SS holds about $2Trillion in US Treasury Bonds accumulated since the 1980s in anticipation of the baby boomers retirement. Right on schedule SS began redeeming these bonds in 2010 as current income began to exceed outlays. According to its latest reports SS actuaries have calculated that the surplus will be exhausted and outlays will begin to exceed their ability to maintain payment levels in 2054, which is 40 years away. The argument from the right is that they do not think the government should pay back the $2Trillion because it cannot afford to. SS could be made solvent into the next century by removing the limit on income subject to SS taxes but republicans are against that too. In 2001 the US was in a fiscal position to privatize SS but Bush and the republicans rejected that and cut taxes instead. Put simply, republicans want to loot the SS fund and drive it into insolvency in order to maintain tax cuts that are driving not just SS, but the entire government into insolvency and default.
The more interesting question is why the Republicans constantly focus on "Entitlement Programs" when the entire government is spending more than it takes in. The Entitlement Programs will be broke in the future while the rest of the government is broke now.
The deficit is one of those issues that is only important if the president is not in your party. If you are a democrat and the president is a democrat you will likely agree with the spending policy. Despite its effect on the deficit. But if the president is part of the opposing party you will most likely find the spending dangerous and wasteful. Some groups like to claim to be ideology driven, but always change their tune if they support the leadership. Its one of those things that can make political discussion nauseating.
The IMF looks at interest on debt as a ratio of income. If interest payments hit 30% of income, red lights go off as the ship is sinking and water is coming in faster than it can be bailed out. The average interest rate on our debt is 3% at the moment = annual interest of roughly 500 Billion/year on 17 Trillion. Income is at about 2.7 Trillion. 5/27 = 18%. Many might breath a sign of relief at this point but there is an elephant in the room. First off it is important to realize that the interest rate on our debt is not the same as "mortgage rates" which are indirectly set by the Fed overnight lending rate. Interest rates on our debt is controlled by market demand for our debt. Currently this demand is high for 2 reasons. 1) Europe is a fiscal mess 2) There is no alternate/competition to the US dollar as world reserve currency. The US is still the safest place in town to park your money. As long as this is the case interest rates will be low and our ship is relatively safe. This is one of the reasons why it is important to have instability in places like the Middle east and/or Russia. Global stability would decrease demand for safety = decrease in demand for US debt = higher interest rates. Keep in mind that only a short time ago the yield on the 30 yr T-Bill was over 6% http://finance.yahoo.com/echarts?s=^TYX+Interactive You can get cheaper rates by going shorter term (which is part of what was done) but then you have to roll this debt over sooner. If average interest on our debt was 5%. 5 % x 17 Trillion = 850 Billion 850 Billion interest/2.7 Trillion income = 31% Water is coming in faster than can be bailed out and our ship is sinking fast in such a scenario. That is the big elephant in the room.
So yes the real worry is we will have to refinance our debt at higher rates sometime in the future. But of course if interest rates go up the cost of repurchasing our debt goes down. So if we can get our act together interest rates rising is good for us as a country. If we can't start generating a surplus the opposite is true. So ideally we want to increase inflation while also spending less than we take in. So we can increase taxes and /or reduce expenditures to generate a surplus so we can repurchase our debt at reduced rates assuming we can engineer increased worldwide inflation. if the word goes into a deflationary spiral all bets are off.
There is management od debt through the federal budegary process. The problem is that there are diametrically opposed forces at awork in that management of the budget. The Tea Party want no government, but at the same time want all the beneifts to be paid automatically. Republicans only want their programs funded and not the other party. And the Dems want their programs funded and not the other party. But through it all, there is some management. The problem with federal debt and deficits is that no one in either party is willing to sacrifice their programs in order to have better effective management. If you want to keep the retirement benefits the same for retirees, then taxes have to be raised. Id you want all those roads, bridges, and other transportation avenues to be maintatined, you have to pay someone a legitimate wage for their expertise. You want laws to be enforced, then you need the agencies to be fully staffed for that to happen. So far, starving the beast is allowing more and more cheaters to scape the system. BTW, government debt does act a lot like corporate debt. Same principles apply. The only difference, the corporation is willing to do what it takes to maintain those profit margins even if it means performing a corporate inversion, moving offices overseas, or expanding in markets that are not located in the Untied States. We don't need more Joe the Plumbers or Carlos the Congractors, we need more of the Steve Jobs that are willing to do what it takes to go to the next level .
If interest rates go up the cost of our debt goes up. Inflation helps us as the actual net worth of the total debt decreases because it is dollar denominated. I agree that we want increased inflation coupled with reduced spending (reduced deficit). We definitely do not want interest rates on our debt to go up. Keep in mind that interest rates on our debt is different than interest rates on a mortgage.
I don't care about politics and have no use for the blame-game. Politics equals people equals voters equals Congress and presidents...at the end of the day what we get in the USA is what the collective we force or allow to happen. A corporation or any business for that matter must be fiscally responsible in order to survive and grow. Government has no need to be fiscally responsible...
Not really. The market value of any debt instrument changes depending on the difference between the interest the bond or other debt instrument pays and the interest being paid by currently issued instruments. That is why when you buy bonds and interest rates increase the market value of the bond goes down. If interest rates increase it will cost more for the US to issue new bonds and/or refinance old ones. However if the US was running a budget surplus we could repurchase bonds already issued at less than face value.
Yes ... Really. We are not talking about the market value here. You are confusing the action in the bond market with an issuer of a debt instrument. The "price" of a bond varies depending on interest rate changes but this has nothing to do with this discussion. Those prices affect people trading bonds and not the original issuer of the debt. If interest rates rise from 3% to 5% and I happen to be rolling over 20% of 17 Trillion dollars that year I now have to refinance 3.4 Tillion at 5%. Plus what ever the deficit was for that year. I agree that a surplus would be wonderful but that is not the world in which we currently live. The whole point of much of the quantitative easing is to keep interest rates low. If memory serves the Fed has now accumulated 6 Trillion in US debt. Part of the reason the Fed has been buying our debt is to keep demand up so that interest rates stay low.
You keep missing my point. If interest rates go up and the US has a surplus we can buy our debt back at less than face value.
"If" we had a surplus. This is not the world we are living in right now. Right now we have a large deficit with no end in sight for many years. If interest rates go up as we continue to run deficits things could get really bad.
Government debt is an abstract concept, if the government retains the right to issue the currency that the in which the debt is denominated. There are things that a government may choose to do, fight wars, stimulate an economy, build infrastructure. They can tax people to raise sufficient funds or borrow or just create the money. Taxing is the best way, it maintains the value of the currency, and produces no debt. two But there are political forces that prevent taxation from raising sufficient funds, so borrowing can be used to smooth out tax rates. If tax rates are set where there is usually a small surplus or a small deficit, and if the debt grows slower than the economy, then the debt will remain relatively small, this was US policy for 50 years, the exception is emergencies when borrowing is massive required to raise massive amounts, for when government accounts for most of the GDP. In the 80's, GOP policy replaced that with continuous massive deficits as the norm, in order to create a fiscal crisis to allow the GOP to attack Social Security and Medicare, two immensely popular programs that the GOP felt took too much from the wealthy, and wasted it on ordinary Americans. We are stuck now with those tax rates that produce continuous massive deficits. But it remains to be seen whether this produces the results the GOP aimed for, reduction of middle class entitlements, or whether it produces blowback that puts a populist government in place that makes up for the under taxing of the wealthy, with tax rates that balance the budget and provide substantial middle class entitlements.
Typical progressive liberal, all focus on taxes without the slightest concern for the consequences or for the fact that you can't get enough revenue out of the rich guys to pay for the overspending that the democrats cannot control themselves from doing. Only a democrat can raise the average spending from $2.5 trillion during the 8 Bush years to About $3.5 trillion during the Obama years and have the gall to call it austerity.
Come on, you're being too modest, Reagan tripled the debt, and granted amnesty to all the illegal aliens, we need a guy like that now..........
I suspect Tip O'Neill and the congressional democrats had as much to do with the debt as Reagan did. At least he didn't call it austerity, seriously do you really think we've had anything close to austerity under Obama?
I don't think we've spent enough. Whether the Republicans have held spending down to cripple the economy for political advantage or whether they have done it out of a cult belief in long discredited economic theories, doesn't matter. Reagan was a big spender, all on his own, he paid lip service to fiscal restraint, but he spent like a drunken sailor.
Average government spending was $400Billion when Reagan was president and he managed to triple the national debt with his tax cuts. Republicans have a lot of gall to call Bush responsible when he only doubled the national debt with his tax cuts. Republicans must be so apoplectic because Obama has not managed to double the national debt again despite the economic calamity.
In bold above is simply dumbfounding! The economy is working just fine, based on domestic and foreign consumption, demand being satisfied every single day. Government does not typically effect this economic process; if a company is selling a billion boxes of cereal today they will sell a billion boxes tomorrow and a billion+ the next day no matter what government is doing. The only way government can effect this is for government to stop buying cereal or to ban US business from exporting it's cereal and neither is going to happen. Why would any politician wish to 'cripple the economy'? You should pause and think about your statement for a few minutes. If you wish to grow the economy, then you must increase the domestic and foreign demand of those products and services. This is partially achieved with government spending but it's stupid for government to forever do this with debt money!
Why would any politician wish to cripple the economy? Why for political advantage of course. More spending would have boosted the economy which is still reeling from the worst financial collapse since 1930. Right now we have a shortage of jobs, we have a crumbling infrastructure, and we can borrow money at low rates. Are you suggesting it makes more sense to wait until we have full employment, high interest rates and the infrastructure actually collapses to do something about it?
Hey folks...vote for me...I just crippled the economy...isn't this great?! Government spending DOES NOT boost the economy. Government spending is a temporary stimulus in order to provide welfare for those who do not plan their lives for economic downturns. Your recession was almost five years ago...give it a break. We don't have a shortage of jobs. There are millions of jobs across the nation! To do something about what?
Ever hear of Ted Cruz, he wanted the US to default on it's debt, to show he was serious..... There are 5 jobseekers for every job opening, that's why unemployment is high, because the Capitalist system is failing to provide employment.....
