The CBO Latest Report: Black Clouds With No Silver-Linings, Plus, Debt Ceilings, Debt, And What Difference Do They Make Anyway?

'Now, this debt ceiling -- I just want to remind people in case you haven't been keeping up -- RAISING THE DEBT CEILING, WHICH HAS BEEN DONE OVER A HUNDRED TIMES, DOES NOT INCREASE OUR DEBT; it does not somehow promote profligacy.  All it does is it says you got to pay the bills that you've already racked up, Congress.  It's a basic function of making sure that the full faith and credit of the United States is preserved. It's always a tough vote because THE AVERAGE PERSON THINKS RAISING THE DEBT CEILING MUST MEAN THAT WE'RE RUNNING UP OUR DEBT, so people don't like to vote on it, and, typically, there's SOME GAMESMANSHIP IN TERMS OF MAKING THE PRESIDENT'S PARTY SHOULDER THE BURDEN of raising the -- taking the vote.'

- President Barack Obama, Remarks by the President at the Business Roundtable, 18 September 2013

Remember when Obama said this?

I rise today to talk about America’s debt problem. 

 

The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. Over the past 5 years, our federal debt has increased by $3.5 trillion to $8.6 trillion. That is ‘‘trillion’’ with a ‘‘T.’’ That is money that we have borrowed from the Social Security trust fund, borrowed from China and Japan, borrowed from American taxpayers. And over the next 5 years, between now and 2011, the President’s budget will increase the debt by almost another $3.5 trillion.

Numbers that large are sometimes hard to understand. Some people may wonder why they matter. Here is why: This year, the Federal Government will spend $220 billion on interest. That is more money to pay interest on our national debt than we’ll spend on Medicaid and the State Children’s Health Insurance Program. That is more money to pay interest on our debt this year than we will spend on education, homeland security, transportation, and veterans benefits combined. It is more money in one year than we are likely to spend to rebuild the devastated gulf coast in a way that honors the best of America.

And the cost of our debt is one of the fastest growing expenses in the Federal budget. This rising debt is a hidden domestic enemy, robbing our cities and States of critical investments in infrastructure like bridges, ports, and levees; robbing our families and our children of critical investments in education and health care reform; robbing our seniors of the retirement and health security they have counted on.

Every dollar we pay in interest is a dollar that is not going to investment in America’s priorities. Instead, interest payments are a significant tax on all Americans—a debt tax that Washington doesn’t want to talk about. If Washington were serious about honest tax relief in this country, we would see an effort to reduce our national debt by returning to responsible fiscal policies.

...

Our debt also matters internationally. My friend, the ranking member of the Senate Budget Committee, likes to remind us that it took 42 Presidents 224 years to run up only $1 trillion of foreign-held debt. This administration did more than that in just 5 years. Now, there is nothing wrong with borrowing from foreign countries. But we must remember that the more we depend on foreign nations to lend us money, the more our economic security is tied to the whims of foreign leaders whose interests might not be aligned with ours.

Increasing America’s debt weakens us domestically and internationally. Leadership means that 'the buck stops here.'’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

I therefore intend to oppose the effort to increase America’s debt limit.'

- Senator Barack Obama, (D-IL), floor of the Senate, 16 March 2006

Obama's decision not to raise the debt ceiling wasn't just a symbolic vote without a possible cost either.  In their attempt to 'make a point' about Bush's spending and borrowing, which were too high for me, but were Scrooge-like in comparison to President Obama's sheer gluttony, Democrats came just three votes shy from defeating the debt ceiling increase sought by Bush.  Fuck Full Faith & Credit and defaulting on our country's credit!  'Politics, games, finding a way to raise the debt limit to take some serious steps to get our fiscal house in order' only became a pressing matter later on, as we shall see.

Senator Obama wasn't the only Democrat that said, 'Nyet, no more rubles for you!'   Oh, no, senior statesmen and women, who are bemoaning the 'irresponsible resistance' to raising the debt ceiling now, voted not to do so when, well, it was different, you see, because Bush.  Who else joined Obama in acting 'irresponsibly' and 'jeopardising our Full Faith & Credit and defaulting upon our obligations?



Senator Daniel Akaka (D-HI)

Senator Max Baucus (D-MT)

Senator Evan Bayh (D-IN) 

Senator Joseph R Biden (D-DE) 

Senator Jeff Bingaman (D-NM)

Senator Barbara Boxer (D-CA) 

Senator Robert Byrd (D-WV)

Senator Maria Cantwell (D-WA)

Senator Tom Carper (D-DE) 

Senator Hillary Rodham Clinton (D-NY) 

Senator Kent Conrad (D-ND)

Senator Mark Dayton (D-MN)

Senator Christopher Dodd (D-CT)

Senator Byron Dorgan (D-ND)

Senator Dick Durbin (D-IL)

Senator Russ Feingold (D-WI)

Senator Dianne Feinstein (D-CA)

Senator Tom Harkin (D-IA)

Senator Daniel Inouye (D-HI)

Senator Jim Jeffords (I-VT)

Senator Tim Johnson (D-SD)

Senator Edward Kennedy (D-MA)

Senator John Kerry (D-MA)

Senator Herb Kohl (D-WI)

Senator Mary Landrieu (D-LA)

Senator Frank Lautenberg (D-NJ)

Senator Pat Leahy (D-VT)

Senator Carl Levin (D-MI)

Senator Joe Lieberman (D-CT)

Senator Blanche Lincoln (D-AR)

Senator Bob Menendez (D-NJ)

Senator Barbara Mikulski (D-MD)

Senator Patty Murray (D-WA)

Senator Bill Nelson (D-FL)

Senator Ben Nelson (D-NE)

Senator Mark Pryor (D-AR)

Senator Jack Reed (D-RI)

Senator Harry Reid (D-NV)

Senator Jay Rockefeller (D-WV)

Senator Ken Salazar (D-CO)

Senator Paul Sarbanes (D-MD)

Senator Chuck Schumer (D-NY)

Senator Debbie Stabenow (D-MI)

Senator Ron Wyden (D-OR) 


I remember when then-Senator Barack Obama said this as he was campaigning for President...
 
 

‘The problem is, is that the way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion for the first 42 presidents – #43 added $4 trillion by his lonesome, so that we now have over $9 trillion of debt that we are going to have to pay back — $30,000 for every man, woman and child. That’s irresponsible. It’s unpatriotic.’

 - Senator Barack Obama, Fargo, North Dakota, 3 July 2008

In 2011, President Obama's Press Secretary, Robert Gibbs, said:

'It is important for Congress not to play politics, not to play games, to find a way to raise that debt limit, understand that we are going to have to take some serious steps to get our fiscal house in order.'

Well, to all of the above, I say this:

‘The problem is that the way Obama has done it in the last 1,702 days is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $10,628,881,485,510.23 from the first 43 presidents t0 $16,738,502,722,145.90.

No. 44 has added $6,111,625,673,232.82 by his lonesome. So we now have over $16,738,502,722,145.90 of debt that we are going to have to pay back. $53,995.17 for every man, woman, and child.

If President Obama called President George W Bush irresponsible and unpatriotic for presiding over a $4,901,104,747,205.59 increase in the national debt over 8 years, then what does he think we should call him for spending $6,111,625,673,232.82 in 1,702 days?

Irresponsible and unpatriotic’ sound too mild in comparison; perhaps, ‘treasonous’ might be a more apt description of Mr Obama’s spending.'

- Sophie/ResistWeMuch, 17 September 2012

Yesterday, analysts at the gold-standard, nonpartisan Congressional Budget Office issued new warnings pertaining to our unsustainable, long-term budget, fiscal, monetary, and social cohesion.  Despite that this 'must read' report came out, lawmakers in DC and their clients continue to yak about things as though they remain unchanged and the 'GimmeMores!', 'DoSomethings!' and 'AbsoluteShalls' carryforth as  about the long-term U.S. budget outlook, just as lawmakers and the White House are staring at a pair of fiscal confrontations.

 

The nonpartisan Congressional Budget Office said"

1. The U.S. public debt is now 73% of gross domestic product; and,

2. It is at the highest in history except for a period around World War II; and,

3.  THE FIGURE IS TWICE THE PERCENTAGE IT WAS AT THE END OF 2007.

Read the CBO report...in its entirety, buy a clock that measures T = -25, and turn off the Neo-Ne0Keynesians, especially if they are cat people.  Don't wait.

Let's take a look at the situation of the last very years - and the Massive Fiscal Gorilla, Obamacare, doens't even hit until next year.

Debt on 01.20.01: $5,727,776,738,304.64

Debt on 01.19.09: $10,628,881,485,510.23

An increase of: $4,901,104,747,205.59

Debt 01.20.09: $10,626,877,048,913.08

Debt 09.17.13: $16,738,502,722,145.90

An increase of: $6,111,625,673,232.82

Bush was in office for 2,921 days and he deficit spent per day:

$1,677,885,911.40.

Obama has been in office for 1,702 days (through 09.17.13) and deficit spends per day: 

$3,590,849,396.73

Public debt on 01.20.09: $6,307,310,739,681.66

Public debt on 09.17.13: $11,965,887,207,931.11

Obama has increased the debt held by the public by $5,658,576,468,249.45 or 89.72% – EIGHTY-NINE & 72/100 in 1,702 days. 

Every man, woman and child’s share of the national debt is now $53,995.17 – that’s a 79.99%— SEVENTY-NINE & 99/100 — an INCREASE of $23,995.17 for every man, woman, and child since Barack Obama’s Imaculation 1,702 days ago.

Total Debt = $17,547,900,000,000 (2013 est)

GDP = $16,335,000,000,000 (2013 est)

Debt-to-GDP = 107.43%

Total Public Debt = $11,968,087,060,819.65

GDP = $16,335,000,000,000 (2013 est)

Public Debt-to-GDP = 73.27%

From the WSJ/Marketwatch:

Modestly lower spending, an improving economy and increased collection of income, payroll and corporate taxes have helped narrow the government’s deficit this fiscal year. If current laws remain in place, CBO said, the debt will decline “slightly” relative to GDP over the next several years.

But CBO cautioned that long-term challenges remain. It warned that growing future deficits will push the debt to 100% of GDP 25 years from now. And under another scenario that envisions changes being made to some laws — including removing the so-called automatic budget cuts known as the sequester — the debt would be even higher, at nearly 190%, by 2038. 

And when you take into account stuff like how deficits might 'crowd out' investment in  factories and computers and how people might respond to changes in after-tax wages, you find the debt is much, much larger, closer to 200% of GDP. 

'Projected budgetary outcomes under the extended alternative fiscal scenario are worsened by the economic changes that result from its policies. With the effects of lower output and higher interest rates incorporated, federal debt held by the public under the extended alternative fiscal scenario would reach 190 percent of GDP in 2038—about 80 percentage points greater than that under the extended baseline with economic feedback— according to CBO’s central estimates.”

Laurence Kotlikoff: 'The US Fiscal Gap Is $200 Trillion... Our Country Is Broke'

Submitted by Tyler Durden on 09/11/2013 15:28 -0400

While it is easy and often enjoyable to distract oneself with daily drudgery such as who will bomb whom (if not so enjoyable for those on the receiving end of said bombs), the key word in the sentence is just one: "distract" and as Kyle Bass pointed out correctly, the best, and most "economy-boosting" of all distractions ends up with the proverbial red button being pushed. 

Sadly, with an economy which Boston University's Larry Kotlikoff defines as "arguably in worst fiscal shape than any other developed country", there is much to be distrated by and is why we correctly predicted in July that the Syrian false flag event is only weeks or months away (turned out to be precisely one month). So for those who have no desire to prove the axiom that ignorance is bliss, or to have their heads stuck in the sand, here is a must read interview between Goldman's Hugo Scott-Gall and the iconoclast economist who, in a vast minority, calls it like it is.

The highlights (or lowlights, depending on your mileage and its variance):

1.

 I estimate the US fiscal gap at US$200 tn, 17 times the reported US$12 tn in official debt in the hands of the public. And this incorporates this year’s tax increases and spending sequestration. What would it take to come up with US$200 tn in present value? The answer is tax hikes or spending cuts, or a combination of the two, amounting to 10 percent of GDP, starting immediately and continuing indefinitely. 

To do so via spending cuts, alone, would require an immediate and permanent 36% cut in all non-interest spending. 

 To do so via tax hikes, alone, would need an immediate and permanent 55% increase in all federal taxes. 

Hence, a description of the fiscal adjustments made over the last year could be “too little too late.” In terms of generational accounting, were we to leave our kids and future descendants to cover the entire fiscal gap, they’d face tax rates over their lifetimes around twice as high as those we face.


2.

The US is arguably in worst fiscal shape than any other developed country. But Greece, the UK, and Japan are close runner ups. As mentioned, our fiscal gap is 10% of the present value of our future GDP. In Germany it’s around 5%, while Canada, Australia and New Zealand are close to zero. Even Italy's long-term fiscal gap is just half of the US’s, yet Italian government bonds sell at a much lower price than US government bonds simply because people don't understand the pension reforms that Italy has rolled out or that Italy has much better control of its healthcare spending.

3.

 

Our country is broke. It’s not broke in 50 years or 30 years or 10 years. It’s broke today. Six decades of take as you go has led us to a precipice. That’s why almost the entire economics profession is talking as one at www.theinformact.org. 

Economists from all political persuasions are collectively sending our government a warning about what is, effectively, a nuclear economic bomb. I’ve been around economics for a long time. I’ve never seen such a strong response to a proposed Congressional bill. This is the profession sending a statement to the President and Congress that’s not unlike the warning physicists sent via Einstein to Roosevelt about the bomb.

And with that, here is the full interview:

Laurence J. Kotlikoff is a William Fairfield Warren Professor at Boston University, a Professor of Economics at Boston University, a Fellow of the American Academy of Arts and Sciences, a Fellow of the Econometric Society, a Research Associate of the National Bureau of Economic Research, and President of Economic Security Planning, Inc., a company specializing in financial planning software.

Hugo Scott-Gall: You argue that the official debts that countries report are economically meaningless numbers. Please explain this?

Larry Kotlikoff: Every dollar the government takes in or pays out can be labelled in economically arbitrary ways. For example, the government can call our social security contributions “taxes” or “official borrowing.” And it can call our social security benefits “transfer payments” or “return of principal or principal plus interest.” There is nothing in the math of economic theory that pins down the government’s word choice and each labelling convention will produce a different reported time path of debt, deficits, taxes, and spending. At their heart, these measures are linguistic and convey nothing about a country’s underlying fiscal policy – only about what the government decides to put on and keep off the books.

Uncle Sam is very powerful, but he has only one set of vocal cords. We are all free to label past, present, and projected future government receipts and outlays any way we want, as long as our labelling convention is internally consistent (e.g., if we label government receipts as borrowing, we need to label other outlays as debt service). Consequently, we can produce any past, current, and projected future measure of the government’s debt and other fiscal quantities. With the right past labelling, we can say the current debt to GDP ratio is miles higher than Rogoff-Reinhart’s critical 90 percent. Or, we can argue that the debt to GDP ratio is hugely negative. The Economics labelling problem tells us that what we measure as the size of standard fiscal variables is language- or frame of reference-dependent. This is fundamentally no different from physics. The measurement of time and distance is not uniquely pinned down by the math. What time you report and how you measure the size of physical objects depends on one’s frame of reference (direction and rate of speed through space) or language, if you will.

Here’s another way to see my point. My mother gets checks from the US Treasury all the time. They all look the same except for their amounts. Some are for social security and some are for holding Treasury bonds. But Uncle Sam is discounting the amounts coming on the Treasuries and including that in his official debt measure, while ignoring the amounts coming for social security benefits. Using economically meaningless fiscal indicators to guide fiscal policy is like driving in NY with a map of LA. If you aren’t careful, you’ll drive into the East River.

Hugo Scott-Gall: If conventional fiscal measures are, as you say, content free, what should we measure?

Larry Kotlikoff: Every dynamic mathematical model of the economy that economists write down (and thousands are being constructed each year) includes what’s called the government’s intertemporal budget constraint. This constraint simply requires that the present value of government outlays, no matter how labelled, equals the present value of government receipts, no matter how labelled. In this over-time government balance sheet, the outlays represent the liabilities and the receipts represent the assets. If the value in the present of the liabilities exceeds the value in the present of the receipts, the government’s balance sheet isn’t balanced, with the difference between the liabilities and assets call the fiscal gap. The fiscal gap doesn’t suffer from an economics labelling problem for a simple reason - it puts everything on the books. The fiscal gap is the true measure of a government’s debt. And once one determines its size, one can assess the impact on our children of paying it off if it’s all dumped into their laps. This is part of a companion analysis, called Generational Accounting, which I initiated in the late 80s together with my co-author, UC Berkeley economist Alan Auerbach and my then student, Jagaadesh Gokhale (now at the Cato Institute).

Hugo Scott-Gall: How big is the US fiscal gap and what does US generational accounting show?

Larry Kotlikoff: The CBO will release its 2013 long-term fiscal projection, called the Alternative Fiscal Forecast (an alternative to the Extended Budget Forecast produced for Congress) this Fall. But I estimate the US fiscal gap at US$200 tn, 17 times the reported US$12 tn in official debt in the hands of the public. And this incorporates this year’s tax increases and spending sequestration. 

What would it take to come up with US$200 tn in present value? The answer is tax hikes or spending cuts, or a combination of the two, amounting to 10 percent of GDP, starting immediately and continuing indefinitely.  

To do so via spending cuts, alone, would require an immediate and permanent 36% cut in all non-interest spending. 

To do so via tax hikes, alone, would need an immediate and permanent 55% increase in all federal taxes. 

Hence, a description of the fiscal adjustments made over the last year could be 'too little too late.' 

In terms of generational accounting, WERE WE TO LEAVE OUR KIDS AND FUTURE DESCENDANTS TO COVER THE ENTIRE FISCAL GAP, THEY’D FACE TAX RATES OVER THEIR LIFETIMES AROUND TWICE AS HIGH AS THOSE WE FACE.

Hugo Scott-Gall: How do we get better fiscal book keeping? 

Larry Kotlikoff: At my encouragement and that of The Can Kicks Back – a non-profit in DC run by twenty-somethings fighting for generational equity, Senators Kaine and Coons – two Democrats – and Senators Thune and Portman – two Republicans – have just co-introduced THE INFORM ACT. The Bill, which I largely drafted in consultation with Alan Auerbach, will require three agencies in the US government (the CBO, the OMB and the GAO) to do fiscal gap analysis as well as generational accounting on an ongoing basis. To date, 12 Nobel Laureates in economics, over 500 of the nation’s other leading economists, George Shultz, the Former Secretary of the Treasury, State and Labor and the OMB Director, and other prominent government officials, and thousands of non-economists have endorsed the bill at www.theinformact.org. I’m hoping everyone in the country will go to the site, endorse the bill, and spread the word.

Hugo Scott-Gall:  How do you recommend solving this issue?

Larry Kotlikoff: Measuring our fiscal gap and disclosing its implications for ourselves and our children is just step one in addressing our fiscal issues. What’s really needed is the adoption of radical, but generationally fair reforms to our tax, social security, and healthcare system. Maintaining the status quo is not an option. When a patient needs heart surgery, radical surgery is often the safe option. America needs radical policy surgery. I lay out postcard length reforms of out tax, social security, healthcare, and banking systems at www.thepurpleplans.org. Many of these plans have been endorsed by the economics’ profession’s top economists.

Let me lay out just one of these plans - the Purple Health Plan. The costs of Medicare, Medicaid, the new health exchanges, and employer-paid healthcare (here the costs entail loss of revenue because premiums are exempt from taxes) constitute 60% of the fiscal gap. The Purple Health Plan would eliminate these four systems and start with a clean slate. Under the plan, each US citizen gets a voucher each year, the size of which is determined by his pre-existing medical condition. The voucher is used to purchase, in full, the Basic Health Plan from an insurance provider. The Basic Health Plan’s coverages are established by a panel of doctors subject to the constraint that the costs of all the vouchers never exceeds 10% of GDP. Those who could afford it would be free to buy supplemental policies. No insurer could turn anyone away, but since each voucher is individually rated, insurers would have no incentive to cheery pick. This simple reform, in essence, the healthcare system of Germany, Israel, Holland, Switzerland, and Japan, retains private provision, turns the Basic Health Plan into a commodity with insurance providers competing to attract and retain participants. A very large share – roughly 60% – of America’s fiscal gap can be eliminated via this reform alone. Adopting the other purple plans would eliminate the rest of the fiscal gap without visiting untoward hardship on anyone.

Hugo Scott-Gall: Will society be able to hold current demographic fiscal systems together where young people are heavily taxed...

Larry Kotlikoff: Our country is broke. It’s not broke in 50 years or 30 years or 10 years. It’s broke today. Six decades of take as you go has led us to a precipice. That’s why almost the entire economics profession is talking as one at www.theinformact.org. Economists from all political persuasions are collectively sending our government a warning about what is, effectively, a nuclear economic bomb. I’ve been around economics for a long time. I’ve never seen such a strong response to a proposed Congressional bill. This is the profession sending a statement to the President and Congress that’s not unlike the warning physicists sent via Einstein to Roosevelt about the bomb.

Hugo Scott-Gall: What does all of this mean for overall consumption and savings in the US? 

Larry Kotlikoff: Our huge off-the-books fiscal problems were created as a result of the take-as-you-go policies of the post war periods that passed on benefits to older people at the expense of younger people. This systematic intergenerational redistribution produced a massive increase in the absolute and relative consumption of the elderly and a massive decline in our net national saving rate, from 15% in 1950 to 1% now. The ratio of the consumption of a 70-year-old compared to a 35-year-old is about 2.5 times larger today than it was back in 1950. And the reason they’re consuming so much more is that they get the entire set of benefits, from healthcare and social security to tax cuts. National saving finances most domestic investment, so as we’re saving next to nothing means we’re also investing next to nothing. Last year’s net domestic investment rate was 5%, only a third of the 1950 level. And less domestic investment means slower real wage growth, as workers have less capital with which to operate. Finally, since we Americans aren’t saving, we can’t invest in our country. So $4 out of every $5 of investment in the US is now by foreigners. In the late 1970s, Alan Auerbach and I pioneered the development of large-scale computable general equilibrium life-cycle models that we could simulate on a computer. In this and subsequent research, we were able to simulate the impact of take-as-you-go fiscal policy. What we see from these increasingly sophisticated computer models matches exactly what you see in the country, less saving, less investment, less growth, and stagnant wages. While generational policy is not the sole driver of post-war secular economic trends, it’s likely the biggest. 

SoRo Note:  If you doubt this, take a look at the payroll taxes future generations will have to pay just to keep Social Security and Medicare available for the seniors of the day.  When GIs returned from WWII, they could get a job, buy a house and a car, take a vacation with their wives once per year, and have their 3 children safely secured by white picket fences.  Further generations will only be able to salivate at such a life.  See: 'Lies' About Social Security and Medicare Pandering Politicians Never Told You 

Hugo Scott-Gall: How do other countries compare to the US when you look at their fiscal gaps?

Larry Kotlikoff: The US is arguably in worst fiscal shape than any other developed country. But Greece, the UK, and Japan are close runner ups. As mentioned, our fiscal gap is 10% of the present value of our future GDP. In Germany it’s around 5%, while Canada, Australia and New Zealand are close to zero. Even Italy's long-term fiscal gap is just half of the US’s, yet Italian government bonds sell at a much lower price than US government bonds simply because people don't understand the pension reforms that Italy has rolled out or that Italy has much better control of its healthcare spending.

The case of Norway is also very interesting. I conducted generational accounting with a Norwegian economist named Erling Steigum back in the mid-90s, which proved that while Norway was reporting a huge surplus because of how it was labelling its transactions, in reality the country was spending at far too high a rate. To its credit, the government went ahead and continued carrying out this analysis on a regular basis, and as a result, created a generational trust fund, where some of the North Sea oil revenue is set aside for future generations. This has left them in a much better position today. Chile, another resource-dominated economy, has also got a similar trust fund in effect. The Canadians have also been very careful about their long-term liabilities. So, some countries are acting more responsibly.

Hugo Scott-Gall: Have you considered the impact of fewer jobs, driven by rising automation, in your analysis? 

Larry Kotlikoff: Automation and the structural loss of jobs is a very important issue. In fact, Jeff Sachs and I have together written about the implications of smart machines, machines that today can substitute almost perfectly, if not more than perfectly for people, and constitute, effectively, competing robots. We’re not far from the day when machines will drive cars too. While that sounds great, the other side of the coin is that younger people are earning less and saving less, and so, they bring much less wealth into old age than previous generations did. Owing to this vicious cycle, these youngsters, who as a group are not the prime owners of capital, aren't going to reap the benefits from this new technology. The beneficiaries are instead going to be a small number of people who are either the inventors, or older people who have the capital to help get the invented technology in place. So, we’re going to see wealth redistributed further, from young workers to older people, with yet direr implications for national saving, domestic investment and growth. Indeed, technological change can, through these general equilibrium feedback effects, end up making all of society worse off in the long run, unless one is careful to redistribute to the young losers from the old winners.

 

'Can you (or someone) explain what the debt to GDP ratio is and why it’s important?'

Cleombrotus on September 17, 2013 at 4:26 PM

It means that we owe more than our entire annual economic output.

At some point, there is no turning back and, eventually, purchasers of our debt will demand higher interest rates, which will be passed onto consumers. It also means that you either enter into a moribund economy like Italy or a perpetual ‘Lost Decade’ economy like Japan, which entered its THIRD Lost Decade last year when it also embarked on its EIGHT Round of Quantitative Easing.

If interest rates were what they were during the Clinton administration, our debt service would consume one-third or more of revenues.

And, consider this:

In 2010, John Kitchen of the US Treasury and Menzie Chinn of the University of Wisconsin published a study entitled: ‘Financing U.S. Debt: Is There Enough Money in the World—and At What Cost?’

By 2020, Kitchen and Chinn project the amount of US Treasury debt that foreign governments will have to buy in order to finance our spending and debt will have to rise to about 19 percent of the rest of the world’s GDP, which they say is . . . do-able . . . BUT TOTALLY NEVER GONNA HAPPEN UNREALISTIC. 

Whether the rest of the world will want to do it is another matter. A future that presumes the rest of the planet will sink a fifth of its GDP into U.S. Treasuries is no future at all. 

Progs always say that we are 5% of the world’s population, but use 25% of the planet’s resources, which, according to them, is a very bad, racist, imperialistic, oppressive, selfish, and mean thing to do.

Evidently, being 5% of the world’s population and expecting the equivalent of the Coolies to build our modern-day railroads, which are known as Obamacare, Social Security, Medicare, free college, subsidised housing, cradle-to-grave welfare, etc., BY DEMANDING THAT THE REST OF THE WORLD SPEND 19% OF THE GLOBAL GDP EVERY YEAR ON US TREASURIES beginning in 2020 while we sit on our couches eating Twinkies watching American Idol while our solar-panel-generated air conditioners are blasting away because ‘we are so trying to save the planet, man’ is perfectly acceptable.

I believe that most economics of the Left, GOPe, and big spending economics will ignore the obvious in this news.  

http://tinyurl.com/m3fhqod