Can U.S. Afford a $17 Trillion Debt?  

       return to Economic Issues       Updated 1/10/17              Please 

   
   

 Debt as % of GDP

President Reagan's large deficits were made economically smaller
 by economic growth and inflation.

See Stagflation and the Rise of Supply Side Economics

 

   
       
       

Added Cash Drain Unmentioned
by Both Candidates

Medicare/Social Security Will Need More of Our GDP

 

Conservative solutions: Safety Net program cuts
Liberal Solutions: cuts in defense
No one wants: increase payroll taxes, Medicare/SS
program cuts delayed age of qualification

 

Historically, complaints about war debt vanished
as long periods of growth after wars lowered
 Federal Net Debt Below 40% of GDP Then
\

US debt as a percent of GDP hasn't returned to 40%
after President Reagan's 1980's buildup although the debt
 is not as high as after WW2.  
Source Economics 17 Budget Deficits

What Could Go Wrong?

Higher Interest Rates Could Make
Carrying Debt More Expensive

Stagnate Growth and High Interest Could Postpone
Return to 40%, Obamacare and Other
Contingent Liabilities Could Extend Timeline.

What Would Reduce Time Line to 40%?
1. A Reagan/O'Neil/Greenspan 1983 Style Payroll Tax Increase

2. Cost Effectiveness in Education, Military Spending and
 our Redundant Safety Net

3. A Return to Moderate Inflation or High Inflation

Please            

   

Is a New Entitlement Law Needed
to Stop Cash Flow From Going Negative?
 
 
Source

So Why All The Static About the Debt
It's not the debt but what is bought. 

Many want high defense and a low safety net and vice versa.

Most don't to be taxed for what the other person gets.

Politicians and Media Need to Fill Space
with Inflammatory Half-Truths.

Economic Wellbeing
is Up
 But We Need Something to Complain About.

 

   
   

Spending Up 4%, Tax Revenues Down 4%
Result Was Debt Deep Doo Doo!

How Can Federal Government
Continually Spend More than It receives?

   
   

 

Tax System Benefits Everyone

Market Income Plus Transfer Payments and Minus Federal Taxes

Quintile         1st 2nd 3rd 4th    5th
1979        7,707          19,131        26,596        35,708     78,520 
1989        7,392        19,324        28,663        40,254     104,318
1999        8,709        22,344        32,688        46,157     139,325
2007        9,290        24,374        35,985        51,379   166,871
 Change        1,584          5,243          9,390

       15,672

 

      88,351

 

Return to Economic Wellbeing
 

   
   

 

Inflation when added to growth makes our country's debt like any mortgage smaller over time.

Editors Note: My 1977 mortgage of $250 seemed a burden but within a few years inflation from the second oil embargo and a better job grew my salary so the mortgage became insignificant. The controlled inflation since 1985 seems to be the good for the economy and the current deflation puts those paying debt in Deep Doo Doo!

 

 

   
   

Annual Federal Deficit is Back to Normal

 
End of
Fiscal Year
US Gross Debt
in Nominal $ billions
US Gross Debt
as % of GDP
Who Paid the Deficit?
1940 43.0 52.4 No One
1950 257.4 94.1
1960 290.2 56.1
1970 389.2 37.6
1980 930.2 33.3 No One
1990 3,233 55.9
2000 5,674 58 TBD
2005 7,933 64.6
2007 9,008 65.5
2008 10,699.8 74.6 (EST)
2009           11,046.2   TBD
United States public debt - Wikipedia, the free encyclopedia
President Obama continued the Bush policy of fighting the Great Recession with debt and by 5/13 this policy seemed to be working better than the austerity policies of Europe,
   
   

Who Owns the Debt

 

 

Editor's Note: Historically Great powers have declined because of excess debt caused by military expenditures which not paid for by taxes. Today the U.S. adds extensive health care spending debt to the mix.

Inflation has historical cured debt problems by lowering its relative to the nation's productivity poorly measured by GDP. This is happening today.

Historically high interest payments caused by large debts have been a problem but today's excess world savings is keeping interest rate low allowing not only low interest payments but low interest rate debt refinancing. This lower real relative U.S. debt and low interest payments should ease the fears of some older Americans who are concerned over the financial

Personally, as a college educated 72 year-old with a 13 year life expectancy; I would gladly accept higher deficits for another ten years of healthy living. Then I would be a happy, somewhat poorer, and still good-looking ninety-five year-old crotchety old-man.

The easiest debt cure is account for people living longer. It would increase the ages for early SS retirement, the receipt of full SS retirement benefits and the receipt of Medicare. Next is an increase Medicare payroll tax rate for high earners who are living much longer. Last is an increased income base for Social Security.

Others debt cures include larger health care deductibles, less military spending made possible by requiring Japan and South Korea to handle more of the perceived threat from the Chinese military and NATO nations living up to their 2% of GDP commitment.

For me the soundness of Social Security and Medicare is not much of a problem but these Unfunded Government Liabilities may prove a problem for our children and grandchildren if we continue to delay an increase in payroll taxes.

 

Return to Election Issues 2016      2/17/16

   
   

Subtracting Federal Debt Owed to Itself
Brings Net Debt to a Reasonable Level.

   

See 2015 Social Security-Medicare Trustees Reports/     What is the Federal Debt: a primer for politicians    The Big Lie   
Balance the budget is a simulation that allows participants to make changes and balance the budget. 
prepared by Walter Antoniotti