posted by: SP33Demon

So what is your tipping point until hyperinflation hits? 100 Trillion?

Why would hyperinflation hit because of a mismanaged budget deficit? We are far and away the most trusted seller of promissory notes in existence, and 8 years of irresponsible spending by Bush and Republicans isn't going to doom us long-term. Bush's idiocy just made it harder to get out of the hole, nowhere near impossible.

And tell us why the Fed shouldn't give each of us $20,000 apiece (a 7Trill surplus to help our hard economic times)? Of course debt is good, but what is your number. And tell us YOUR estimate of the inflation rate once SS and medicare are fully realized from baby boomers in 20 years (2028).

You first have to tell me why on earth giving $20,000 per person is feasible or sensible since I never argued we should do something that irresponsible.

My ideal number for debt is simple; accumulate as much debt as the U.S. can afford, so long as 1) public funding exists for it in the short-term (i.e. taxes) and 2) all current long-term obligations that are locked in (e.g. Medicare extension written into law from a few years back) can be paid for according to the BLS' future estimates of population growth (more people, more tax revenue, more domestic and foreign investment). Continue to have the Fed guarantee dollars so our T-bills are still far and away the most credible in the world, and repeat ad infinitum to the end of time.

Also, who the heck can predict inflation 20 years from now? Please tell me your methodology because I'd certainly love to make millions off of it. Btw, what are your ideal debt numbers?

 

[First]

Originally posted by: bamacre

Originally posted by: Evan

Originally posted by: smashp
Total Obligations By the FED is 50 trillion if you include all the liabilities such as SS and medicare.

And the government will have taken in more tax revenue than that by the time they actually have to pay SS and medicare. It's not hard to pay for either one even if you don't raise taxes, since moderate spending reductions and increases in population more than pay for those entitlements (though I do hate that they were put in place).

Also, ideally, we'd be consistently in debt as long as it was manageable. A debt of zero makes no sense if you understand TVM and debt financing. Would be sanely stupid in the extreme to bring the debt down to zero.

The GAO disagrees with your assessment.
http://www.gao.gov/new.items/d08783r.pdf

No they don't, and you couldn't point out otherwise if your life depended on it.

 

[bamacre]

Originally posted by: Evan

Originally posted by: bamacre

Originally posted by: Evan

Originally posted by: smashp
Total Obligations By the FED is 50 trillion if you include all the liabilities such as SS and medicare.

And the government will have taken in more tax revenue than that by the time they actually have to pay SS and medicare. It's not hard to pay for either one even if you don't raise taxes, since moderate spending reductions and increases in population more than pay for those entitlements (though I do hate that they were put in place).

Also, ideally, we'd be consistently in debt as long as it was manageable. A debt of zero makes no sense if you understand TVM and debt financing. Would be sanely stupid in the extreme to bring the debt down to zero.

The GAO disagrees with your assessment.
http://www.gao.gov/new.items/d08783r.pdf

No they don't, and you couldn't point out otherwise if your life depended on it.

:roll:

Chart (that's the good "if" chart btw)

I will assume you can read the chart.

Now, mind you, this was done in April 2008, and our debt has risen a wee bit since then, but for all intents and purposes, let's ignore that.

Taking a look at the year 2040 projections, if the white area, aka "all other spending" were just pork spending, useless stuff we could cut, or as you put it, "moderate spending reductions," then you would be correct. Unfortunately for you, and all of us, "other spending" accounts for many many other things. Things like, you know, national defense.

In comparison, let's look at 2008. The white area, which we know by now, is not filled solely by pork spending, consumes half of the entire budget. And yet in 2040, it is projected to be only about a third of the budget.

Now, for 2008, look at the small area between the top of the budget and revenue. Pretty small, maybe 2% difference. Quite a different story in 2030, and much worse in 2040.

We'll just hope this one isn't closer to the truth.

It is odd though, that you don't think this is a problem. Yet, former head of the GAO, thinks the problem is so drastic, that he quit his job to tour the country, and appear on TV, warning people of the coming problem.

 

[Budarow]

As much as possible (but only AFTER I load up on GLD with all my savings)

 

[soccerballtux]

I prefer 0 debt on the macro scale. In the short run, expansionary fiscal policy can be used in times of recession to soften the blow. Nobody has the self control to stop the spending though.

 

[venkman]

If taking on debt allows you to generate a greater % increase in return than you are paying interest on debt, then go for as much as you want.

 

[soccerballtux]

Originally posted by: venkman
If taking on debt allows you to generate a greater % increase in return than you are paying interest on debt, then go for as much as you want.

counting chickens/hatch. Nobody knows the future. This is why I say...moderation.

 

[RocksteadyDotNet]

Originally posted by: TheSlamma
Only THE GREATEST COUNTRY ON EARTH would have ZERO...

Australia has zero so i'm gonna agree with you.

 

[RocksteadyDotNet]

Originally posted by: Nemesis 1
If our money was backed by Gold I would say 0 . But as long as its not backed by anything other than the fed. Who really cares . its just paper. Whats someone going to do beat us up if we don't pay. LOL.

Something still stands today as much as it did 100 years ago . WE the people of the united states can have a productive prosperiuos life without the rest of the world . Trueth is we don't need the Britts. russians China Nobody needs the Gauls . We just don't need them . We proved it befor and can prove it again. But they need us. The real problem is someone wants to play alexander the great . and rule the world as one government . This is the plan and its happening right in front of us. With only a few seeing the Mac truck coming . Actually its hard not to see something that big. unless ya keep your mind and eyes shut.

Oh the ironing.

 

[First]

Originally posted by: bamacre

Originally posted by: Evan

Originally posted by: bamacre

Originally posted by: Evan

Originally posted by: smashp
Total Obligations By the FED is 50 trillion if you include all the liabilities such as SS and medicare.

And the government will have taken in more tax revenue than that by the time they actually have to pay SS and medicare. It's not hard to pay for either one even if you don't raise taxes, since moderate spending reductions and increases in population more than pay for those entitlements (though I do hate that they were put in place).

Also, ideally, we'd be consistently in debt as long as it was manageable. A debt of zero makes no sense if you understand TVM and debt financing. Would be sanely stupid in the extreme to bring the debt down to zero.

The GAO disagrees with your assessment.
http://www.gao.gov/new.items/d08783r.pdf

No they don't, and you couldn't point out otherwise if your life depended on it.

:roll:

Chart (that's the good "if" chart btw)

I will assume you can read the chart.

Now, mind you, this was done in April 2008, and our debt has risen a wee bit since then, but for all intents and purposes, let's ignore that.

Taking a look at the year 2040 projections, if the white area, aka "all other spending" were just pork spending, useless stuff we could cut, or as you put it, "moderate spending reductions," then you would be correct. Unfortunately for you, and all of us, "other spending" accounts for many many other things. Things like, you know, national defense.

In comparison, let's look at 2008. The white area, which we know by now, is not filled solely by pork spending, consumes half of the entire budget. And yet in 2040, it is projected to be only about a third of the budget.

Now, for 2008, look at the small area between the top of the budget and revenue. Pretty small, maybe 2% difference. Quite a different story in 2030, and much worse in 2040.

We'll just hope this one isn't closer to the truth.

Read the report carefully. The GAO outlines several assumptions, including but not limited to:

1) Rising immigration, which they admit had to be positively adjusted upward to reflect more legal residents paying taxes. There is no reason to believe this cannot be adjusted upwards in the future, especially since the BLS predicts a larger share of Hispanics than Whites by 2050.

2) Medicare and Medicaid spending; GAO projects modest cost reductions only because they cannot know for certain what new healthcare system we will have in place years from now. Americans and politicians know the current health system is broke and it's one of the biggest reasons libs have gained ground in recent years. For example, many projections see a universal healthcare plan reducing total healthcare spending per person by 25%. This is a massive game changer that alters face of the GAO's projections. Another game changer is my 3rd point...

3) The GAO specifically states that they assume revenue (i.e. public funding) as a percent of GDP remains at 20.3% after 2018, because the CBO projects that percentage for the 2008-2018 timeframe. This is grand assumption, as most people know by now that some form of tax increases will be instituted by the next few presidents, particularly on the rich and especially if a Dem is POTUS. In fact, the GAO says they assume Bush's tax cuts expire but say nothing about the fact that tax loopholes drastically lowers the effective tax rates the rich pay, meaning richer people have far more options available to them to get out of taxes than middle class, to the point where guys like Warren Buffet had an effective tax rate lower than his secretary being paid $60K a year. That's billions in lost revenue from one person.

Also, this is to say nothing of the fact that our current economic growth rates will almost assuredly improve, helping to fill government coffers higher than the projected pattern. Additionally, no mention is made of reductions in war spending, such as Iraq, which will cost over $1T by itself, minimum. War spending (and Iraq specifically) aren't even mentioned in the GAO report, and while that?s a big omission it is one that has some precedent given our history with wars. That's the sole reason the GAO uses these spending projections without mentioning that the country may sour on future foreign incursions.

The combinations of all these factors, even if you ignore absolute (but not effective) tax increases certainly means this problem can be tackled. And nowhere does the GAO say it can not be tackled, only that patterns have to change, particularly recent (Bush admin) patters. That isn?t a news flash to anyone, as both Democrats and Republicans have shown disgust for recent spending patterns.

It is odd though, that you don't think this is a problem. Yet, former head of the GAO, thinks the problem is so drastic, that he quit his job to tour the country, and appear on TV, warning people of the coming problem.

Nowhere do I state this isn't a problem. Of course, at the same time, nowhere does Walker state this problem is insurmountable. He also uses a little bit of hyperbole (which he admits) to get his point across, but no one is under the impression this will be a walk in the part. But the solutions are there, they're obvious, and they can be quite easily implemented if the right people are in office. If we have another Bush presidency, things could get ugly though. And certainly, Paulbots get nowhere by exaggerating the reality, words, and opinions of those even tangentially aligned with their belief system, and is precisely why they're still well less than 5% of the population.

 

[bamacre]

Originally posted by: Evan
...if the right people are in office.

And there's your unsolvable problem.