Posts Tagged ‘National debt’

To keep things in perspective

August 4, 2011

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How Canadians do it

August 4, 2011

I asked a Canadian friend how it is that Canada has a much stronger social safety net than does the United States, yet has a smaller national government debt in relation to the size of the Canadian economy (gross domestic product).

Her short answer: “Canadians pay more in taxes, and we fight fewer wars.”

It’s the total debt, not the deficit, that matters

July 21, 2011
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This chart, which first appeared in the Washington Post, is seriously flawed, but still informative.  The flaws are:

  • The color code for the House of Representatives is off.  Red, not blue, represents Democratic majorities; blue, not red, represents Republican majorities.  The color code for the Senate and for Presidential administrations is consistent with the key of red for Republicans, blue for Democrats
  • Party responsibility should be moved a year to the right.  Fiscal 2009, which began Oct. 1, 2008, was the last budget of the George W. Bush administration; fiscal 2001, which began Oct. 1, 2000, was the last budget of the Clinton administration; and so on.  Nearly every chart showing the history of federal taxes and spending makes this mistake.

Nevertheless, the chart is important because it shows that the size of the total government debt, not the size of the annual deficit, is what matters.  The government’s annual deficit was slightly lower in 2010 than in 2009.  How much that was due to President Obama and how much to the economy, I can’t say.  Nevertheless, the total government debt went up, as under previous administrations.

There’s something else that’s even more important than the size of the government debt, and that is the size of the debt in relation to the size of the economy.  The United States came out of World War Two with a huge debt that never was paid off, but it ceased to matter, because the economy grew so much in the next 30 years that the debt become less and less important.

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The debt to GDP ratio can be improved by reducing or eliminating the annual government budget deficit, and by growing the economy. Economic growth will help shrink the deficit.  Shrinking the deficit may or may not help economic growth, depending on how it is done.

The federal government does not control the growth of the economy, but there are ways that it can help.  It can rein in reckless speculation by investment banks, so that they return to investing in the real economy.  And it can spend money on things that contribute to economic growth, such as education, scientific research, infrastructure and maintenance of basic services.

There is a fine line to walk.  Spend money on useless things, and you worsen both the government’s financial position and the overall economy.  Refuse to spend money on essential things, and you also stifle economic growth.

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The real national debt

April 25, 2011

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I just came across an interesting Wikipedia article, with facts and figures indicating that the federal government’s debt, which we hear so much about, is only a part of U.S. indebtedness.  We call the government’s debt the national debt, but it is small compared to the  total debts of financial institutions and of individual Americans.

The green strip on the chart is the federal government’s debt, the yellow strip is the total debt of American households, and the orange strip is the total debt of American financial institutions.

In 1946, the total US debt-to-GDP ratio was 150%, with two-thirds of that held by the federal government. Since 1946, the federal government’s debt-to-GDP ratio has since fallen by nearly half, to 54.8% of GDP in 2009. The debt-to-GDP ratio of the financial sector, by contrast, has increased from 1.35% in 1946 to 109.5% of GDP in 2009. The ratio for households has risen nearly as much, from 15.84% of GDP to 95.4% of GDP.

via Wikipedia.

According to this article, the bulk of the debt held by U.S. financial institutions – $8 trillion worth – consists of government-guaranteed mortgages, which is nearly equal to the federal government’s own debt.  This means the government’s potential liability is nearly double what is reported.  (I can’t get used to quoting figures in trillions of dollars; for me, billions of dollars are an unimaginably large amount.)

What I get from the chart and the accompanying article is that the best way to improve the debt-to-GDP ratio by putting Americans to work on useful things, which will increase the GDP and gives us the means to pay down our debts.

Click on Financial position of the United States to read the full article in all its complexity.  Click on the discussion thread for argument as to the meaning of the figures.

Hat tip to Obsidian Wings.

Who is owed America’s national debt?

February 8, 2011

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At the end of March 2010, the national debt stood at $12.8 trillion. And if you look at some of the U.S. debt clocks that display real-time estimates, such as this one here, you will see that in the three months since that number has exceeded $13 trillion — and counting. What is commonly referred to as ”the U.S. debt” is basically securities such as savings bonds, bills, notes and other bonds that are issued by the Treasury and other federal agencies under special financing authorities. If you own Treasuries (or a fund that invests in them), you own a piece of the national debt. Who else does? The latest numbers can be found in the latest Treasury Bulletin, released in June 2010 and reflecting data through March 31, 2010. The largest chunk of Treasury securities is, in fact, held by Federal Reserve banks, adding up to $940 billion at the end of the period.  And when it comes to foreign holders, number one is China, which at that time held nearly $900 billion’s worth. (Japan was a close second, with $784.9 billion.)

via MintLife Blog.