U.S.'s $13 Trillion Debt Poised to Overtake GDP • Hacker News Board

Re: U.S.'s $13 Trillion Debt Poised to Overtake GDP

#11

Post by Perceval » Mon, Jun 07, 2010, 2:21 AM UTC

jameskilton wrote: post #6

jswinghammer wrote: post #4

It's interesting that many people seem to have accepted that endlessly taking on more debt is a good idea. Debt has to paid off and you can't just take it on endlessly. I wonder what the future looks like if the United States continues to take on more and more debt. Right now we can't really pay it off ever so we're stuck servicing it forever. Seems like we're giving our children a much worse world than the one we we…

Our future will pretty closely mirror what's going on in Europe right now. Greece's debt is some 115% of it's GDP and Italy has around 110%. What happens to Europe, and particularly the PIIGS nations in the next few months will be very important to pretty much the rest of the developed world. And besides that, we can look to history to show us that most major empires (e.g. Roman, Ottoman, British) that ended up colla…

Not entirely. Greece and Italy cannot issue the currency in which their debt is denominated. The Germans (and French to a lesser extent) control the ECB. The U.S. can issue the currency its debt is denominated in. That puts us in a different situation than Greece. Not necessarily better, but not as imminently bad either.

Re: U.S.'s $13 Trillion Debt Poised to Overtake GDP

#12

Post by aufreak3 » Mon, Jun 07, 2010, 2:30 AM UTC

A dumb question - isn't the GDP a per-year figure whereas the debt a total figure? ... so doesn't it simply mean that if all GDP goes to paying off the debt, it will necessarily take more than 1 year. That pay off period is increasing and about to cross the 1 year threshold, but I'm not getting the "debt cycle" concept .. in other words what is the difference between 1year-delta and 1year+delta?

Re: U.S.'s $13 Trillion Debt Poised to Overtake GDP

#13

Post by techiferous » Mon, Jun 07, 2010, 2:37 AM UTC

Perceval wrote: post #11

jameskilton wrote: post #6

Earlier quoted context omitted.

Our future will pretty closely mirror what's going on in Europe right now. Greece's debt is some 115% of it's GDP and Italy has around 110%. What happens to Europe, and particularly the PIIGS nations in the next few months will be very important to pretty much the rest of the developed world. And besides that, we can look to history to show us that most major empires (e.g. Roman, Ottoman, British) that ended up colla…

Not entirely. Greece and Italy cannot issue the currency in which their debt is denominated. The Germans (and French to a lesser extent) control the ECB. The U.S. can issue the currency its debt is denominated in. That puts us in a different situation than Greece. Not necessarily better, but not as imminently bad either.

Would this mean that the U.S. dollar, being fiat currency, would not be a good place to keep your wealth?

Re: U.S.'s $13 Trillion Debt Poised to Overtake GDP

#14

Post by kiba » Mon, Jun 07, 2010, 2:38 AM UTC

jrockway wrote: post #9

emrosenf wrote: post #5

Earlier quoted context omitted.

According to this NYT article ( http://www.nytimes.com/2009/11/23/business/23rates.html ), debt service was $202B in 2009. It is projected to go to $700B in 2019. To put that in perspective, $500B more than covers what we spend on education, energy, homeland security and the wars in Iraq and Afghanistan. Of course, this assumes that our interest rates stay the same. I don't see how this is possible as our debt/GDP ri…

I don't think we are choking ourselves. Loaning money to the US government means the government can use all its resources to pay you back. We have not tapped any of those resources yet; taxes in the US are pretty low compared to the rest of the developed world. Also keep in mind that the government can loan money at a higher interest rate than it can borrow it at. (I am not sure how much income this generates, though…

Higher taxes might actually lead to lower tax revenues or a tax revolt. There's no such thing as a free lunch.

Re: U.S.'s $13 Trillion Debt Poised to Overtake GDP

#15

Post by jsz0 » Mon, Jun 07, 2010, 2:39 AM UTC

Like anything else in America we're going to need a crisis for anyone to even consider doing something to resolve the problem. It seems to me that a drastic cut in military spending, raising the retirement age to 70, raising taxes on everyone, closing tax loopholes, and an across the board cut of 5%-10% should be a good start to get this resolved in the next 20 years.

Re: U.S.'s $13 Trillion Debt Poised to Overtake GDP

#16

Post by adbge » Mon, Jun 07, 2010, 2:43 AM UTC

jsz0 wrote: post #15

Like anything else in America we're going to need a crisis for anyone to even consider doing something to resolve the problem. It seems to me that a drastic cut in military spending, raising the retirement age to 70, raising taxes on everyone , closing tax loopholes, and an across the board cut of 5%-10% should be a good start to get this resolved in the next 20 years.

Or a drastic reduction in our bloated bureaucracy.

Re: U.S.'s $13 Trillion Debt Poised to Overtake GDP

#17

Post by philwelch » Mon, Jun 07, 2010, 2:54 AM UTC

kiba wrote: post #14

jrockway wrote: post #9

Earlier quoted context omitted.

I don't think we are choking ourselves. Loaning money to the US government means the government can use all its resources to pay you back. We have not tapped any of those resources yet; taxes in the US are pretty low compared to the rest of the developed world. Also keep in mind that the government can loan money at a higher interest rate than it can borrow it at. (I am not sure how much income this generates, though…

Higher taxes might actually lead to lower tax revenues or a tax revolt. There's no such thing as a free lunch.

We're not so far down the Laffer curve that raising taxes would lower revenues, and it's unlikely we will be anytime soon.

Re: U.S.'s $13 Trillion Debt Poised to Overtake GDP

#18

Post by fghjkoi8uygt » Mon, Jun 07, 2010, 2:58 AM UTC

bradgessler wrote: post #8

jswinghammer wrote: post #4

It's interesting that many people seem to have accepted that endlessly taking on more debt is a good idea. Debt has to paid off and you can't just take it on endlessly. I wonder what the future looks like if the United States continues to take on more and more debt. Right now we can't really pay it off ever so we're stuck servicing it forever. Seems like we're giving our children a much worse world than the one we we…

How will the average Joe be affected by all this?

When the value of the dollar drops the cost of anything foreign you have to buy goes up.

Like that black oily stuff you are so fond of?

Re: U.S.'s $13 Trillion Debt Poised to Overtake GDP

#19

Post by bd_at_rivenhill » Mon, Jun 07, 2010, 3:01 AM UTC

techiferous wrote: post #13

Perceval wrote: post #11

Earlier quoted context omitted.

Not entirely. Greece and Italy cannot issue the currency in which their debt is denominated. The Germans (and French to a lesser extent) control the ECB. The U.S. can issue the currency its debt is denominated in. That puts us in a different situation than Greece. Not necessarily better, but not as imminently bad either.

Would this mean that the U.S. dollar, being fiat currency, would not be a good place to keep your wealth?

There are other fiat currencies issued by governments that are managing their finances better, but if you decide to purchase debt issued by those governments, be sure to understand the fact that you are making a bet on the relative value of currencies and that factors other debt load and fiscal policy will affect these values, especially in the short run.

Re: U.S.'s $13 Trillion Debt Poised to Overtake GDP

#20

Post by bd_at_rivenhill » Mon, Jun 07, 2010, 3:07 AM UTC

philwelch wrote: post #17

kiba wrote: post #14

Earlier quoted context omitted.

Higher taxes might actually lead to lower tax revenues or a tax revolt. There's no such thing as a free lunch.

We're not so far down the Laffer curve that raising taxes would lower revenues, and it's unlikely we will be anytime soon.

On the other hand, technology has significantly reduced the cost of tax avoidance for high net worth individuals compared to what it was during the Clinton era.