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Hat tip: Flowing Data

Previously: Who Does the US Owe Money To?

Source:

Our Mountain Of Debt
Washington Post
Published July 17, 2011

Category: Economy, Politics

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

35 Responses to “Our Mountain Of Debt”

  1. For additional perspective on this issue, it is of great importance to realize the Tea-Party is concerned about the future … not 2012. Since the 2012 Budget was defeated 97-0 in the Senate, conservatives have no venue other than appropriations to address future spending. The Debt Ceiling increase offers that soap box.

    Assuming permanent extension of the Bush-era tax cuts, the Federal Debt will be $24 trillion by 2021. I presently project this scenario will lead to the USA’s sovereign debt rating being downgraded to “B” in 2016 & “C” in 2021 … the latter leading to an outright Treasuries Crisis. Debt/GDP ratios will be 110% & 123% at these thresholds.

    The Tea-Party wishes to pre-empt this perilous journey. Their frustration this week and demand for another crack at this issue in February 2012 lies in the fact that today’s negotiations trim that horrendous $24 trillion figure down to … $23 trillion. In short, nothing is accomplished.

    Debt Meter chart: http://trendlines.ca/free/economics/DebtMeterUSA/DebtMeterUSA.htm

  2. willid3 says:

    FH.if we are really worried about the deficit, why aren’t we working on revenue? why not reduce or eliminate the Bush tax cuts? But the Tea Party isn’t working on that. and we know going with austerity with crash the economy (unless aliens arrive and generate a lot of demand). but some say that removing Bush tax cuts will crash the economy. don’t believe that since they haven’t helped since we have them and the economy isn’t doing more than a semi depression. and they didn’t stop it from happening.
    and appropriations is where government spending is always addressed. always has been. so they should address it there.

    today’s federal revenue is 15% of GDP down from about 20%. which is about 700 billion or so.

    the claim that tax cuts increase revenue is a scam. they can generate demand. but only if you give them to those who will spend it. that not the top 1% who will save it. like they have.
    if w want to give more tax cuts. we need to condition them on job growth.
    without there will never be a way out of this debacle.

  3. jd351 says:

    TO FH, you just proved this to be correct
    Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

  4. Jojo says:

    Businessweek
    Opening Remarks
    July 27, 2011

    Why the Debt Crisis Is Even Worse Than You Think
    If Washington is deadlocked now, how will it deal with the much bigger debt problems that lurk in the decades to come?

    There is a comforting story about the debt ceiling that goes like this: Back in the 1990s, the U.S. was shrinking its national debt at a rapid pace. Serious people actually worried about dislocations from having too little government debt. If it hadn’t been for two wars, the tax cuts of 2001 and 2003, the housing meltdown, and the subsequent financial crisis and recession, the nation’s finances would be in fine condition today. And the only obstacle to getting there again, this narrative goes, is political dysfunction in Washington. If the Republicans and Democrats would just split their differences on spending and taxes and raise the debt ceiling, we could all get back to our real lives. Problem solved.

    Except it’s not that way at all. For all our obsessing about it, the national debt is a singularly bad way of measuring the nation’s financial condition. It includes only a small portion of the nation’s total liabilities. And it’s focused on the past. An honest assessment of the country’s projected revenue and expenses over the next generation would show a reality different from the apocalyptic visions conjured by both Democrats and Republicans during the debt-ceiling debate. It would be much worse.

    That’s why the posturing about whether and how Congress should increase the debt ceiling by Aug. 2 has been a hollow exercise. Failure to increase the borrowing limit would harm American prestige and the global financial system. But that’s nothing compared with the real threats to the U.S.’s long-term economic health, which will begin to strike with full force toward the end of this decade: Sharply rising per-capita health-care spending, coupled with the graying of the populace; a generation of workers turning into an outsize generation of beneficiaries. Hoover Institution Senior Fellow Michael J. Boskin, who was President George H.W. Bush’s chief economic adviser, says: “The word ‘unsustainable’ doesn’t convey the problem enough, in my opinion.”

    http://www.businessweek.com/magazine/why-the-debt-crisis-is-even-worse-than-you-think-07272011.html

  5. davecjohnson says:

    Two things. First, where was all this debt concern just a little while ago when they extended the Bush tax cuts? THAT added another $4 trillion of debt over the next 10 years.

    Second, there is a budget before Congress that balances the budget in 10 years, and does all the things the polls show most people want done. Why no discussion? See http://cpc.grijalva.house.gov/index.cfm?sectionid=70&sectiontree=5,70

  6. RW says:

    Okay, total nominal US debt around $14 trillion and, assuming I’m adding up the Fed’s Z.1 Flow of Funds tables properly, total US assets somewhere in the neighborhood of $180 trillion

    …[wets tip of pencil] so let’s see now …[scribbles on napkin] …hmmm, looks like a current ratio of about 12 (or a debt to asset ratio of 8% if you like).

    A “mountain” of debt? Looks more like a dimple to me.

    Okay, not all that realistic, but if the US were anything like a business or a household as we have been told why on earth would anyone be concerned given numbers this good? I mean, every time a family takes out a mortgage to buy a house their balance sheet looks a hell of a lot worse than the US balance sheet for a decade or two.

    And even if the numbers weren’t this good — they aren’t because a sovereign nation with it’s own currency cannot be analyzed in the same terms as a business or a household — why would anyone other than a purblind fool not borrow to expand when the real cost of doing so is less than zero?*

    The current deficit yammer is an even bigger red herring than that spot on a blue dress was: I don’t what know this is about but I am quite certain it has very little to do with the economy.

    PS: Oh, and what davecjohnson said: There are much better options for economic progress that should be on the table and the fact they are not is also is an indication that economic policy is not the game being played here.

    *current yield on US federal debt less w/ than 5 years maturity is negative in real terms.

  7. barbacoa666 says:

    The Tea Party masquerades at a group of people concerned about the deficit. Parse through what they really say, and you get this:
    1. Don’t raise my taxes
    2. Don’t cut my benefits (Social Security & Medicare)
    3. Cut government waste (cut somebody else’s benefits)
    4. If you disagree with me, you are a Socialist

    I’m not sure how that can be construed as being concerned for the future.

  8. Jojo says:

    +1 barbacoa666

  9. barbacoa666 says:

    @Jojo – I’ll take the Tea Party seriously when the cut their own benefits. Their parents and grandparents sacrificed to create a better country. Let’s see the Tea Partiers step up and make sacrifices of their own to better the country.

  10. philipat says:

    “Tea Party”. Just another US soundbite/bumper sticker. Whn will the US get real and stop shouting but actually do something?

    1. The US National debt is already over 100% of GDP, into European Socialist State propertions, for largely the same reasons and heading towards 200% within a decade unless something is done. Economic research shows that once debt to GDP exceeds 80%, the “Stimulus” no longer works, if it ever did work, and becomes a drag on growth for several reasons.

    2. The Teabaggers are correct to the extent that Government spending is, indeed, the larger part of the problem. However, taxes are the lowset level ever as a percentage of GDP. That said, over 50% of Americans pay NO Federal Income tax, which is dangerous from the point of view of the sustainability of a functioning democracy. The wealthist Americans have a net tax rate of 18% and the top 1$ control 25% of the wealth. That compares to 12% in Europe, where higher capital gains taxes and top marginal income tax rates help to control the excesses. SO it would seem common sense that taxes must rise for ALL, including those paying NO taxes at present, in addition to spending cuts. After all, even Reagan increased taxes as necessary.

    3. Therefore, would not a sensible approach involve REAL cuts in expenditure (NOT cuts to projected increases or the accounting gimmicks presently being discussed) AND Tax increases and/or revisions to the tax code in a ratio of 3/4 to 1 ?

    4. It seems to be “Politics as usual”, with violins in DC as the Nation burns. They just don’t seem to get it still, amazingly. Perhaps without the Teabaggers we would never have even come this far BUT, let’s never forget that K Street and Wall Street remain in control of the whole process, Congress being a wholly-ownes Subsidiary of Wall Street.

    5. God Bless America.

  11. rktbrkr says:

    Lets end everything “Bush” that got us in this financial mess, the tax cuts and the two wars. Once we do that everything will be much more manageable.

    Hard to end the great recession that easily, the TBTF still have their backyard filled with shallow graves (a few million non-performing mortgages) etc. Lets bust up the TBTF now before they drag the entire banking system down (boy, I know I’m dreaming now!)

  12. rktbrkr says:

    They take their Tea with lots of sugar. (Looks like some teabag reps want to be reelected!)

    http://www.bloomberg.com/news/2011-07-29/tea-party-lawmakers-against-debt-deal-gain-from-big-spending-in-districts.html

  13. mathman says:

    To all:

    It’s really hard to change anything through D.C. since they’re a wholly owned subsidiary of Wall Street and the TBTF banks (through campaign contributions and lobbying), our elections are now pointless (via Citizens United and the fact that in the next one every candidate is more or less Republican – esp. Obama), and the government no longer works as it was designed. Our money is becoming scrip, our environment is degrading more each year, and Washington-style leadership is to take us over a cliff.

  14. I’m not saying this is the way to go I just want to get these questions out because I haven’t really heard them in the debate in a significant way:

    Isn’t ‘crashing the economy’ another way of saying price discovery and wouldn’t one or two years of price discovery be much less painful than ten years of slow bleeding.

    The people who are running this debate are the same ones that are protecting the US housing mess and you see the quagmire that that put people in. Another example would be the difference between Iceland and Greece or Ireland. It seems like the US is taking a path of one of the latter states and not the former and this is because people are afraid of some more difficult but shorter term pain

  15. Orange14 says:

    RW has it just about right. Look at the corporate example where companies seeing historic low interest rates in the bond market are either issuing more debt or considering to since the money is almost free. I haven’t taken a look at the flow of funds table but will do so but if the estimate of asset value is even ball park range we don’t have anything to worry about.

    We are also ignoring the favorite ploy of Republican governors, sell off assets and raise cash! How much would China pay for Yosemite and/or Yellowstone? Hey, Mitch Daniels received kudos for selling off the Indiana toll road to a foreign consortium!

    The whole thing is just silly posturing and the bottom line is that we are getting screwed. How many people are going to be able to retire off of 401(k) earnings? Remember it’s pretty much the last five working years where you start accumulating the big money assuming a constant rate of return (run an Excel sheet and see what happens if the market tanks when you are five years out; it’s not pretty).

  16. mathman says:

    From http://www.financialarmageddon.com/2011/07/not-the-only-debt-mess.html:

    a great chart via http://www.winkandwink.com/american-family-debt-infographic/

    ‘We Are All Going to Be Very Significantly Poorer’
    according to the British CEO of Tullett Prebon, one of the world‟s largest inter-dealer brokers (there’s a video of an interview with him at the top link – today’s article

    We’re in deep do-do and there isn’t any easy way out.

  17. Petey Wheatstraw says:

    Freddy Hutter:

    Who are you, and how do you come to speak for the Tea “Party.”

    Please show me some policy papers, draft legislation, funding sources, executive leadership list, membership rolls, PAC contributions, and demographic makeup of the Tea “Party,” and maybe I’ll get behind them.

    So far, the Tea “Party” seems to be funded by some of the very people who profited handsomely — either on the front end by tax breaks for themselves but not for others, or on the back end by legislative capture leading to a very tilted playing field (in their favor) and sweet cream money from the government tit.

    In addition, interviews with Tea “Party” members I’ve seen have showcased misinformed, prejudiced, and ignorant people of the kind Fox news counts as loyal viewers.

    There’s also the fact that most Tea “Party” political rallies are attended by just handful of people (from which the interviewees alluded to, above, were drawn).

    The tea party in Boston Harbor was not funded and managed by the British Government or the East India Company. Had it been, the use of that event for a modern political movement would be much more appropriate.

  18. MayorQuimby says:

    Math man, please send those links to Barry. He’ll enjoy them.

    Petey the tea “party” is not a precisely organized political force. Think of it as fiscal hawks mushed in with eighties in a very disjointed way. Nevertheless, my parents are aligned with them when it comes to spending cuts and they both receive Social. They are more than willing to take a big hit to keep the country solvent and they are vehemently opposed to more debt even though it might favor them.

  19. MayorQuimby says:

    Meant righties, not eighties! Damned iPad…

  20. Orange14 says:

    @Petey – click on his title and you go to his website. He lives in the Yukon and hence is pretty much divorced from reality.

    @MayorQuimby – Tea Partiers are being financed by the low tax crowd and nothing more. Their self-righteousness is patently false but then we’ve been over this one before.

  21. m111ark says:

    Agreed mathman, Wall Street owns Washington, and they’re very poor stewards simply because they’re goal in life is the accumulation of more and ever more wealth. Civilization can exist with a only a few of their ilk, it will all come crashing down if it becomes policy.

    So, no one is talking about a solution to our problems because I’ve heard no one even remotely come close to Identifying our problems. Even substituting debt-free money for debt-money will only temporarily ease our collective pain. As a first step though, eliminating the power of the banksters will at least allow the better nature of us humans to burst forth, so at the least we should abandon our current form of money creation for government issued money. Of course, that method of economic progress demands a better class of human being, so we all can contribute to that immediate goal by becoming better persons ourselves.

    My favorite book, and someday the world’s favorite book, says we’ve embarked on a momentous journey, that we will not ‘settle down’ for a 1000 years. And by ‘we’ I mean the whole world. You think you’ve seen change, you ain’t seen nothing yet!

    Thou it’s likely to get far worse before it get’s better.

  22. DeDude says:

    Freddy @ 9:25;

    The teaparties are not standing on a soap-box they are standing on the computer that runs the worlds economy. And now they are hopping up and down in a tandrum because the democrats said “we will meet you 4/5’th of the way but you will not get everything you are demanding”. The democrats even gave up their own demands of revenue increases allowing the teapartiers to meet them 0/5’th of the way on their demands.

    You are absolutely right that “assuming permanent extension of the Bush-era tax cuts” we are screwed in the long run. That is why the solution has to include repeal of most or all of them. However, the teapartiers are refusing to even talk about that. Instead they are throwing temper tandrums over whether the 2021 debt should be reduced from 24 trillion to 23 or 20 trillion, and when they are offered 20 trillion they wont take it because it’s not done the “right” way. In the process they are ensuring that whatever it ends up with we will have to add another 1 trillion in cost from this extravagant teaparty, because their behavior have cast doubt in the US political will to pay back our debt (and that will increase the rate we have to pay on our debt the next decade).

    If they really wanted to “pre-empt this perilous journey” they would not add another 1 trillion in stupidity, nor would they refuse to talk about the one and only thing that can actually stop the journey, rather than simply fight over how to slow it down a little.

    When US compares itself to other industrialized countries it is under-taxed and it spend absurdly high amounts of money on its military. Those two things that are the true character of our public budgets. They can be normalized and at the same time would bring the debt down to a more healthy level (so there is room for effective stimulus next time we have a severe downturn). However, it is going to be impossible to fix those if the GOP majority in one branch refuse to consider them or to give as much as an inch to the democratic majority in the two other branches.

  23. Petey Wheatstraw says:

    MayorQuimby Says:

    “Petey the tea “party” is not a precisely organized political force.”

    Exactly. It is a false front for corporatist interests, backed by people who don’t understand who they are pulling for. That your parents are among them in supporting their own fleecing , without understanding who they are benefitting, is only sad and somewhat masochistic (BTW: Is SS their ONLY source of income?). If they are willing to take a big hit to benefit corporate and wealthy Americans, they can always donate their SS income directly to the IRS.

    Look at what the retiree population in FL recently elected (and as importantly, who they recalled). Do you really think these people are now happy with their votes?

  24. BDW says:

    @FH – “Since the 2012 Budget was defeated 97-0 in the Senate,”

    This talking point needs to be destroyed. The vote was on a proposal Obama put forth in February, but was voted on 3 weeks after Obama had released new spending priorities. So the vote was forced by McConnell on something that wasn’t even supported by the president at that point. I think the mind numbing stupidity of this vote was why did the Dems give the repubs a talking point of them not supporting the president. They should have voted present and nothing more (the dems in MN did the same idiotic thing by showing no support for Dayton when the repubs forced a vote on his budget early in the session). The reason there is no budget out of the Senate is that the repubs have filibustered everything for the last 2 years, including things they themselves propose.

  25. DeDude says:

    @philipat;

    1. The thing to remember is that the study suggesting that economic stimulus gets less effective when debt exceeds 80%GDP, did not analyze it as a continuous parameter. So the actual conclusion can only be that somewhere above 80% (100, 120, 150?, who knows) stimulus becomes less effective. The other thing to remember is to compare apples to apples. US is fairly unique in building up a trust fund for our old peoples social security, so the relevant number to compare to the studies “somewhere above 80%” is our debt not counting debt to the trust funds (which is below 80%).

    2. The canard about 50% of Americans not paying taxes belongs on Fox news not in a serious debate. We all know that poor people pay a much higher % of their income in sales taxes and pay role taxes than rich. So the fact that they don’t have enough income to be liable for income taxes, does not point to them needing to pay income taxes, but rather demonstrate that we need to make sure they can earn higher incomes. Increasing the minimum wage to $10 and then indexing it to the higher of growth in inflation or in GDP would be a great first step to solve this bogus problem.

    3. Yes lets cut military and security budgets in half and for the next 2 years use 80% of that money to build and repair infrastructure. It is absurd that the fight against terrorism which on average kills a few hundred Americans per year is funded more than 10-fold higher than the National Institute of Health (NIH) which is fighting diseases that kills millions of Americans every year. And all of the current discussions are suggesting that this insane ratio will get even worse due to severe cuts in that puny little NIH budget.

    4. Without the Teabaggers we would not be shooting ourselves in the foot. But we would still be humping along with right wing policies that neither address nor solve the real problems.

    5. Amen.

  26. DeDude, thanx for your thoughtful comments today. Canada was one of those basket cases twenty years ago and was maybe twelve weeks or so away from IMF intervention. It was about the time a populist right-wing movement called the Reform Party popped on the scene and held townhall meetings in the West with a message of balanced budgets, reduced taxes, smaller gov’t and paying down the national debt.

    It became the Blue Book. They drove legislation. We had nine straight surpluses and paid 17% off the National Debt by 2008. And in May 2011 they became the Majority Gov’t of Canada. IOW, beender-dundat & got the t-shirt.

    Believe me, many Dems & GOP are secretly happy the Tea-Party are leading this charge. Due to your corrupt electoral fundraising system, nobody in Congress had the balls. And the best thing is this precedent allows similar strategy upon each new Debt Ceiling review!

    So yes they are angry today that only $1 trillion is coming off that $24 trillion debacle … but everyone realizes today that their stalwartness will lead to a hunk of it coming off every six to twelve months for the foreseeable future ’til the USA gets back to sustainable fundamentals.

  27. philipat says:

    @DeDude

    Thanks for the left of progressive take on things with the usual lack of any supporting facts or data. These “Poor” people you are referrint to would be the ones with 2 cars, a microwave, a flat panle TV and cable/broadband connections etc? Oh, and food stamps of course.

  28. DeDude says:

    Freddy; interesting history from Canada.

    So how bad was their Debt as % of GDP when this happened (not counting any social security trust fund debt I presume)?

    What was their % unemployment and % GDP growth when they applied this austerity program?

    How much did they increase taxes/revenue and how much did they reduce spending?

    I personally would have loved to see the Tea-party movement active in 2001 demanding balanced budgets as a condition for tax cuts. I have no problem with reducing deficits as long as it is done with the right timing and the right tools. We don’t want to repeat 1937. The time to worry about speed limits and stopping to get more gas is not when a stampeding flock of unemployed elephants are gaining on your car.

  29. DeDude says:

    @philipat;

    1. I presume you have access to the study you cited, so look up the data and facts if you doubts what I am saying.

    2. The facts about different types of taxes and who pays them has been shown here at TBP several times a year so look back if there is anything you missed.

    3. The funding of NIH (@30 billion) and our homeland security + millitary adventurism @ >300 billion is in the national budget.

    4-5. Clearly analysis and opinion.

    So exactly where is it that you are lacking “supporting facts or data”?

  30. DeDude says:

    @philipat;

    1. I presume you have access to the study you cited, so look up the data and facts if you doubts what I am saying.

    2. The facts about different types of taxes and who pays them has been shown here at TBP several times a year so look back if there is anything you missed.

    3. The funding of NIH (@30 billion) and our homeland security + millitary adventurism @ >300 billion is in the national budget.

    4-5. Clearly analysis and opinion.

    So exactly where is it that you are lacking “supporting facts or data”?, or are you just BS’ing because what I said is the indisputable truth, and when you can’t argue on the merit, you can always return to unsubstantiated accusations.

  31. Greg0658 says:

    ditto ditto “demanding balanced budgets as a condition for tax cuts” .. ya from some faction .. a version of Sen. Durbin “capital owns the place” .. and I’m getting bummed again .. repo days to resell again .. wash rinse whatever

  32. DeDude, sorry but most of my stat work in USA related … except for the Cndn Realty Bubble & Recession Indicator. As I recall, the Unemployment Rate was 12.5% coming out of the ’91 Recession and dropped to 6.3% by Y2k. There was no surge due to austerity. And we have been slowly reducing federal taxes over the duration. Some user fees were introduced but in general “tax free” day is accelerated each year.

    Debt/GDP was approx 75%. 35% of our expenditures were committed to debt service. The austerity involved 20% cutbacks. It was not pretty. Mostly welfare, health care, defence & public housing. The easy way out was for the federal gov’t to pare transfer payments to the Provinces. An unintended consequence was the Provinces then paring back transfer payments to Municipalities. Infrastructure suffered immensely.

    Welfare activists screamed and hand waved that the poor would all die with smaller cheques. Many freeloaders were cut off. Somehow as they fell off the welfare rolls the economy absorbed them. Remember this was a high growth period back then. In fact, being lean and mean, we averted being tandem to your 2001 Recession!

    When Canada agreed to the G8′s 3% GDP dedication to infrastructure program in Oct 2008 we had lotsa shovel ready stuff to put the dollars into real fast. Thus our Recession was 11 months compared to the USA’s 18 months.

    Canada TRI: http://trendlines.ca/free/economics/RecessionIndicatorCanada/Canada-TRI.htm

    That said, Canada is within weeks of its housing bubble bursting. It is at the same 35% over price/income ratio as was the USA in 2005. Our avg home is 2.2 x’s the price of its American counterpart.

    Realty Bubble Monitor chart: http://trendlines.ca/free/economics/RealtyBubbleMonitor/RealtyBubbleMonitor.htm

  33. DeDude says:

    With 35% of government expenditure going to debt service there was a serious problem (I am surprised that this happened at a debt/GDP of 75% (one heck of an interest level you must have had). Cuts were not the worst but not the the best either, so they must have had negative effects on employment and consumption. Something must have pulled drastically in the other direction. Where did all those jobs come from? Did you discover Oil/minerals, or was it all increased export to the US during the booming Clinton years? What about interest rates they must have been very high in 91 how much did they fall by Y2K? A serious drop in interest rates will do wonders for the private sector, in particular if you have a large trading partner that you can export things to.

    With a bigger real stimulus I am not surprised you pulled out of the 2008 recession faster than US. Hope you figure out a more sensible way to deal with housing bubble collapse than US.

  34. In short, the GST & NAFTA saved our butts. Introducing a federal consumption tax on goods & services allowed Canada to eliminate the Manufacturers excise tax which penalized domestics goods in the our marketplace. This led to over a dozen years of trade surpluses.

    A Canadian dollar as low as .62 agin the USD plus universal health care with premiums averaging $250/month allowed Canada to become the premiere locale for New Car & Light Truck manufacturing. Over the past six years Ontario has exceeded Michigan in unit production.

    But high petroleum costs, an export killing par-plus Cndn Dolar & $98,000 Cndn real estate bubble have taken their toll. Failing mitigation via renewed fiscal stimulus or monetary policy, my TRI (link upthread) is currently projecting Canadian GDP entering a 16-month Technical Recession.