What is going to happen when the US Treasury's debt burden becomes unsustainable?

Yes....I see the politicians gutting the defense budget, bringing all our troops home, cutting spending and raising taxes. /sarcasm

We all know what needs to happen. The problem is the politicians in DC are gutless. They are told over and over by the so called "experts" the only way to fix the economy/debt is to print and spend. It is time to put the shovel down. It is time to take our medicine. Sure...it will he hard on many people for maybe a decade or more but it is the only way we can rebuild.

Actually....I would go a lot further but I think a nice compromise is cutting the defense budget by 80%(we would still have the largest defense budget even with that large a cut), cut spending, balance the budget, etc...would be a good start anyways.

 

People who claim large cuts to the DoD budget with simplistic arguments like "it'll still be larger than the rest of the world" are completely and totally ignorant of how our military works as an institution.

These are the people who want to see US Aircraft carriers cease to ply the world's oceans and enforce international laws. To see our airforce wither away into a few paltry fighter squadrons of advanced jets, and reduce our active ground forces reduced to a tiny little militia army the size of the average European country.

We did this between the world wars, and the consequences were disastrous! When the time came that an army was needed, our men were throwing sacks of flour as hand grenade training!

the USA cannot afford to do that becuase whether Libertarians and Anti-Ameircans like it or not, the globalized economy would become completely unstable and would collapse as 3rd world dictators begin to act out on their nationalistic dreams against each other destroying the infrastructure and access to the raw natural resources that the industrialized world needs to place products on store shelves!

That is not "fear" that is not "paranoia" that is not "warmongering" it is the studied and educated opinion of most experts in the world.

 

Another big spending conservative.

If you want to have an expensive military then tell your Tea Party reps to compromise on a tax increase to raise taxes from the 60 year low levels to pay for it.

 

Another big spending conservative.

If you want to have an expensive military then tell your Tea Party reps to compromise on a tax increase to raise taxes from the 60 year low levels to pay for it.

 

Your point?

My math is good - check yours.

Run the numbers for us.

Then, show us why the rich would bother to earn enough money to pay 100% in taxes, or even 70%.

Neither are we. Why didn't the Democrats fix that when they had total control - answer, because taxing our children and grandchildren is too easy.

So you would rather the government stay the course until they default, then they can't pay any of these, or SSI, Medicare, etc.?

The housing market concern is pretty much over, and won't cause further collapse. Not so Europe.

 

My point is that with the ~5-6% economic growth that the economy typically has, if we balance the budget, the realative size of the debt shrinks by half in 12-15 years.

A 2.3% of GDP deficit would be $345 billion.

Total gross person income in the US is $13 trillion.

http://bea.gov/national/nipaweb/SelectTable.asp?Selected=N Table 2.1

The top 10 percent in the U.S. take now take home nearly half of all income (47 percent), driven by the top percent who account for 20 percent.

http://www.cbsnews.com/8301-505123_162-57391283/income-inequality-1-percent-still-going-strong/

Thus, the total gross income of the top 10% is .47 * 13 trillion or $6.11 trillion.

The total gross income of the top 1% is .20 * $13 trillion or $2.6 trillion.

The deficit last year was $1.3 trillion.

Thus, contrary to your assertion (widely promulgated by right wing propaganda) there is more than enough money earned by just the top 10%, and even top 1%, alone to balance the budget.

Without cutting spending one dime.

I never made any such claim. You repeated the RW propaganda that even taxing 100% of the income of the rich wouldn't balance the budget.

I just showed that you, and the RW propaganda you parroted, are completely wrong.

Great Recession.

No, I would rather the government raise taxes and trim spending to balance the budget. Repeal the Bush tax cuts and trim about $400 billion, and with the economy coming out of the recession, that would about do it. Maybe a surcharge of 5% on high income earners would be necessary to make up all the additional debt we've accumulated.

Europe is a factor, I agree, but traditionally we see a strong housing construction industry leading us out of a recession. Unfotunately, that isn't going to happen because of the overbuilding during the bubble.

 

I don't think we DO know what needs to happen. Some of us want to get austere, some of us want to prime the pump. We've been on a Ramen noodle diet since the end of the Bush administration to almost no effect. It's time to try something else.

 

I instantly see two false and unreasonable assumptions:

1. 5-6% growth that the economy "typically" has. Since when?

and

2. Assuming the debt remains stagnant, ie balance the budget.

Since when has .gov at all levels not increased debt over a 12-15 year period?

They thrive on debt.

Getting .gov to balance the budget is like getting a politician to keep a campaign promise - ain't gonna happen.

 

It already did happen. The government had a budget surplus before Bush got elected and was well on its way to paying off the national debt before the Bush tax cuts.

Historical annual GDP growth since WW2 is around 3%. When it exceeds 5% the economy soon crashes, when it drops below 3% the economy stalls.

The formula used in the 1990s to go from deficit to surplus was simple, limit increases in spending and allow GDP growth to eat up the deficit. It worked, spending increases were limited to tax increases and the economy grew to the point where the budget surplus became negative.

The big problem with austerity programs is that drastic cuts in government spending endanger economic growth, as many nations in Europe are discovering. As a result their economies are shrinking which calls for even more drastic cuts which shrinks the economy even more. Greece, Spain, Portugal, Ireland, Italy are all on this treadmill to hell. The reality is that there is no way to pay off these debts or reduce deficits with drastic spending cuts in a faltering economy. The only way out is for the economy to grow its way out and that will never happen if the government reduces its spending What would work better would be to increase government spending temporarily to get the economy going and put a hard limit on spending and deficit reduction once the economy starts growing again, as the US did in the 1990s.

There is already a proven model for reducing deficits without endangering economic growth but no one is paying any attention to that. The hardening of ideological positions is likely to drive the world economy into a ditch, again, before any actual thinking begins to take hold.



The

 

Look at the problem this way, as if the Giovernment lost its job and is borrowing and using unemployment insurance to get bye until things pick up.

This is essentially true, in that the Taxes collected have been cut to half what they would be today had the economy not seen first the Clinton High Tech Bubble burst in 1998, followed by the 911 economic risis in 2000, and then, just as Federal Tax Receits were shooting back up to double that of the previous ten years, the Bank bankruptcy occurred:

See chart:



Note that the government gets double the taxes every ten years because the GNP doubles every ten years.
But in 1999-2000, the taxes fell down as the GNP went flat with the Stock Market crash.
But then 911 stopped the growth of the GNP, once again.

See how the curve tends up almost immediately as the economy recovered in 2003, spurred by Tax cuts which increased consumer spending and genrated high GNP.


But notice the rapid exponential attempt of the economy to adjust and shoot back up where it ought be through Bush year until 2006.
Then, the Bankruptcy of Banks due to failked mortgages they were holding shocked the economy again.

Whwere as the Fed Income now ought be $4 Trillion dollar every year, it is only $2.8 trillion.
That is why Obama has had to borrow the $1.7 Trillion the nation does not collect when the GNP is too low.

All will be fine if the Min Wage is doubled because it will sopur consumer spending and increase the GNP by double.

 

He is absolutely correct.

Paper money inherently inflates at 7% a year.
This means that all prices double every decade.
It amounts to saying that the norm is for GNP to double every ten years.

Since the Fed takes @20% of all transactions inthe economy, or twenty percent of the GNP is the sum of the Taxes collected, the money available to the government doubles every ten years, and dwarfs what seem high debt before then.

People who bought homes 50 years ago remember that their mortgage payments were easier and easier to pay each month because wgaes alsi double every ten years.

This is just the first and most basic Law of economic when Paper Currency is used.

It is also why increasing the Min Wage by double, immediately will save us from this economic down turn.
The minwage has not been adjusted to double every ten years since 1960, because too many laborers were available to businesses once women double the Labor pool.

 

You my friend are absolutely correct.
This one simple FACT is not even acknowledged by the economists and all the political discussions today are flawed and dangerous as the politicians argue what needs be done and what is wrong.

The ONLY thing that needs be fixed is Consumer Spending.

As you say, the Tax revenues bring in double every ten years because the economy actually inflates by 7% every year.
A 7% inflation will double all porices, all salaries, and all prices every ten years, but not the amount of fixed debt.
What the home owner owesthe bank will look like half in ten years because he is earning double.
The Natinal Ddebt will seem a pittance because the Taxes in 2016 will be $8 Trillion dollars.


See this chart:



Notice that the Tax collected doubles every ten years with the exception of WWii, from 1940 to 1950, when it rel shoot up.

Also notice that, in 1970, the Tax Collected was $250 Billion, but it doubled to $500 Billion in 1980.
By 1990, the Tax collected was $ 1 trillion.
Then as Bush came into office, in 2000, the Taxes collected rose to $2 trillion RIGHT on target as is always the case.

But then 911 set things back and the GNP dropped.
What we see thereafter is the recovery and upswing headed for $4 trillion by 2010, only to be set back by the Banks bankruptcy.

By 2020, the Fed willhave $20 Trillion to pay its bills.

 

No.
See the chart above.
The Bush Tax cuts were instrumental in raising up the amount of Taxes actually collected after the 911 set back to the economy.

What Bush did pumped more money into th hands of buyers who then spend money and raised consumer spending.]This is what increases the GNP.

The Government takes 20% of the GNP in taxes, so Bush, by lowering taxes, raised up more tax in real dollars.
But we need way more now since 2006-08.

What America needs in to double the Min Wage which will pump big bucks intot he economy immediately.

Then, by 2016, raise the min wage again by double in gradual steps.


This will alo solve the problems in Greece, Italy, Portugal, Ireland, Spain, Japan, and France.

 

You are forgetting that the lenders of money take the expected inflation rate into account when making loans. If the inflation is higher, the interest rate will tend to be similarly higher. The only way inflation can help ease the burden of debt is if it is sudden and unexpected. (admittingly there are certain other situations where you might be correct, such as when interest rates are extremely low >1%)

I agree that doubling the minimum wage would lead to economic improvement, but not because it would cause inflation. In fact, I do not really believe there is much of a link between the minimum wage and inflation. I believe that the price of land has much more to do with inflation than the wages of low level workers. In many instances, around 20-30% of a business's revenue essentially goes to paying rent on land. And even the wages paid to workers reflects the rent on land to some extent, as workers have to be paid more when the cost of their apartment rents are higher.

 

Bush pumped an insignificant amount into the hands of individual buyers, but he did pump a very significant amount into the hands of investors who immediately squandered it on foreign investment and an irrationally exhuberant stock market. All of the gains were wiped out in 2008. Rescind the Bush Tax Cuts, close the loopholes, AND increase the min wage.

 

Year - GDP - % growth
1982 3,253.2 4.0%
1983 3,534.6 8.6%
1984 3,930.9 11.2%
1985 4,217.5 7.3%
1986 4,460.1 5.8%
1987 4,736.4 6.2%
1988 5,100.4 7.7%
1989 5,482.1 7.5%
1990 5,800.5 5.8%
1991 5,992.1 3.3%
1992 6,342.3 5.8%
1993 6,667.4 5.1%
1994 7,085.2 6.3%
1995 7,414.7 4.7%
1996 7,838.5 5.7%
1997 8,332.4 6.3%
1998 8,793.5 5.5%
1999 9,353.5 6.4%
2000 9,951.5 6.4%
2001 10,286.2 3.4%
2002 10,642.3 3.5%
2003 11,142.2 4.7%
2004 11,853.3 6.4%
2005 12,623.0 6.5%
2006 13,377.2 6.0%
2007 14,028.7 4.9%

Source: BEA.gov.

In the 25 years ending 2007, the economy grew by an average rate of 6.0%. So I submit my statement regarding 5-6% growth is neither unreasonable nore false.

And therefore stand by my statement that if the budget were balanced, that would decrease the relative size of the debt by half in the next 12-15 years.

That was a condition of my statement. The Govt has had a poor record of balancing the budget in the past 30 years, save for the period Clinton was president.

I agree it is unlikely.

Our best hope seems to be a stalement in DC that allows the Bush tax cuts to expire completely and results in limited spending increases.

 

That figure is in real dollars. In constant dollars the figure is closer to 6%.

You are leaving out the biggest factor. The big tax increase in 1993 that flooded the Treasury with extra revenues.

Without that there would have been no surplus.

And couple that with tax increases on the richest, as the Govt did in 1992 and 1932, which restored some confidence by improving the budget picture.

Funny how with this proven model, you have not even mentioned the significant role of the major tax increase.

So you are right, no one is paying attention to the proven model.

Raise taxes and hold the line on spending growth. A proven model for getting the deficits down. Sounds ridiculously obvious, but no one is paying attention to this proven model. Or at least half of us aren't.

 

Once again, you ignore tax policy.

The huge Bush tax cuts in 2001 and 2003, as well as the stimulus tax cuts in 2008 and 2009-11 had a far more significant impact than the economy.

See chart:

Look at your chart more carefully. Revenues grew rapidly until 2001 (not 1999) which were the first round of the Bush tax cuts.

You can see it more clearly with the numbers as opposed to a graph.

Year - Revenues
1990 1032.0
1991 1055.0
1992 1091.3
1993 1154.4
1994 1258.6
1995 1351.8
1996 1453.1
1997 1579.3
1998 1721.8
1999 1827.5
2000 2025.2
2001 1991.2 <- 1st Bush tax cut passed.
2002 1853.2
2003 1782.3 <- 2d Bush tax cut passed.
2004 1880.1

Source: CBO.gov

That is false. There was a slowdown in the economy, but it was before 9/11. The economy never had a down quarter following 911 until the 2008 recession.

9/11 had some impact, but it was not a major economic event.

It starts increasing again in 2004, after Bush and the Republicans stopped cutting taxes.

But in real terms, in never caught up. Revenues haven't kept up with inflation, much less keep up with GDP growth.

The Bush tax cuts have cost the Govt trillions in decreased revenues.

The economy in 2000-2006 was juiced by easy credit by sloppy financial insitutions. We paid the price in 2008 thru today.

GDP has recovered. The recession does cause some decrease in revenues, but nowhere near the amount experienced. The ~$400 billion in stimulus tax cuts plus the 2007 stimulus tax cuts have been a much bigger factor.

Doubling it would probably go too far, IMO, and have a disproportionately negative effect on job growth at the lower end.

 

Depends on the amount the money supply increases. We have not seen 7% inflation since the early 1980s.

7% inflation would mean prices double in 12 years.

GDP growth has been greater than simply inflation because the economy has grown in real terms.

Where did you get this figure from? "Creature from Jeckyll Island"?

 

IMO that is overly simplistic.

You are confusing GDP growth with inflation.

If GDP grows 7% a years, the relative size of the debt will fall by half in 12 years.

But that does not mean prices double. Whether prices double depends on the rate of inflation, not GDP.


See this chart:



Notice that the Tax collected doubles every ten years with the exception of WWii, from 1940 to 1950, when it rel shoot up.

You are correct that revenues have doubled about even 10 years, consisten with gross income growth of about 7.2% per years.

In 2000, that was assisted by an increase in taxes revenues because of a tax increase.

The big exception of course is 2010. Revenues in 2010 of $2,161 billion were only marginally higher than revenues of 2,025 in 2000.

This was due in large part because of a series of tax cuts, as well as a less robust economy.

GDP did not drop after 911.

Only a relatively small portion of banks went into bankruptcy.

That would be far more than a double.

 

Conservative mythology. The economy did far better with the higher Clinton taxes than it has done with the lower Bush taxes.

Tax revenues fell by $250 billion annually with the Bush tax cuts. They dropped for three straight years, which has never happened in modern history. When Bush stopped cutting taxes, they started growiing again with the economy, but they never caught up in an inflation adjusted or GDP relevant sense.

Quite the contrary. Tax revenues were 20% of GDP when Clinton raised taxes, but have never hit that mark after the Bush tax cuts.

That depends on whether the marginal increase in spending is offset by the marginal decrease in employment.

 

Yep. The wingers keep acting like there is a) no rise in GDP and b) a 30 year note that comes due. Everyone knows that debt is usually best compared to GDP. And there is no date that the debt has to be paid off.

 

The last few times the minimum wage rose, there were negligible job losses.

 

Japan has been even more nonchalant than the US in efforts to rein in spending...

Japan's fiscal death is a warning to the West
22 May 2012 - Fitch Ratings has downgraded Japan two notches to A+, citing a surge in public debt since the Lehman crisis and the lack of any plan to restore fiscal probity.

 

Within a range. The demand for low end labor appears to have a degree of elasticity to it, but at some point, increasing the price of the item results in decreasing demand for it. The MW is already on the higher side of the historical range thanks to the increase in 2007, I'm not convinced that doubling it now would result in more good than harm.