Why is the national debt a problem?
Submitted by trianglechoke on Mon, 01/28/2008 - 13:02
I was talking with a very good friend of mine last night and he asked me why the national debt is such a problem if nothing bad happened to us during WWII?
I said the debt was no where near as big during WWII as it is now, even adjusted for inflation.
But I've been doing some research, and while I found that what I said was true, I also found a new graph that compares the national debt to GDP.
As you can see, the national debt compared to GDP after WWII was higher than it is now, about 120% compared to about 70% today.
So, what does this mean?
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Those GDP ratios
are always cited as evidence that the debt really isn't that bad. But it's a meaningless statistic. It is analogous to a debt to asset or debt to income ratio for a person or business. The only problem is the analogy doesn't hold up. It REALLY is a debt to PRODUCTION ratio which doesn't tell you diddly squat.
If you added up ALL the debt in the country - personal, corporate, state, local and federal - the sum would knock you off your feet. This would not include the money already promised by law if nothing is changed. (50-70 TRILLION on the federal level alone) Then you'd have to compare it to ALL of the actual revenue in the country or ALL of the assets of the country to get a good measure of solvency.
The easier thing to do is look only at a particular govt's debt load (federal in this case) and look at ITS assets or ITS revenue ONLY. Not the production of the whole nation. (which again, is PRODUCTION, not revenue or assets - also, the GDP figures include govt spending, meaning it gets counted on both sides of the equation - not smart) You would quickly see that the govt has no means to pay back ANY of that debt. But no matter, the only thing the bankers care about is being paid the interest - which is all we do anyway. But that is becoming increasingly difficult. If it hasn't already, the interest alone on the national debt will soon exceed all tax revenue. Sure, some will say that isn't possible because the deficit doesn't show that big each year, but they aren't looking at the accounting tricks used to make the deficit look so small. They aren't also considering this very important fact:
We no longer use MONEY instead we use CURRENCY which is BORROWED into circulation. That piece of paper called a 'dollar' in your wallet is not a dollar. A dollar is a specific amount of silver. (371.25 grains pure - or about .7783 troy ounces) That piece of paper is really a Federal Reserve Note - a bank note, which is issued to the U.S. govt by the Federal Reserve when the Treasury borrows it from the FED. Thus you don't use MONEY you use DEBT. (It's like using your mortgage to buy groceries - and in a way many people have done exactly that recently)
But back to why the debt is so bad - first off, why is it bad for YOU personally to hold debt you can't pay back? Well, same reason for the government. But with the added twist that without the ability to continue borrowing, the govt cant maintain itself. You see, as the govt borrows every dollar it spends, that is new currency that never existed. So as the 'money' supply increases - so will prices due to the fact that each 'dollar' is worth less with respect to goods and services. But if most of the currency that is newly created is taken overseas in the form of trade imbalances, then domestic prices rise only very slowly, though foreign goods will rise in price. If govt loses the ability to repay it s debt, then foreign govts will no longer loan it the money to operate. It then has to raise taxes, or print more currency itself. Since raising taxes is politically unpopular - it will always attempt to inflate it's way out of the mess and thus destroy it's currency. This has happened throughout history in one form or another.
We didn't collapse after WWII because the nation didn't owe that debt, the government did. Plus we could not only pay the interest, but the principle as well. We also had tax rates approaching 95% for the top rate. That is no longer the case. Something you might not know - the National Government declared bankruptcy in March, 1933. That's when they swindled people into turning in their gold. The govt had a debt it could not pay and so it stole money from the people to do it. The govt continued to pay foreigners gold for their Federal Reserve Notes at the ratio of $42.22 to the ounce until 1971. That's when our currency really took a hit and began losing value like a lead weight. It was also this event that prompted Ron Paul to be interested in public service.
Had the agreement to use the 'dollar' as the world reserve currency and to force all nations to buy and sell oil for dollars no matter where traded, not been implemented, the U.S. would have undergone complete collapse in the late 70's early 80's. The oil agreement only delayed the inevitable. It is also the real reason we invaded Iraq - Saddam had stopped selling oil for dollars and started selling it for Euro's - this was bad for the dollar. Chavez, and Ahmadenijad have threatened similar action which is why we talk trash about them in the press.
We live beyond our means, and we use debt for money. Collapse is assured.
Two words - unfunded liabilities
It's really an apples and oranges comparison because as David Walker explains, Medicare and Social Security upcoming liabilities are approaching like a tsunami. Any company that ignored and did not account for these liabilities would be sued by its shareholders.
Check our GDP in a year and compare again
ill bet it looks alot different. 70% of our GDP is discretionary. im guessing its gonna shrink.....
Retired people won't get what they were promised
Turns out Social Security was a Ponzi scheme.
Retirees - Double Whammy
I am 60 and my husband is 63. We are still saving toward our retirement. I feel like we take one step backward for every two forward. The first whammy - less earnings on investments:
1) We have most of our cash in an interest bearing investment account. Every time the Fed lowers rates our interest earned goes down. We were earning 5.50% up until Sept. 07. That's when they cut the Fed Funds rate to 4.75. They cut another .25% in Oct. , .25% in Dec. and a whopping cut of .75% in Jan. 08. That's a total of l.75% less we are now earning. Even if we qualify for the maximum tax rebate, it will be a drop in the bucket compared to what we have already lost because of the rate cuts. To add insult to injury, we have to pay taxes on what little bit we do earn.
2) My husband has an 401k with his current employer. He contributes the maximum allowed because it is sheltered from taxes and because his employer has a generous matching program. Most of you who have a 401k where you work know the investment options are quite limited. Couple that with the fees paid to the managers of these funds and you end up with a nominal return.
3) We both have an IRA account. At one time all of our money in these accounts was in various stocks. The market was so bearish and there was so much short-selling, we kept watching the value of our account go down, down, down. Now, most of our IRA money is in high-yield money market accounts. We are only earning about 3.25% on these accounts, but at least we are not see our principal decrease like it was when the money was in stocks.
The second whammy - social security cuts.
Unless drastic measures are taken to cut spending soon, and I don't think they will be, I fully expect to see social security benefits cut 20-25% in the next 8-10 years.
We had planned to fully retire in 4-5 years. Now it looks like one or both of us will have to work part-time just to have a standard of living much lower than the one we now enjoy.
What fog do you exist in,
What fog do you exist in, Noelle?
Two Problems
Foreigners are now funding the debt and the annual interest expense runs at $500 billion, about half of what the IRS collects. Also, countries like Norway run budget surpluses and then they invest those surpluses to shore up future generations, in the event a couple of lean decades turn up. It's prudent, period. Currently, we are leaving future generations with an unsustainable debt burden. Add "immoral" to the above reasons.
Plano TX
Interest expense keeps increasing every year
As our debt increases, so does our interest payments on that debt.
We borrow more every year and thus our interest we pay is increasing every year and will continue to do so. The fact that our real debt and obligations are undervalued does not help.
The time value and compounding of interest is a very powerful tool when saving. On the other hand, when one is in debt, the compounding can and will be disasterous when you are sinking into more and more debt. The fact that the US bonds are even being considered to be lowered by Moodys reflects that too much debt is not good for our country.
http://www.federalbudget.com/
$9,193,053,268,365.71 or $30,000 per U.S. resident!
Why?
"The debt is at about $30,000 per U.S. resident! Or an incredible figure, ever rising it seems of about $9,193,053,268,365.71 !!! "
DEBT=MONEY, which is why the feds cutting the interest rates is an easy patch to the pain, but not the cure (just blow the bubble up a bit more with money created from ether. Tesla would be amazed!)
E=MC2... "Energy is never created or destroyed" You would think our economist and Fed-friends printing the ever less valued US Dollars would learn something from that, now would you?
See:
http://ronpaul.myfeedportal.com/viewarticle.php?articleid=37
"John McCain- Your Money for Nothing."
http://ronpaul.myfeedportal.com/viewarticle.php?articleid=42
I always laugh when the
I always laugh when the media says "every American owes X number of dollars." I owe nothing; I am 100% debt-free. I don't spend money I don't have. "Cash on the barrel" is my motto. This means I don't have all the cool toys my friends have, but I don't care about toys the way most people do.
I owe precisely zero percent of the national debt. I refuse to shoulder one dime of it, because I am responsible for none of it.
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Liberty for Dummies
Ron Paul featured in these debt/fiat/Fed/money videos
Money Banking and the Federal Reserve (41 minutes)
http://video.google.com/videoplay?docid=-466210540567002553
Fiat Empire (2 hours)
http://video.aol.com/video-detail/the-truth-fiat-empire-the-...
Two issues
The first issue (as someone said below) is who our creditors are. In the 40's, our country saved and financed the debt (and the war) ourselves. Now, China, Japan and Saudi Arabia are the main creditors. So as long as we can fool them into holding our worthless pieces of paper we should be ok. However, would you be anxious to hold a country's debt that paid you 3% interest, when the value of their currency was declining 10% per year versus yours. This means they are getting a negative savings rate in terms of their own currency. They will certain want to stop lending to us eventually.
The 2nd problem is the good old GDP. I won't get into it all, but in the 40's our gdp was made up of stuff actually made here. Now the GDP includes clothes and shoes and tvs and stuff from China, and Japan. Big difference. To balance these imports we have exported our financial system which is now a mess. Seriously, how long before people stop seeing our government bonds as a safe haven? I sure as hell would not own them. Think USSR circa 1990.
So you're telling me the national debt is not a problem
To those here who say the national debt is not a problem...
You gotta be kidding me!
I have owned or run businesses all of my adult life.
If I net $125,000 a year from operations and I have to pay out $135,000 in debt payments I am insolvent. I must borrow more or default on debt payments.
My creditors will close me down and liquidate to resolve the debt.Better yet, file bankruptcy and have a judge assign a creditor's committee to climb up my butt or fire me and appoint a receiver.
Sure, too much debt is no problem.
Oh yeah. Our national debt is only a percentage of our GNP, no problem. It is the ability to meet the obligation NOT percentage of GNP. I wish the bank would listen to that when the loan goes into default. No problem? What!? Hey Mr. Banker? My f%$ing loan payment is only 30% of my net income...we are AOK even though I didn't make the payment.
The next argument:
It's OK, the fed will print more money to ease liquidity and then tighten credit by raising interest rates later on and the dollar will strengthen. Greenspan speak and people still think it's real.
Do you know who owns the federal reserve bank? Do you know why they want to own it? Are you kidding me?!
They control the money which is how they control YOU. They destroy our currency when they want to and and the debt ties us in with the other nations of the world so we lose our sovereignty.
Yea, OK, no problem.
The world bank will appoint a creditor's committee made up of their people and will tell our useless, gutless, bought and paid for congress what to do.
You think that hiding behind a printing press is going to do it? Ok, all the other countries devalue their money at the same time."competitive devaluation." Wrong, we are talking about WHO holds OUR debt and thus who has power over us.
Yes, there is no problem if you want to be f^%$ing Uganda, waiting for the world bank to send you some rice.
"No, that isn't doomsday."
What?!
Then what is doomsday?
Yes, it really is no problem except you lose the country, other than that, no problem.
For those who think it is a problem.
Listen to the man who has studied this subject for longer and in more depth than anyone on this board.
Dr. Paul says national debt is bad you better think it is bad or go vote for "bomb Iran."
The people who control the debt are bad.
Control of your own destiny is good.
Final test. I work for IBM, Boss calls me and and says, "We are offering everyone a choice for their paycheck...you can have 'US no problem national debt dollars' or Gold...what'll it be, big boy?"
"Gee, I gotta think about this, boss...can I get back to you?"
"No problem."
Unify
You believe numbers
from the government. Ha ha ha ha ha. WWII we made things our industry is in China. We are like Italy a service industry guess what it doesn't work.
Prepare & Share the Message of Freedom through Positive-Peaceful-Activism.
Debt to whom is the problem
We're paying interest to China, etc.
What about that aspect of it
Prior to the mid 80's
and I forget the exact year, around 83 I believe, we were a Producer (surplus) nation. We are now a Consumer (debtor) nation. Think of it this way, you have a job making an income. You have debt and have income that exceeds your debt payment. You have a surplus.
Now you increase your debt for consumption, the new debt produces zero income for you. You suddenly find that your monthly requirements exceed your income, so in order to meet your requirements you must aquire more debt. At some point in time the creditors will cut of your credit supply as they begin to feel that you will not be able to repay your debt. And then your stuck, bankruptcy.
It all comes down to not our GDP, but our trade deficit. We are a consumer nation now, not a producer nation that we were in the WWII era.
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"Ehhh, What's ups Doc?" B.Bunny "Scwewy Wabbit!"E. Fudd
People's Awareness Coalition: Deprogramming Sequence
Who is holding the debt?
During WWII, the debt was financed by American citizens, purchasing "war bonds".
Today's debt is being held by foreigners in the form of dollars. The more dollars we print, the less our dollar is worth, and the less likelty these foreigners will hold onto dollars.
When they dump dollars, our economy will crash and burn, and we will see hyperinflation, as all those printed dollars will flood the USA, chasing the finite amount of goods that are here.
America is sick, call a doctor! Dr. Ron Paul.
Those "printed" dollars
have never been printed. This is THE reason we won't see hyperinflation. The ONLY way for hyperinflation to occur is if there IS a physical printing of all these dollars, and that's not likely, as the post below this one states, the FED is smart enough to know what happens if they start physically printing all this money.
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"Ehhh, What's ups Doc?" B.Bunny "Scwewy Wabbit!"E. Fudd
People's Awareness Coalition: Deprogramming Sequence
not going to happen
Hyperinflation is not going to happen. The Fed is not that stupid. They'll eventually raise interest rates when inflation gets too high, and then we'll have a recession and the dollar will stabilize. Then we'll eventually go into an expansionary phase again. Repeat ad nauseum. Doomsday is not going to happen.
Stupidity has nothing to do with it..
... or the stupidity has already happened, whichever way you care to look at it. If the rest of the world decides to "cash in" their dollars by buying US assets, then all those bucks come home. Right now, M0 is about $700 billion (the number of physical dollars in circulation) while the M3 is about $15 trillion (total outstanding dollars). M1 and M2 (deposits, savings, currency, etc) is about $8.7 trillion, leaving the other $6.3 trillion floating around outside the US. If those trillions come home (get cycled back into the national economy), then we'll nearly double the "narrow money supply". The only reason we're not suffering hyperinflationary throes now is the fact that a lions share of our money stays out of circulation.
But all those Trillions
are not printed. They are digits, book entries. If the government defaults on this debt, then those "digits" go "poof" into thin air, from whcih they came. If the FED physically prints the money, well then it is in circulation, physically, and the results would then be hyperinflation. But until the money PHYSICALLY exist, deflation is the major crisis to fear.
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"Ehhh, What's ups Doc?" B.Bunny "Scwewy Wabbit!"E. Fudd
People's Awareness Coalition: Deprogramming Sequence
The Fed causes inflation, and true inflation is underreported
Inflation IS high. The government CPI does not include housing, healthcare or energy rises. These big items are replace with hedonic adjustments (political fixing of the numbers).
http://seekingalpha.com/article/24382-the-sordid-truth-about...
Hyperinflation HAS happened in other countries. In the US the Fed prefers to steal your money (inflationary devaluation of currency) at a slow and steady rate of about 9% per year. Look at the long term charts to see this theft pattern. 96% of the value of the dollar (federal reserve note) has been lost since the Federal Reserve Act of 1913.
http://www.youtube.com/watch?v=OF2jDjicxtw
I wouldn't consider the debt bad...
IF we weren't sending hundred of billions of dollars around the globe and IF the Government of ALL Levels weren't such huge wasters of money. and then not to forget the billions of dollars that are unaccounted for. As for sending the hundred of billions around the globe I do find it to be Outragious with so much going wrong in our own country. It's high time we take care of the American People First for a change.
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"We, the people are the rightful masters of both Congress and the courts, not to overthrow the Constitution, but to overthrow men who pervert the Constitution." Abraham Lincoln
You also have to factor in
You also have to factor in the personal debt of the average american citizen to the total debt figure if you want an idea of whether it'll ever get paid. If I remember correctly, we have a negative savings rate in the US which is terribly prophetic of future consumer spending patterns whereby people will likely continue to spend spend spend and, in turn, borrow significantly to do so. I could imagine the US resorting to hyperinflation to pay off the debt just prior to adopting something like the Amero. Buy gold.
There is no need to ever pay off the debt.
There is no need to ever pay off the debt. Just like you can live your whole life with credit card debt, so can the U.S. government. What's a problem is if it continually rises out of proportion with your income. That's not happening with the U.S. GDP and aational income are rising faster than debt. This can go on indefinitely.
National income vs Debt
Page 9 of this link shows how expenditures are scheduled for dramatic increases. Soon these expenses will be debt-funded. This is while huge tax increases and spending cuts are both vehemently opposed by lawmakers and voters both. That's why there is a problem. Debt is about to overwhelm income.
http://www.gao.gov/cghome...
-JP
The first 5 million supporters of Dr. Paul are 'early adopters.' The next 10 million will require a modified approach.
I heard the same garbage
I heard the same garbage from some of my professors in my old economics classes. But we're not talking about a corporate entity where it's acceptable to have a significant amount of debt so long as the interest paid on the loan obligation is lower than the return from investing the loaned funds. In that sort of situation there is an acceptable level of debt...it's reasonable. But, people borrow from the Fed and peg their currencies to the dollar because of the perceived stability of the dollar and the US Government. With amalgamated currencies like the Euro out there providing competitive rates with stronger currency, you'll soon see what's going to happen.
Countries will start to de-peg their currencies from ours and invest in something other than US government bonds. The debt is very real and the only thing forstalling a crisis is the fact that we MAY be able to pay it off. But with promised entitlements looming on the horizon, the debt we already have, and the reckless spending by congress, the possibility of the debt being satisfied with a strong dollar is unlikely.
But if you believe that the debt doesn't need to be repaid, then you can try an experiment. Go out and personally apply for credit whenever you need something and max out your cards. Regardless of your income, keep doing that and see if the lenders continue to give you their money to spend. I, on the other hand, will pay down my debts as quickly as possible. Let's see who's in better shape when it's time to retire.
GDP to Debt
It's important to look at the ration of GDP to debt. Most people are looking only at the rising debt but that's misleading. Our debt situation right now is not that bad. We can go on indefinitely in debt as long as the GDP to debt is relatively stable.
Completely Wrong!
There is a “logic bomb” built into the increasing debt situation.
Eventually just the INTEREST on the debt will equal all of the taxes/tariffs/fees that are collected by the United States. Currently 1/3 of the budget goes to pay off interest on the national debt. The rising debt will overtake our ability to pay!
http://www.federalbudget.com/
Fiat Empire (2 hours – features Ron Paul)
http://video.aol.com/video-detail/the-truth-fiat-empire-the-...
Money Masters (3.5 hours)
http://video.google.com/videoplay?docid=-515319560256183936
What others said about why it's different now, PLUS
debt includes commitments and the promises of Medicare, Medicaid and Social Secirty, combined with the retiring baby boom generation, commits this nation to returning to WW2 level debt.
See page 9 of this link:
http://www.gao.gov/cghome/d08395cg.pdf
It's not debt to GDP, but expenditures that are just now requiring debt extension.
-JP
The first 5 million supporters of Dr. Paul are 'early adopters.' The next 10 million will require a modified approach.