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I'm curious - do the people of the US not realize how absolutely, mind-blowingly terrible the finances of the US are? How enormous the deficit is, and how seriously this will hobble the US in the future?

That, to me, was the most remarkable thing about the last US election - how little attention was paid to the unbelievable rapid descent to national bankruptcy. This is something that will enormously impact the quality of life of every single American for years or decades to come, yet it was nary a footnote.

Obviously this is a concern for the rest of the world as well.
Permalink Dennis Forbes 
March 12th, 2005
As long as people trust America not to default on her obligations, the debt is just numbers. You can carry a debt forever as long as you keep making the interest payments. It may not be fiscally prudent, but it is not a disaster.
Permalink Ian Boys 
March 12th, 2005
"You can carry a debt forever as long as you keep making the interest payments."

Maintaining a debt is one thing (and really a static debt number is pretty good progress as your GDP appreciates and your debt remains constant), however the rate of accruing new debt, with no real end in sight, is alarming. This is the reason a number of foreign countries have started talk of "diversifying" their treasuries (which could devastate the US $) -- a lot of countries are very nervous about the US dollar right now.

The US can turn things around, but action will need to come very quickly, and overwhelmingly. It seems that everywhere in the world but the US itself there is tremendous concern about the fiscal situation the Bush presidency seems to consider the norm.
Permalink Dennis Forbes 
March 12th, 2005
I was also surprised. But it's not that surprising-- here in the US the general public is mostly clueless about finance. Johnny Q Public believes that the government simply prints money whenever it needs it.
Permalink Emma Blowgun 
March 12th, 2005
Nobody in the government is willing to suggest that parents are the reason Johnny can't read; what makes you think they'll suggest the reason Fred and Ethel are bankrupt were because they kept trying to keep up with the Joneses without having the money to do so?

Permalink Philo 
March 12th, 2005
There was a joke going around in the 1980's about the trade deficit with Japan (If you recall, this was when the Japanese were regarded as economic supermen)

"We get these great cars, televisions, and VCRs, and what do they ask for in return? Little pieces of green paper!"

Dennis - I agree with you. The national debt is at absurd levels, something like $20,000 per man, woman, and child. The interest alone is $1,200 per person per year (and growing!)

I think the Republicans say they intend to reduce it, but don't. The flip side of reducing taxes ought to be lowering expenditures to match, but that doesn't seem to ever happen. Under Clinton, the growth slowed, but I don't know if it was because of anything his administration did, or if it was because of the impending recession.
Permalink example 
March 12th, 2005
Many of us realize it but many don't or don't care. What I learned from the last election is to just enjoy this party while it lasts. There doesn't appear to be anything that can stop it.

I guess anything's possible but it's also hard to imagine a scenario where a catastrophic failure of the US economy could or would be allowed to happen. The repurcussions would be too great for everyone and there's no reason various fixes couldn't be put in place to straighten things out. The world economy is just a human creation afterall.

In a worst case scenario I expect we'll still have the best bombs and violent subcultures willing to kick some ass if necessary.
Permalink Doug 
March 12th, 2005
If a little 4 trillion deficit bothers you check out the
51 trillion unfunded liability for social security,
medicare and medicaid.
Just finished reading
"The coming generational storm"
From the review:
The main culprits are Social Security, Medicare and Medicaid. Quite simply we are incurring transfer payment obligations to our elderly so enormous that the working population will not be able to pay for them. And the terrible thing is that our government knows this--there have been many studies--but has neither the will nor the desire to do anything about it. Call it the crisis of representative democracy. No one in Congress or in the White House has the guts to tell the American people that we are going bankrupt. Everybody seems to think that the future will take care of itself, or, at any rate, that's THEIR problem. Maybe some fabulous invention or technology will confer upon my grandsons enormous wealth and all the financial obligations will disappear like wisps of clouds on a sunny day

read the review and the book
Permalink expr 
March 12th, 2005
I realized how bad it was, voted against it, and a small majority of Americans disagreed with me.

They asked for this mess quite explicitly. Grandma gets to eat cat food.
Permalink Aaron F Stanton 
March 12th, 2005
I agree that the deficit is bad, but to label it as bankruptcy is a bit off the mark to say the least. The current defiicit is just shy of 6% of GNP. Contrast that with other industrialized countries like Japan where their deficit is more like 100 - 150% of GNP. The EU requires its participating countries to be below 3% GDP which quite a few have to dance through hoops to get below that # and for many hover just below that mark.
Permalink NYCCoder 
March 12th, 2005
"I agree that the deficit is bad, but to label it as bankruptcy is a bit off the mark to say the least."

The risk is that the US is incurring massive deficits during _good_ times (economically the US is doing quite well). Deficits are an accepted reality during recessions and other downtimes, but on the flip side there should be a corrective action when the economy smooths out.

If the US is racking up debt so quickly, what will happen if there is a major economic disruption, such as an oil shock?
Permalink Dennis Forbes 
March 12th, 2005
The answer is quite simple: the printing presses will eventually elimiate the debt.

The US isn't the only big power with a debt problem:

Public debt by country: (in percentage of GDP)

US 62.4%
UK 51%
Japan 154%
Germany 64%
France 68%
Sweden 51%
China 30%

The lesson to be learned here is that the modern socialist democracy, whether based on the European or American models is an expensive system to maintain.
Permalink Duff 
March 12th, 2005
The deficit doesn't mean much until debts are called in and the caller given the awkward job of collecting from a borrower who has spent up big on weaponry instead of trading capacity. At that point the collector is either:

- paid in heavily devalued dollars
- given equity in the property
- asked in for a seat at the table
- induced to wait
- forced to fight for it, double or quits.

Or the dollar loses its reserve currency status once creditors lose faith and walk away.

The effects will fall most heavily on those with assets tied to the dollar. >Grandma gets to eat cat food< Actually, I think it's more likely to be the grandkids eating cat :-)

There comes a point where the elderly party hard as if there is no tomorrow and, if possible, making a splash to be remembered forever. The memories need not be affectionate, in fact baddies get more space in history.

The rest of us as we age would prefer to be inside and warm (or cool) than outside tramping the unsullied wilderness and so what if a few trees or species disappear. Now generalise this thinking...
Permalink trollop 
March 13th, 2005
Duff - where did you get such figures?

They seem rather high and incorrect. The US figure is more like 5-6% of GDP and for Germany 3%. Sweden and UK look to be way off the mark, too. Japan figure looks about right and they've been above the century mark since their economy bursted in the early 90s.

Here's some references:
Permalink NYCCoder 
March 13th, 2005
>Do the people of the US not realize how absolutely, mind-blowingly terrible the finances of the US are? How enormous the deficit is, and how seriously this will hobble the US in the future?
No. Behold the power of "framing." For more than 20 years, the propaganda claimed that Democrats were "tax and spenders." Yet they carefully ignored the "borrow and spend" actions of the Republicans. Therefore the selective amnesia rampaging across the US is that Republicans are somehow "fiscally responsible" when that party is in fact the most irresponsible of the 2 political parties.

The deficits are hugely increased by Republican administrations and the propagandists manage to successfully blame Democrats.
Permalink Peter 
March 13th, 2005
Dear NYC coder

Duff's figures are for the debt. Your figures are for the annual deficit (that is to say the amount of extra debt built up)

Probaby the most relevant figure is neither. It is the proportion of annual government income that goes towards servicing the debt. In some developing countries this is so high there is little lefr over for health care or education.

Also, you should be careful not to count the same debt twice. The so-called Social Security deficit in the States is in fact already included in the general deficit, since the social security fund invests in government bonds.
Permalink Stephen Jones 
March 13th, 2005
Doh! Stephen Jones, you are correct: debt v deficit. Both measures are important, it's just a matter of emphasis.

I misread Duff's his post by narrowly focusing on the deficit which is greater importance for the US and the OP's subject. For instance, no US Bond holder, including the chicken little ones is fearing default due to too much debt (at least not yet).

The growing deficit has helped weaken the dollar and turned off foreign investors, a big stakeholder from further funding our debt. In turn, that puts pressure on the fed reserve to raise rates to make things attractive and its all down hill from there - RE bubble bursting, inflation, etc.

The amount of debt is of greater empahsis for developing countries for the reasons you stated and their defaulting on such obligations is high, i.e Argentina. WB/IMF debt relief with strings attached is a good way to motivate such countries to be at least somewhat fiscally responsible among other things, IMHO.

Social security is currently running a surplus - accounting for 25% of federal receipts and 20% of its expenditures. It's not expected to go into deficit until conveniently just before the time I expect to retire. :-O
Permalink NYCCoder 
March 13th, 2005
> You can carry a debt forever as long as you keep making the interest payments.

That may be untrue: if I borrow 1000 for a fixed term (e.g. one year) and promise to pay back 1050 at the end of that term, this does *not* mean exactly that I can carry that debt forever ... what it does mean is that, at the end of the year, if I cannot or will not pay it back, then I must borrow 1000 again to pay back the 1000 that has since become due.

My guess (and I'm ignorant of economics, mind you) is that if investors lose confidence in the dollar, then they'll be unwilling to buy any further American government bonds (i.e. unwilling to continually refinance the debt). Sure the government might promise to pay me back in a few years with interest ... but even if it does, why would I want to invest in dollar bonds if the American dollar stands to lose significant value against my own currency?
Permalink Christopher Wells 
March 13th, 2005
> borrow 1000 again to pay back the 1000 that has since become due

That's how most consumer credit card debt works, by the way: the net effect of it is that the interest rates they ask of you depends on your credit-worthiness ... if anything happens to affect your credit rating, then your interest rates sky-rocket, and so it can suddenly become like 5 times harder for you than it was before to meet the interest payments on your debt.
Permalink Christopher Wells 
March 13th, 2005
The question I'm afraid to ask is: "What happens when the note comes due?"

Will it be a sudden shock, such as the crash of 1929? Or will it be a "muddle-through" situation, like we had in the late 1970s (stagflation, 18% interest rates, etc).

Obviously, no one has a crystal ball. But a peek at the March 10th, 2035 issue of the New York Times would be nice, if anyone has a copy.
Permalink example 
March 13th, 2005
Cheetos and wrestling... cheetos and wrestling.

Until John Q. Public goes to the store and discovers that his Cheetos cost him a month's salary, noone will give even the slightest of damneds.

The American public has zero foresight or care for these things. Until it impacts them directly (when it is too late) you can count on them continuing to back their favorite wrestler no matter how badly he wrecks the <insert wrestling league>'s finances.

I really wish there were a way to falsely affect such a disruption in the Cheeto supply to get the ball rolling on progress sooner.
Permalink I am Jack's Chavez Cheeto 
March 14th, 2005
>Social security is currently running a surplus - accounting for 25% of federal receipts and 20% of its expenditures. It's not expected to go into deficit until conveniently just before the time I expect to retire.

Be careful with the word "surplus"... that "surplus" is being used to buy long term treasury debt... there's no direct transfer from SS to the general fund.

US Treasury Securities are considered to be the lowest-risk investments, which is what Gore referred to as the "Social Security Lockbox". But since the "lockbox" consists loans from the government to the government, I wouldn't put much stock in it. :)

Social Security was always considered to be a self-funding program... the government was never intended to "save" money for future generations.

A few things changed from 1934 to the present:

- Life expectancy, particularly for women, increased. The average male will collect social security for 5-7 years. The average female today will collect social security for 13-15 years.

- Social Welfare mandates were moved from the general budget to programs like SSI

- Demographic shifts other than lifespan. Things like women entering the workforce, suburbanization and deindustrialization.
Permalink Duff 
March 14th, 2005
You're preaching to the choir and a former pension actuary. It is indeed "surplus" and not to be confused with a "reserve" which was never implied. For the latter there's the other government defined-benefit operation, the Pension Benefit Guaranty Corporation (PBGC). It you work for United Airlines, sadly you'll probably be very familiar with PBGC.
Permalink NYCCoder 
March 15th, 2005
So, NYCCoder, how much hair do you have now :P
Permalink Rick Tang 
March 15th, 2005
The newspapers out here in Denver have bunches of articles about how retired United workers are getting shafted on their pensions. Seems the max annual payout on a pension, when PBGC takes over, is around $44k/year, so more than a few retired folks are asking how they are going to live on $5k-$100k/year reductions in pension benefits.

I think the future scheme by the CEO class will be to go chapter 13 just to get out of pensions and 401ks. More than a few companies are doing it now.
Permalink Peter 
March 15th, 2005

This topic was orginally posted to the off-topic forum of the
Joel on Software discussion board.

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