TIME mag: The U.S. Is Not Drowning In Debt

This article was on the 15th of July. I don't see it in search anywhere. I happened upon it just surfing, and it caught me by surprise. When I did the ATS search, esp in this forum, of course I came across dozens of "drowning in debt iminent catastrophe OMG everybody WTF time for a revolution". And I have, admittedly, been aboard for the ride.

Watching the market news from major global newsfeeds, it seems the entire global public believes this stuff, including a lot of commentators, analysts, econ-whizzes, etc.

So, ATS, what do you make of THIS notion?

moneyland.time.com...

In case you haven’t noticed, Washington is currently consumed in an acrimonious debate over whether to raise the debt ceiling. There is no agreement about whether to do so or how, but both parties appear to accept the logic that the United States is suffering from an unacceptably high level of government debt and that further debt will doom the U.S. to generations of decline. Judging by polling data, large swaths of the country agree. Nonetheless, that consensus is wrong.

The Republicans have generally been most vocal on this score. Eric Cantor, the House Majority Leader and a major player in the negotiations, has said,


“The government is a fiscal train wreck. It is over $14 trillion in debt and borrows nearly 40 cents of every dollar that it spends. Before us lie two divergent paths: one defined by crushing debt, slow growth and diminished opportunity; and one defined by achievement, innovation and American leadership. We stand at a crossroads. If we are to leave our children a nation that offers everyone a fair shot at earning their success, we must take the later path… House Republicans have taken an honest, responsible approach to confront the debt crisis facing our nation.”

Yet even President Obama believes further debt is untenable and has pledged to cut spending by trillions of dollars in the coming years.

Okay, so far so good. I'm following.

What neither side seems to recognize — or at least acknowledge — is that what matters about the debt isn’t the dollar amount per se, but how much it costs us to service it. And by that measure, the debt isn’t nearly as big a problem as it’s being made out to be.

Yes, the federal debt has grown by nearly $3 trillion dollars in the past three years. And yes, the dollar amount of that debt is quite large (in excess of $14 trillion and headed toward $15 trillion should the ceiling be raised). But large numbers are not the problem. The U.S. has a large economy (slightly larger than that debt number). And, crucially, we have very low interest rates.

Because of those low rates, the amount the U.S. government pays to service its debt is, relative to the size of the economy, less than it was paying throughout the boom years of the 1980s and 1990s and for most of the last decade. The Congressional Budget Office estimates that net interest on the debt (which is what the government pays to service it) would be $225 billion for fiscal year 2011. The latest figures put that a bit higher, so let’s call it $250 billion. That’s about 1.6% of American output, which is lower than at any point since the 1970s – except for 2003 through 2005, when it was closer to 1.4%.

Really! You don't say!!
Well, tell me more...

Under Ronald Reagan, the first George Bush, and Bill Clinton, payments on federal debt often got above 3% of GDP. Under Bush the second, payments were about where they are now. Yet suddenly, we are in a near collective hysteria.

you betcha, bubba! We sure are!
Now, in the Reagan, Bush, and Clinton eras, there wasn't internet access the way there is now. There were bulletin boards that ran in alt formats on DOS-based (no windows) computers, all on pay-per-use dial-up as I recall, and your phone was tied up while you "surfed." So, there was next to no one aware of these issues on the scale that they are today - only those who, I presume, read the WSJ, and were in banking or the govt themselves. I don't recall there being a public outrage at all. As I recall it, we had a BALANCED BUDGET.

So, what is this new "nah, don't worry!" spin? Who is this Zachary Karabell, and why on earth should anyone believe him?

sigh. Let's read on....

If you point all this out, the response you typically get is that today’s interest rates are artificially and atypically low — and that when they skyrocket, that debt burden will become much more painful. Well, yes, but rates don’t skyrocket unless there is a collapse of market confidence. Rates may rise, and that will force hard choices in future spending or trigger the need for new sources of revenue. But only crisis triggers dramatic rate swings, and the only thing that will create that crisis is brinksmanship over the debt ceiling or levels of debt that are substantially higher than they are now.

I’m not saying that the money we’ve borrowed recently has been well spent. One could persuasively argue that the government has done a terrible job of using debt to spur economic activity. But that has nothing to do with whether the debt is itself harming the country.

This view of debt isn’t popular. But the numbers aren’t debatable and indicate that by historical standards there is no debt emergency except for the one we are making.

Our diminishing competitiveness and ability to invest in the future – those are real crises, and ones that the debt ceiling debate will do nothing to solve..

So, are we all just frothing at the mouth over nothing really? Or was this schmuck just hired to try to quell the "hysteria"?

Now, I admit that I have only recently paid much attention to the "markets" and the "govt" at all; I used to be fine just raising my kids, paying my bills, balancing the checkbook, and carrying on with faith that our noble leaders would see to things in a responsible and ethical and legal manner. Was I naive? Was it a conspiracy THEN? Or is this a conspiracy NOW?

Can ATS help me see the middle ground somewhere?

First thing that came to mind was......... REALLY???? lmao

What happens when the 4 to 6 million foreclosed houses actually becomes losses on the banks books?
I did not see that mentioned in the article. Just wait when they can't hide those loses anymore.

reply to post by KoolerKing


yup, that will be interesting!
I am very curious to see how this all pans out. I suspect that, much as we want it, there won't be a huge crisis and the USA won't default....it's a game of chicken.

reply to post by wildtimes
[more

Sooner or later the giant ponzi scam will come down. Nothing like ruining the future of the next few generations.

Time Magazine, hmm are`nt they controlled by the gov??? ya I believe it is a ruse in an attempt to side track us..nice try but I dont believe anything MSM tells me. The obvious that which is around me us the americans is where the truth is, and even though the MSM and government wont take a real look at our actual lives all there mumble jumble talkign wont change what "IS". and what IS, is the fact people are loosing homes by the thousands, unemployment is rising again, the homeless camps are increasing. America dotn haev any money the world knows this, we are about to regress in life fellow americans, disbelief wont change it anymore then advertising lies...wake up we are not dumb, least not all of us

The USA isn't drowning in debt. Our "Normal" spending isn't going to undo our nation. It's the additional 600 billion here, 700 billion there, 4 trillion for banks everywhere. It's crap like that which has been the undoing of the country.. at current levels of constant "stimuluses" we cannot survive ..

It's not that tomorrow we will default, it's that within a few years we will. I honestly doubt any solution given by Congress is going to fix anything.. in the short term or the long term.

reply to post by KoolerKing

If it were only me, I would just sit back and watch, and put on my sociology hat. But I have two "Millenials", who are just entering the workforce. I also have a widowed mother, who is comfortably living due to my father's hard work ethic and sensible economic policies. I worry for all of them....

If my mom loses everything (she will still have a paid-for home), what then?
I can't afford to support her!

If my kids can't find jobs, and are drowing in debt because of this greedy corruption, what will their futures be like?

These worries trouble me greatly. I am saddened, when I think of those I love and the future generations. OTOH, we are the second generation since the adults who suffered the Great Depression - my parents were born in the 30s...and things are now on a much different track. Maybe when all these dinos in govt finally keel over, the new leadership will have seen enough to have learned.
Maybe.
Just maybe.

People still buy Time magazine? What's the point? I've learned more stuff just by Googling. And it's instantaneous.

reply to post by Rockpuck

I saw another article
www.cnn.com...

Debt risk appalling, but solution is simple

saying that it's the two wars that are going NOWHERE

(CNN) -- As one who teaches Economics 101 and, as a professor and international consultant who makes a career out of giving macroeconomic advice to other countries, I find the current impasse in the United States both appalling in its potential risks and frustrating in the simplicity of the solutions that are hardly even talked about.

The implications of a U.S. government default are far bigger and far more uncertain than most accounts would have you believe. It is certainly true that the immediate effect would be higher interest rates on U.S. government bonds -- with depressing effects on any economic activity that is interest sensitive, from real estate to business investment to student and consumer loans.

In other words, we would be kicking an economy that is already in a fragile state. (The government reported Friday that the economy grew in the second quarter at only 1.3%.)

Worse than that, and much more uncertain, is the effect of setting adrift what has been the anchor of the world economy for many decades. The U.S. dollar and U.S. Treasury obligations have long been the rock solid basis for measuring the value and risk associated with every other currency and financial asset in the world.

And, interestingly enough, it was on CNN's page where they list the "we recommend" articles on other sites that I found the one cited in this thread!

He says:

We would be putting an end to that, and the consequences are largely unknown since no country on Earth ever has or ever would voluntarily depose itself from that favored position. Being the world's reserve currency gives us an immense free ride when it comes to economic policy.

We, and we alone, get to spend billions of dollars and watch as other countries in the world simply absorb them as international reserves. Their willingness to hold large amounts in dollar assets such as Treasury bonds means our interest rates are permanently lower than they would be otherwise, something that we have come to take for granted but won't be able to keep on doing if we default.

While it would be tempting to view the euro as a viable alternative, the current disarray in European economies means that there is no obvious alternative to the dollar, should we be so irresponsible and, yes, crazy as to allow the default of the U.S. government.

A worldwide financial meltdown is just one of the scenarios that become possible to imagine, since there is no other government with all of the requisite characteristics to serve as the world's lender of last resort: What is needed is adequate size relative to the world economy, enough financial flexibility to step in where needed, and the political will to do so. The United States has been that country since World War II, but the Europeans are demonstrating in their own current crisis that they are reluctant to act decisively even with the European Union itself.

Who will lose if there is a default? The first losers will be everyone with a stock or bond portfolio. Rising interest rates will put a major hole in the value of all of our retirement savings. Second, as economic activity inevitably drops in response, we will all suffer a second downward phase of the current recession. It would stop being called a "recession" and would merit the name "depression." It won't be pretty.

Who will win? It is fashionable for the "out" party to imagine that it will benefit from economic bad news in an election year. But it is hard to believe that conventional wisdom will be reliable, particularly if Republican intransigence is seen to have been a contributing factor. In short, nobody will win. Nobody at all.

Duh

How to get out of this fix? Certainly the easiest solution in the short run would be for Congress to pass the one sentence of legislation required to raise the debt ceiling. But if a solution "requires" multitrillion dollar spending cuts, then we should be careful what we wish for.

Rather than economic chaos, we would have a massive government-induced negative shock to an economy already teetering on the edge of a second downturn in activity. It is hard to believe that our politicians are competing with each other to see how far down this road they can go.

Like, a game of chicken? Oh yeah, I already said that.
So, what do you suggest?

Were I advising a low-income country that had no choice but to listen to my advice, I would have a simple message: "You got in to this mess by passing huge tax cuts over the past 10 years and starting two wars that clearly have gone as far as they are going to go in terms of achieving your goals. So just let those tax cuts expire next year and end the two wars and you will have done more to reassure long-term investors than anything else you could possibly do. That will give you the room you need to make investments to start growing again."

But though Senate Majority Leader Harry Reid's plan does count savings from winding down the wars, House Speaker John Boehner's doesn't, and letting the Bush tax cuts expire doesn't seem to even be part of the discussion. You have to wonder why.

Uh, YEAH~!!! I DO WONDER WHY!!!
Those freaking tax cuts -- which were SUPPOSED to expire -- are the problem!

Acckkkghhh!
Now I'm too irritated to continue. I'll be back, but for now, I gotta take a step back.

reply to post by eldard


I stopped reading it when it was purchased by the same company that runs CNN. Now it's essentially a blatant Liberal rag that I wouldn't even read for free.

reply to post by wildtimes


CNN is a bunch of a morons, CNN, MSNBC, FOX etc etc etc all couldn't tell you a damn thing right about anything economic. The fear and hystaria is obscene, it's disgusting.. Their sole objective is to make Obama look like the only adult in a circus of children. It's been 3 months since we hit the debt ceiling and the World has not ended. They say it was because we had cash on hand. Wrong, we don't. They say it was "accounting tricks" .. it's a lie, no doubt they looted SS, but they always loot SS. They are talking about worker furloughs and not sending out SS checks, or making Medicare payments. All lies. When we hit the debt ceiling the new debt will account for a tiny, tiny, tiny fraction of the actual budget.. meaning more likely what's going to happen is that agencies will start suffering budget shortfalls. Debt will be the last thing to not be paid. There is essentially a 0 risk of a default, 0 risk of interest rates rising (because the Fed buys the paper anyways?) Hell, if we didn't monetize our own debt interest rates would have been double digits.

So screw MSM, they pander to those with a 6th grade reading level .. the economy won't implode on August 2nd unless enough fear is spread, by MSM and Government, to cause a flee from equity markets.

At which point you'd really have to ask "why"?

Servicing the loan is the key words you used.

They are paying INTEREST ONLY payments.

Nothing is being done to PAY DOWN the debt.

We just borrow more.

See the problems?

yeah, they cant pay what htey owe* that simple.. like you ro me at a register* goernment is not paying back like they think thier al cappone or something..

It's the other problems that people fail to see here. The debt ceiling crisis, yeah pfffft.

The debt itself, well yeah it is growing and presents a problem

Sovereign debt crises in Europe - problem.

Debt insurance costs - problem.

Growing unemployment - problem.

Shrinking GDP - problem.

Global imbalances - problem.

Just a few I can mention here, that together, present a far bigger problem than the seemingly immediate threat of a default and downgrade of the US economy, because it is affecting economies all over the world. Accumulative problems present the 'the perfect storm' as it is occasionally referred to. It is far broader than a US issue, and much less the the circus going on in Congress. It is a growing global economic crisis that we are seeing here. In a large way, the contentious debt ceiling debate is a distraction, a red herring if you will, from the bigger simmering problems emerging in the world economy.

reply to post by eldard


No, it was online....on their site...

Originally posted by KoolerKing
What happens when the 4 to 6 million foreclosed houses actually becomes losses on the banks books?
I did not see that mentioned in the article. Just wait when they can't hide those loses anymore.

12 million illegals walked away from their mortgages....HUD admitted to 5 million years ago....I'm guessing it's up to 12 million by now.

In 2005 illegal aliens started getting mortgages in America. They bought and sold homes between themselves then fled America with Trillions.

You ain't going to see that money back. Average mortgage of $350,000 times 12 million......it's all gone. And why South of the Border is BOOMING!

reply to post by wildtimes


You should know better then trusting the TIME mag since they are a mouthpiece for the government.

reply to post by Agent_USA_Supporter


I don't trust them! I thought it was ludicrous!

That article is garbage.

"Public Debt" or debt that the USA owes to creditors.

Unfunded obligations is debt that isnt included in the "Public Debt" for various reasons. Look at the above link for a list. Some say that number is over 100 trillion. To a degree many payments the gov makes directly to the population are "unfunded liabilities" until they write the check. So raising the debt ceiling in a sense is like asking the bank for a loan, so you can put it in your checking account and write checks. The amount of money that flows through your checking account every month has nothing to do with your car, home, boat, or any payment on debt.

But dont be fooled by all the hoopla. We are sinking in debt.Unemployment, the housing crisis, and the overall world economy are going to drive tax revenue down. All the number you read are projections based on past numbers. Its like sliding down a hill that gets steeper, and predicting your speed based on the last 10 feet. You are going to keep going faster.

The GDP is a massaged number. All the numbers are. The CPI, the PPI, the U4, U6... they all use models or accounting tricks that paint a better picture than reality.

The author of that article is obviously and intentionally ignorant of this obvious fact.

Wanna refresh your memory?

The Economic Collapse Blog
End of the American Dream
US National Debt Clock - Real Time