Free Markets, Free People


Quote Of The Day – Debt Edition

Has anyone ever considered the fact that so much debt and borrowing is a national security problem?

“From 1789 through 2008, the U.S. government borrowed a total of $5.8 trillion. In 2009, the federal budget deficit exceeded $1.4 trillion. The administration now expects the 2010 deficit to break that record, topping $1.6 trillion. And in 2011, it would only fall to about $1.3 trillion. Thus, in just three years, the debt will have jumped an astonishing $4.2 trillion.” – James Capretta, a Fellow at the Ethics and Public Policy Center

Those to whom we own money – especially as much as we do – hold some pretty powerful leverage. The Chinese military has been stomping around all week urging their government to use it. They want China to sell some US bonds to deliver a little “economic punch” to get our attention, apparently.

“Bush made me do it” won’t work when piling up this much debt.  The GOP’s ready-made economic and national security issue is found within the quote.  That assumes they don’t just placidly go along with the mammoth increase in the debt.  And that’s never a safe assumption.

~McQ

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37 Responses to Quote Of The Day – Debt Edition

  • It’s really not in China’s interest to sell a bunch of bonds.  They’ll lose money.  It’s the same problem as Buffett would have if he tried to dump all his stock.

    • They won’t sell a bunch of bonds, just enough to show them who’s in charge.  They’ll sell just enough to scare the bejesus out of us.  Sure, it’ll cost them some money to do it but somewhere there is a point where the cost is offset by the gain in power and influence.  Besides, once they buy those bonds back or purchase more, any money thy lost will be recouped.

      • who will they sell them to?  To be a seller you have to have a buyer. They might not buy any new debt, but they are pretty much stuck with what they have, especially if they try to tank our economy even further.

        • They offer them for little enough, and there will be buyers.  The buyers are betting they are worth more than the offered price, and the Chinese bet the lost prestige and humiliation–and economic damage as the new price point gets filtered into the world markets–is worth what they lose in dollars.

    • I wouldn’t take much comfort in the idea that the Chinese government isn’t willing to lose money if it means lowering our ability to confront them.  The Germans didn’t pay us for the bombs we dropped on them, it was a cost we undertook to accomplish a goal and we ‘lost money’.

      There’s no reason to think the Chinese may not look at the money they ‘lose’ as something similar.  We need to make sure we’re not just thinking in terms of ‘decreased property value = foolish = therefore something they won’t do’ when we think about the idea that the Chinese government isn’t willing to ‘lose money’ to damage us.
      I don’t have a crystal ball to say they are, but I don’t think the comparison to Warren Buffett holds up under that paradigm.

      • I see your point Looker and Tom.  And I’m certainly not in favor of being in the position of having hostile foreign state’s own so much of our debt.  We could retaliate by inflating our currency a few thousand percent too.

  • “From 1789 through 2008, the U.S. government borrowed a total of $5.8 trillion”
    This is a potentially misleading stat.  Does it account for inflation?  I’d like to see the distribution in 2009 dollars.
    I wish everyone would stop using selective statistics to bolster their claims. It doesn’t help anyone. (not directing this at you Bruce).

  • I don’t get why China is so riled that Taiwan buys weapons…
    1. They get cheaper espionage costs to get info on our weapons as Taiwanese sell secrets to them. IIRC, CD-Roms for the AEGIS were sold at $40 / CD to China by a Taiwanese naval officer.
    2. They probably will own those weapons within 20 years if China and Taiwan unify.

  • Debt started growing dramatically under Ronald Reagan, slowed slightly under Bush and Clinton, and have grown again under Bush II and Obama.   Obama was handed an economic crisis of unprecedented proportions, though some people want to pretend that’s not the case.   What was Bush the Younger handed when he entered office?   Oh yeah, a budget surplus!

    • Seriously Scott?  You’re a bit demented sometimes.  Bush got a budget surplus?  Gimme a break, that was when the internet bubble crashed – right around 2000, and all the projections were redone.  Oh yeah, and then there was that whole September 11th thing.  And the rate at which Obama is increasing the deficit (and thus the debt) is a couple orders of magnitude above the (admittedly high) rate of GWB.

      • You can’t blame Bush’s problems on 9-11, that attack did not damage the US that much (though the way we responded did a lot of self-damage).
        Fair points that the budget surpluses were built on the bubble economy, and that Obama’s deficit increases are troublesome.  Yet there is some logic to increasing debt jobs are being lost and the country is in danger of major recession.  I am concerned about the dollar, but the markets seem less concerned, the dollar’s been rising recently.

    • You are truly a mirror of the media message.
      Debt stated growing dramatically under Ronald Reagan – as opposed to just growing?
      Did it decline under the great Bill Clinton then and during the ‘budget surplus’ did the debt increase or decrease Scott?   Do a little work here, show some proof.

      • Debt was declining as a percentage of GDP from the end of WWII (120%) to about 33% in 1980.  It was a steady decline.  By 1990 it was up to 60% of GDP, a massive increase in debt even when the economy was doing well.  It got up to 70% of GDP, but under Clinton it dropped to about 60% again.   Though to be sure, that was during the bubble economy, so I don’t give Clinton much credit for that.    More on the history of US debt: http://scotterb.wordpress.com/2009/11/23/debt-crisis/

        • Debt is debt Scott – we owe what we owe – I’m surprised you aren’t in Washington.
          The amount of debt has done nothing but increase since the end of WWII, nothing, it did not decline during the Clinton years, or the Reagan years, or either of the Bush years.
          Jesus I’m glad  you don’t owe me money, “I know I owe you $10,000, but I’m doing better!  As a percentage of my income I owe you less today than I did last week because I just got a raise!  I was wondering if I could borrow another $5,000 I’m going to spend my way out of the $10,000 debt.”
          National Debt 1950-1999
           

          • Those of us who study political economy look at debt as a percentage of GDP.   For instance, who has a greater debt problem:  Someone who earns $10,000 a year and owes $2000, or someone who earns $100,000 and owes $4000?    You measure debt to GDP levels, that takes into account inflation, the size of the economy and all that.
            Reagan doubled that — from 30% of GDP to 60%, ballooning deficits and publicly having the administration say that deficits don’t matter (Cheney said that in the Bush II administration).   Bush the Elder did stem the tide, and Clinton started to turn the clock backwards and for awhile total debt even in absolute terms was going down (a big deal when the debt clock went backwards for awhile).    It was a bubble economy though, the imbalances starting in the early eighties set up this entire crisis.

          • Read the table you’ve been provided twice, in NO time did the total debt in absolute terms go DOWN.  It has absolutely continued to go up.

            “Those of us who study political economy look at debt as a percentage of GDP.  ” – oh, right, I see – those of you, like Reagen, and Cheney, eh?
            You all thinks it’s okay to spend, you merely quibble about what an acceptable percentage of debt to GDP (which is not yours) is.  Try the Japanese method, what, 170%?  something like that?

            Those of us who pay the bills would prefer it if they stopped spending money they don’t have, and if they must, at least spend it wisely and  accountably.
             

        • “More on the history of US debt: http://scotterb.wordpress.com/2009/11/23/debt-crisis

          LOL! Ohhhh, my. I am still chuckling from that previous comment, and now this.

          Attention everyone!! Erb has given us a cite! It is, of course, himself. Narcissism, thy name is Erb.

    • By the way, the economy didn’t start going to pot until the Democrats took over congress in 2006.
      Yes, Bush and both parties spent too much, but the solution tot his problem chosen by Mr. Obama and the democrats is more “hair of the Dog”, not a real solution at all.

      • You may be right.  I think they faced an impossible choice.   Do nothing to stimulate the economy and risk the economy spiraling into a Great Depression, or spend a lot to stimulate the economy, and currency problems down the line.   It might work if they can stimulate growth enough and actually time budget cuts to keep faith in the dollar while the economy works out of it.   That along with interest rate policies will require a very tricky level of fine tuning and hoping they get it right.

    • “Obama was handed an economic crisis of unprecedented proportions, though some people want to pretend that’s not the case.”

      Now who would that be? Can you give us a name?

      …………….

      *cricket  sounds*

    • The Clinton budget surplus, as Erb well knows (having had it pointed out on several occasions) is an artifact of Enron style accounting wherein surplus trust fund monies are counted in the plus column, spent, and then not accounted for in the owed column. The bottom line is: there has been no surplus for a half century. The public debt has increased every year for the past 50 years or so.

      • Wow, some anonymous guy comes and tries to even claim that the official, respected budgetary numbers are from Enron accounting.   Sheesh.    These are not just Clinton’s numbers, they are the numbers of government accounting as done for all Administrations.  *eyes rolling*

        • You are right they all do it, but he is right. There has been no surplus.

          However, Obama would have had a huge debt problem no matter what he did. Unfortunately he is doubling down by trying to solve the issue by issuing even more debt. History shows once a country achieves sustained debt levels above 90% of GDP growth suffers dramatically. However stupid Bush was, the future is all Obama, and he is purposely saddling us with a fiscal nightmare. Might it help a bit for now? Maybe. Unfortunately as Japan has demonstrated the solutions cost can be huge. Currency problems not even topping the list.

        • In some ways it is worse than Enron accounting, since the government isn’t facing legal sanctions for what they do.  Reagan began speeding up the rate at which we accumulated debt.  Bush41 increased that rate.  The rate slowed dramatically under Clinton, thanks to the effects of two large tax increases and the dot-com boom (because much of the money being invested and risked was private money, government revenues were substantial).  The rate began to rise again quickly under W, and has spiked dramatically since the Dems won back control of congress.

          If the Clinton years show anything, they show just what a sham it is to claim that we can balance the budget by raising taxes.  When we raise taxes, congress simply finds more items to spend money on, and winds up running a deficit anyway… even with an almost overwhelming level of incoming money!  It’s what makes the deficit projections so frightening.  We will have to raise taxes at some point, but the increase won’t cover the shortfall, and congress will use the increase to jack up spending anyway.  Insanity.

  • Erb writes:
    “Wow, some anonymous guy comes and tries to even claim that the official, respected budgetary numbers are from Enron accounting.   Sheesh.    These are not just Clinton’s numbers, they are the numbers of government accounting as done for all Administrations.  *eyes rolling*

    Here are the official, respected debt numbers from the government accounting done by the Treasury Department from the years 1994 (first Clinton budget) – 2001 (last Clinton budget):
    09/30/2001 5,807,463,412,200.06
    09/30/2000 5,674,178,209,886.86
    09/30/1999 5,656,270,901,615.43
    09/30/1998 5,526,193,008,897.62
    09/30/1997 5,413,146,011,397.34
    09/30/1996 5,224,810,939,135.73
    09/29/1995 4,973,982,900,709.39
    09/30/1994 4,692,749,910,013.32
    http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm
    Official government numbers, with full accounting, including putting spent trust fund surplus monies back in the owed column. What does it show? Why that the total debt went up every year.

     

    • Thank you – same site I found after a 2 minute search.  Scott and (no surprise) Washington have a different view on debt they incur.  Those of us responsible for our own bills understand how debt works, Scott, the Government, and the Mob, believe that since money can be extorted from now till kingdom come on the populace, they can continue to pretend debt is some percentage of future potential revenue, and if they use less of that potential future revenue, why they’ve saved money and they deserve a bonus!  Meanwhile the IOU’s continue to pile up.

      On further thought I’d like to make a correction…the Mob understands you eventually have to pay the bill even if you do plan to continue your extortion.  That leaves Scott and the Government.

  • Have your alternate reality if you want.   Too bad the articles, textbooks, and official statistics about budget deficits show a surplus.  They look at the statistics for the budget.  I’ll take the analysis of economists, the government, textbooks, and experts over an anonymous blog  comment!   Hint: we’re talking about the budget (how much comes in vs. how much goes out).  That’s different than debt.  You can have a balanced budget (household or public) and still go further into debt.

  • “I’ll take the analysis of economists, the government, textbooks, and experts over an anonymous blog  comment!  ” – really – so how did the experts, economists, government do on the unemployment prediction this last year with the stimulus thingie?  Get it right on the money did they?  Fannie Mae and Freddie Mac, the experts said their lending practices were O-KAY!  The experts also claim we must spend more to get out of debt!

    Well, some experts, YOUR experts.

    “They look at the statistics for the budget.” Lies, damned lies, Statistics – take your pick.

    “we’re talking about the budget (how much comes in vs. how much goes out).  That’s different than debt.  You can have a balanced budget (household or public) and still go further into debt.”
    And?  Assuming your incomes and outlays are in sync, you can only go deeper into debt as a result of interest you owe on debt you already have.  SO?
    Are you trying to make the point that it was possible to have a ‘surplus’ and still have debt when you were done?  Bravo!  It does not diminish the fact that there is debt.
    You want to argue about whether it was 5 lions who are about to eat you, or four, and are very comfortable that Obama will get it down to letting only 3 lions eat you (unless of course it turns out to be 8 because he, once again, got more lions from Bush than he could handle).


     

    • Dance and sing, looker, but you can’t deny the fact that there were budget surpluses those years.  Trying to change the subject to debt could be valid if you said, “there were surpluses, but debt still went up, so those surpluses still weren’t truly effective in turning around the situation…”  and you’d have been fine.  But when little anonymous said “there was no surplus” and used debt figures to try to prove that, well, that gets slammed down easily.

  • Erb writes:
    “Hint: we’re talking about the budget (how much comes in vs. how much goes out).”

    And I responded to your comment about the Clinton budget surplus:
    “The Clinton budget surplus, as Erb well knows (having had it pointed out on several occasions) is an artifact of Enron style accounting wherein surplus trust fund monies are counted in the plus column, spent, and then not accounted for in the owed column.”
    And explained why there was a budget surplus (on paper).
    Hint: read what I wrote.
    Erb wrote:
    “I’ll take the analysis of economists, the government, textbooks, and experts over an anonymous blog  comment!”
    And I will take the actual hard numbers showing the full accounting over the spin of an ignorant professor with his head stuck in the sand:
    http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm

    looker wrote:
    “Are you trying to make the point that it was possible to have a ’surplus’ and still have debt when you were done?  Bravo!  It does not diminish the fact that there is debt.”

    Or the fact that the debt increased. Perhaps Erb will enlighten us, with his post-modern nuance, as to how one can have total debt increase, but still claim a real surplus.
    Hint: if you have an actual surplus the total debt decreases. It does not increase.  

    • Because silly guy, budget surpluses are different than debt.  It is a yearly amount brought into government vs. the amount spent.   You are mixing two different concepts here.
      Let’s say you have a credit card debt of $10,000.    You have a household income of $30,000.   Let’s say your credit card has a really good interest rate, only 5%.   Now, let’s say your net expenses for the year are $29,950.    You will have run a budget surplus!   However, even with a low interest rate your total debt on that credit card may well have risen considerably during that year, more than making minimum payments could cover.   So you would emerge from that year with more household debt, and a household budget surplus.
      Now, if I were your economic advisor, I’d say cut spending more, or increase income more, and then use surpluses to cut debt.   President Bush, when he came into office, used those surpluses to justify cutting income (a tax decrease) and made matters worse.
      But if you emerge from this conversation understanding that a budget surplus is conceptually different than measuring debt, you’ll at least have learned something.

      • In other words, nitwit:
        Hint: if you have a real surplus the total debt decreases. It does not increase. 
        If your total debt does increase, you do not have a real surplus.

        • You are dead wrong, anonymous.  You do not understand the concepts here.   You can have a budget surplus even if debt increases.   If you were right, the government and experts would not note those years as budget surplus.  You’re trying to change definitions in order to deny the Clinton Administration any credit.   Shorter: You are dishonest.   And I think that’s why you hide behind an “anonymous” handle.   You wouldn’t dare make such an absurd and economically illiterate claim with your name on it.

          • Erb writes:
             You can have a budget surplus even if debt increases.
             

            You can have a budget surplus if you borrow and spend surplus trust fund monies, and do not account for it in the owed column. When it does get accounted for, which the treasury dept does, it turns out that the surplus was not real.
            If your debt increase, you have no real surplus.

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