So looking at a few sources online, the US gov seems to be 70-90% of the current gdp in debt (sorry for the lack of accuracy, feel free to provide a more accurate figure)

Of course many people believe it's impossible we will get out of debt, and the US will either default on it's loans, or there will be some pretty large inflation. I myself don't see how this is avoidable, but I don't really understand how it all works.

There's plenty of "omg US will collapse" posts here on 2+2 it seems, so I'm hoping this thread can be for those who have the opposing view and I/others can get a better understanding of how this all works

There is actually no real reason to get out of debt. This sounds strange but if the government can curtail their deficit to more normal numbers they can survive indefinitely.

For reference: there are only a few countries in the world that aren't in debt.

To elaborate on the above, as long as the GDP growth rate exceeds the budget deficit as a percentage of GDP, you are actually becoming less indebted. For example, a budget deficit of about 1% to 1.5% of GDP and a GDP growth rate of 2.5% would lower the US's debt as a percentage of GDP.

My take:

3% of GDP is generally considered an unsustainably high permanent deficit level because it is very unlikely a developed economy will grow at a 3% average pace, meaning the deficit will continually escalate as a percentage of GDP. IIRC this is the level the EU (attempts to) cap deficits among member nations.

This year, the US government's deficit will probably exceed 10% of GDP. Obama's budget projection has the deficit falling to around 3% by 2019, at which time mandatory entitlement outlays will begin to skyrocket and 3% will seem like a pipe dream. As unpopular as it is, medicare/social security reform is a complete necessity, as are modest tax hikes at all income levels. Healthcare reform has been billed as a partial solution, but is probably not a silver bullet to our long term fiscal outlook.

It's up to you to decide if you think the situation is problematic. My personal opinion is that if we make the above reforms, raise taxes modestly, and have a decent period of strong economic growth, we'll be okay. But those are some big ifs.

Well, the motivation is to get to where the debt is "manageable". In order to do so, you have to balance what you're willing to spend your resources on: debt payments, or social programs.

IIRC, a government can't really "not" be in debt since there will always be government bonds available.

Yea I was just going to add this. If we had no debt, we wouldn't be able to issue bonds the way we currently are able to. Also, developed countries run up debt, but the key is to manage it and not become consumed by it. Obviously not an easy task.

Keep in mind the US government is only on the hook for the nominal sum. Inflation isn't necessarily a bad thing when you're deeply in debt.

This is what I thought. It is obviously true in the extreme. Under hyperinflation they could settle for a sandwich.

This article argues that light/medium inflation won't really help with the debt.

http://www.washingtonsblog.com/2009/...t-of-debt.html

If you mean that by definition if we issue bonds we owe someone money and are therefore in debt then yes.

But we could have a net positive balance in the treasury and still issue bonds. I mean if you sell a bond and don't spend the money I guess you're in debt to the bond holder, but you're not "in debt", not the sort that matters at all.

war

yeah sorry, I should have said "how do we get to a manageable debt level"

Does anyone think the current debt level is manageable, and once the gov spends as much as it gets it will be all good?

also, regarding inflation helping the US out, I am not sure how effective that would be considering the debt has to be constantly rolled over

You better be wrong about this 3%. Found this quote on wikipedia.

And it must be higher today.

The 3% is the annual rate, not the outstanding amount.

The current debt is 41% of GDP, now projected to reach 77% of GDP in 2019. Traditionally, hitting 70% of GDP is cause for concern.

http://www.economist.com/world/unite...ry_id=14324535

http://www.nytimes.com/2009/08/28/op...n.html?_r=1&em

why?

yeah this article reminds me of the fact people are still buying 30 year T-bills which are like only 1-2% above inflation (I assume it's not just the Fed doing all the buying). Which is basically the reason for this thread, I don't understand how people are that confident in the US.

ArturiusX, do you have an opinion regarding the current debt level? Do you think the US can sustain this amount (in % of GDP) for 50+ years?

The rate at which the deficit grows as a percentage of GDP is most important. If it is perpetually growing as a percentage of GDP, then it is by definition unsustainable over an infinite time horizon. 4% of GDP as an annual deficit level, as shown in Obama's latest long term projections (check the Economist link above), is probably unsustainable over a long time horizon. In the short run, it is no big deal as long as the government slows down.

I'd also like to point out Obama's projections assume "climate revenues" of about $75bn/yr starting in 2012, which are far from being a political reality. Lose those, and you'd add perhaps another half a percentage point to the deficit level every year.
As an earlier poster said, it's pretty worthless to fire up the printing press to clear out a deficit unless you are running a surplus during the inflationary period. Inflation is pretty much just a way to force the government to spend less (real) money, and it isn't even very effective at doing that. A large portion of our outlays are tied to inflation, and the interest rate we pay on debt is also tied to inflation.


fwiw the Economist's article is a much better, more objective analysis of the fiscal outlook than Krugman's. But I'm partial to anything the Economist writes.

Also worth noting, is that the largest debt-holders are the US Government itself - Social Security and Medicaid (or is it Medicare?). Over half of the US national debt is to itself. Right hand borrowing from the left hand sort of thing.

In theory the debt could be knocked down by ~half by some sort of reorganization or elimination of the social security program. Eliminate social security -> don't need to pay back all that money -> debt gone. obv there are other social problems that would result...

This is silly, like saying you could wipe your credit card bill if you stop eating.

no its not. look at it this way.

-i use my left hand to take 5 dollars out of my piggy bank and plan on spending it on a cd.
-i use my right hand to take 5 dollars out of my couch cushions intending to buy a dvd.

-It turns out that the dvd costs 10 dollars so the right hand "borrows" the money from the left hand.
-10 dollars has been taken, and ten dollars has been spent and 5 dollars of debt has been accumulated.
-to eliminate the debt, all you have to do is decide not to buy that cd. then the left hand doesn't need the money back.

Well that was some kind of metaphor.

I think you missed the point. Btw, debt is a means to an end, being debt free is not an end in itself and something that isn't really sought after because it has more associated problems.

not sure what point you think i missed when my post was merely adding some additional food-for-thought type into to a thread.

i also never said you could eliminate the ntire debt this way, or even that it would be desireable.

sorry, i just thought that some folks would find it interesting. many people mistakenly believe that the us national debt is largely held by china and other foreign countries and that eventually it all must be paid back. But actually, those percentages are relatively small. OP and other posters referred to potential disaster that arises from debt that is overly large. The info i presented is meant to apease these worries, by showing how even a large amount of debt is not as major of a concern when it is just owed to oneself and therefore doesn't even necessarily have to be paid if we choose not to.

The idea that the debt is harmless because we owe it to ourselves is wrong.

The debt can only be paid back through taxation, so in essence it is already gone (spent).

Example from http://mises.org/story/2006 :

"Suppose you lend me a $20 bill, and I give you a piece of paper saying, "IOU $20 next Monday." I take my fresh twenty and go spend it on a nice dinner. Then Monday rolls around and you hand me the piece of paper. I reach into your wallet, pull out a different $20 bill, and hand it to you as I crumple up the IOU."

(Perhaps the author could have prefaced that last sentence with "I hold you up at gunpoint, then I reach into your wallet...". Try not paying your taxes and you will know what I mean.)

Now say I had spent that entire $20 to buy you dinner. I might claim you haven't lost anything, but certainly you could claim that you lost the right to spend that money in a more productive fashion. Perhaps you could have fed yourself just as well for $10 that night.

It's not the debt itself that is the problem, but the wasteful spending which that debt allows, and the forced spending on interest payments later.

While I somewhat agree w/ the post, it's a little much to presume that it's clearly wasteful spending for government to issue bonds and then spend the money.

What about infrastructure?

Stuff like that is the government's ability to leverage bonds for productive purposes.

I'm not saying all government spending is 100% wasteful. Even in the analogy you got $10 of value for your stolen $20.

But say the government spends 100 million on a road, but the road only proves to be worth 75 million in discounted future economic value. Clearly this road should not be built at this price, and any private company that consistently wasted money in this fashion would quickly be out of business. But the government is insulated from responsibility for such losses.