Why the Debt Crisis Is Even Worse Than You Think)
Businessweek, July 27, 2011

Category: Credit, Digital Media

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.

32 Responses to “Bloomberg: The Debt Deluge”

  1. FS says:

    If you cut spending “commitments”, you don’t have a gap at all. LOVE the Medicaire, Medicaid and “other health spending” at 280 trillion. Kind of says it all about what we’ve put ourselves in.


  2. AHodge says:

    hi from Cali colombia
    the elephant in the room is what did they do about the Bush tax cuts expiring next year and how the rating agencies and you should view that 3+ trillion revenues?
    i thot Reid had talked abt/ conceded partial extension
    but dont see boo now?

  3. Conan says:

    1) You can live below your means

    2) You can spend what you make

    3) You can borrow money and thus spend more than you make.

    4) You either get it under control or the debt collector comes after you.

    Guess where we are at in this cycle?????????????????

  4. DC says:

    Multiple guests on Bloomberg radio have attributed this morning’s spike-then-selloff to “the realization by investors that less fiscal spending will translate to less money to stimulate the economy.”

    Shoot me now. Where were all these people over the last month? How about the last three years when infrastructure spending could have gotten construction and manufacturing back in gear? NOW they decide to bring it up, but only after the Tea Party has tentatively agreed to release the hostages.

    And don’t look now, but here’s Tom Donohue of the Chamber admitting that corporate titans sat on the sidelines as the idiots ran amok. This is the most vivid illustration in my half century of living that we get the government that we deserve.

    As of today, our nation is officially Marsellus Wallace with a gag ball, and the Tea Party Gimp is out of his box.

  5. Conan says:

    Before anyone says, but wait you forgot that we can grow our way out of this?? Just take a look around and tell me where this will be?? This recession is a debt fueled problem not a normal bump in the road of the economic cycle.

    If we can gain control of this monster and release the American people to be creative and start small businesses, then maybe in 5 to 10 years we will see the fruit of our investment. But I want this to be clear, I see no magic growth of enough magnitude to cure this for now, we need damage control as we are bleeding red all over the place.

  6. wally says:

    If you cut spending “commitments”

    Translate: don’t pay your debts and don’t keep your promises and you’ll have plenty of money. Can’t see anything wrong with that idea… can you?

  7. ilsm says:

    It is like the fixed income “family” has to have a Lamgorgini war machine while the kids and old folks go hungry, and die.

    The US spends about the same as all the other 160 nations for war.

    Looks like someone better build infrastructure and hospitals, and stop the plunder by the war profiteers.

  8. whskyjack says:

    I suspect that health care includes all health care expenditures including VA, health care for all employees ,even those families in the military.

    How folks divide things in these charts says a lot about the chart creator
    I find it very interesting how many want to shield the military by hiding it’s true cost in other parts of the budget.

    Also, I rarely see a chart that separates out those expenses that have dedicated revenue streams. ex. FAA, Roads and bridges, inland waterways, social security and medicare.

    That is why I find most of these charts to be a bit on the dishonest side.


  9. arbitrage789 says:

    No need to worry.

    The corporate jet owners will pay for it all.

  10. DeDude says:

    The problem with these kinds of prediction is that when you just draw a straight line from now to infinity you end up in time you end up at infinity in debt. The current medical inflation would indeed bankrupt us if it continued at the same speed for 75 years. However, even medical treatments cannot price itself out of existence. Eventually, we will grow up and understand that medicine cannot be practiced as a for-profit business run by Wall Street, and that certain expensive but futile efforts at prolonging life should be funded by the individual who want them (not by an insurance pool). At that point the slope of the curve will be drastically reduced and the next 75 year prediction will suggest that the cost of medical care will be negative xxx trillion dollars.

  11. beaufou says:

    Where’s the interest on the debt slice?

  12. crutcher says:

    ?? If US GDP is $17 trillionish, this graphic seems to be projecting trends out to what… 2060? 2080? I don’t see the value in throwing out wild numbers without a single word about the time denominator.

    And besides that, I’m certain that middle and lower class Americans will soon all realize that children are increasingly unaffordable and anyways ecologically suicidal, and so quickly eliminate the present pointless expenses of education, health care, and real estate for their genetic overlords. Extending on the idea presented in Bailout Nation, wealthy foreigners will be issued visas in return for buying up unneeded real estate and paying taxes (someone has to, might as well be them). If they themselves want to have children, no problem – just no entitlements. Problem solved.

  13. Gene-OK says:

    Yeah, let’s talk about the lack of revenue instead of cutting spending “commitments”. I vote cut now. The hell with stimulus. It only aided Wall St as far as I can tell.

  14. paulie46 says:

    On display in this Bloomberg piece is a fundamental misunderstanding of how our monetary system works.

  15. napster says:

    I am so sick of this nonsense (or is it deliberate obfuscation.)

    Why is the above graphic adding Social Security and Medicare taxes into the the total revenue? Why are they also lumped together as total government liabilities?

    These two programs are payed for by separate payroll taxes. Leftover funds for social security are saved in the form of bond purchases. The tax revenue streams are separate, and the expenditures are also separated from the general revenue stream, so why are the lopped together? No business would do this with their subcontractors or sub-corporate entities.

    This is like taking the revenue earned from a cafeteria and saying its the same revenue stream as a furniture store merely because the two businesses both put their money in the same bank. On the banks asset sheet these two separate businesses are summed together to get the total banks assets. But the banks business is separate from the cafeteria and the furniture store, as equally as the two businesses are separate from each other.

    So when the bank goes into default, do the auditors raid the assets of the furniture store and count the revenue stream of the cafeteria as resources for the bank merely because they have accounts with the bank?

    This is exactly what the dishonest bundling of all government revenue and liabilities means. Social security liabilities have nothing to do with medicare liabilities and the interest payments necessary because of funding government revenue deficit shortfalls on the yearly fiscal budgets. THEY ARE SEPARATELY FUNDED PROGRAMS. The government does not borrow to pay for social security, and government payments to social security come from separate accounts. Payroll taxes do not fund anything other than social security. So why are the payroll taxes added to total revenue?

    The people paid for the social security insurance program into a collective separate account through payroll taxes to create a huge asset fund that will be able to pay 100% of benefits to at least 2042 by the most conservative of projections. That is no exactly a major crisis situation. And all we have to do to raise funds is raise the income cap on the payroll tax another $100,000. Problem solved.

    This massive drumbeat of fiscal “crisis” is intended to provide smoke for an ideological agenda. It is also short-sighted and very stupid. All that happens is you push older citizens onto the backs of younger generations already strained income; you also force older people to have to compete with younger people for fewer jobs. All it does is drain the economy of spending, investment, health,and social stability just so the upper one percent can earn 20 times more than they will ever need in their entire lifetime.

    Its a foolish shame.

  16. Mike S says:

    I knew by looking at the chart that the Kotlikoff was involved in this BS article

    GS + PS + FS = 0

    There is no way around this math. That $211tn of “fiscal gap” hes talking about will be known as “savings” to the people who hold the money in their account 100 years from today.

    I wonder if Kotlikoff is short bonds and putting his money where is mouth is. Clearly numbers like this cannot be hidden long from the markets, so we should see a huge selloff and 20% long bond yields soon.

  17. carleric says:

    Do we really need 813 overseas military bases to combat an itinerant band of fundamentalist muslims?
    Do we really need 24 job training programs, most of which are poorly designed and redundant to create qualified prospective employees for non-existent jobs. Do we eally need more than 2000 federal employees at the pentagon making more than 100k a year? Do we need to increase the cost of gasoline and food by subsidizing ethanol production? The list of government idiocy is virtually endless. National security my left foot! And how long do we continue this sillyass war on drugs by funding a non-essential government bureaucracy – the DEA.

  18. rktbrkr says:

    Soc Sec taxes equal personal income taxes – amazing. Half our tax collections are from a regressive payroll tax.

    Medicare, medicaid and other healthcare almost equal all taxes collected! Double amazing. But Medicare is funded by dedicated taxes like Soc Sec, no? And medicaid is basically charity funding? What is “other healthcare? Need a breakdown of this $280B lump to make sense of this.

  19. rktbrkr says:

    SocSec 101

    Many people misunderstand how the program operates. Payroll taxes stream into the trust fund that is used to pay current retirees’ benefits. When there is a surplus, that money is invested in a special type of Treasury bond that pays interest to the trust fund. At the end of last year, the trust fund had about $2.6 trillion. And though last year was the first year since 1983 that the fund paid out more than it received in tax revenue, it still continued to grow because of the interest accrued — and it is estimated to continue to grow through 2022.

    Since the money in the trust fund is held in Treasury securities, taxes collected are essentially being lent to the federal government to pay for whatever it wants (and this allows the government to borrow less from the public). That is where some of the confusion comes into play about how Social Security is used to pay for things that are unrelated to the program. But it is really no different from China lending the government money by investing in Treasuries. (So the Fed by printing money to buy 75% of Treasuries is undercutting SocSec revenues. So the Fed is punishing SocSec as well as private savers with their policies!!!)

    “Social Security does not, and cannot by law, add a penny to the federal debt,” said Nancy Altman, co-director of Social Security Works, an advocacy organization that promotes the preservation of the program. “It, by law, cannot pay benefits unless it has sufficient income to cover the cost, and it has no borrowing authority to make up any shortfall.”

  20. kcowan says:

    Maybe the $14 trillion won’t seem as bad when the $16 billion in loans to various WW banks at 0% by The Fed gets adequate attention:

  21. BuffaloBob says:

    How can anyone take the political theater / propaganda of the last few months seriously?

    Had we really been at the point of a serious fiscal emergency, real solutions would have been enacted. They would have included repeal of of the grossly regressive Bush tax cuts, rescinding the big sloppy wet kiss Bush and the odious Touzan (R-Louisiana) gave the pharmaceutical industry in the form of Medicare Part D, and reigning in the military madness of the Defense / National Security budget.

    This “crisis” was completely contrived to further transfer wealth from the middle class to the top 1%.

  22. RW says:

    What napster and Mike S said: The misrepresentations embedded in the graphic render it less than useless as a focus of debate; less because argument simply drags out over the facts themselves rather than what they mean.

    NB: Those who feel the putative facts vindicate a position they favor naturally defend them and those who find the facts uncongenial naturally attack them but the real question is: Are the facts correct and, if there is doubt, can they be adequately verified?

  23. theexpertisin says:

    Perhaps we had better start talking about both “stacks of stuff”.

    Instead of bashing the so-called military industrial complex and other, similarly dated rubbish, we seriouly tackle the art of persuading the almost 50% of the population on governemt largesse the following: “ask not what your country can do for you, ask what you can do for your country.”

    Class warfare is out. It does’t work, nor does socialism over the long haul.


    BR: The US Military budget is equal to the next 20 countries int he world combined. This is hardly outdated if you are at all concerned about debt and deficits.

    Of course, those of us who have been paying attention know that this is a ruse, and its really about ISMs and ideologoy, not debts and deficits

  24. Greg0658 says:

    :-) how about a nice game of chess with a board bought from Goodwill

  25. rktbrkr says:

    SocSec will run a net outflow this year for the first time because the yield on Special Treasuries (1-15 year maturities) has fallen below 3%. Another victory for ben Shalom’s war on savers (and SocSec is the ultimate saver!)

    I wonder how the returns on these special issues compare to public issues – I’m thinking less – another small way for the US to shift a little burden onto SocSec.

    Remember when Bush wanted to privatize Soc Sec? He thinks it was his biggest failure, boy thats saying a mouthful!

  26. SpendLess says:

    Unfortunately our government is on the wrong path. Saying we need more revenues (taxes) to avoid our financial problems is like saying Mike Tyson didn’t make enough money and wouldn’t have gone broke if he had only made a bit more.

    I liken our government’s out-of-control spending to Mike Tyson’s spending on his 4 yachts, tiger cages and tiger trainers and the like. The more money he had the more money he spent. Unfortunately there was only one thing that was able to keep Mike Tyson from spending more money. Let’s hope it doesn’t come to that for us in the US.

    Erie parallel: 60% of NBA athletes are broke within 5 years of retiring. Is it a 1) revenue problem, 2) revenue and spending problem or 3) pretty much just a spending problem?

    I don’t hear a lot of people saying that NBA athletes need to make more money to be able feed their families. Likewise with roughly 3-4 Trillion in annual federal tax revenue (not to mention all the other taxes that go to state and local governments), you’d think we’d find a way to live within our means.

  27. DeDude says:

    If Tyson had this nice little machine that can turn worthless paper into sheets of $1000 bills he would not have a spending problem nor a debt problem. Well the government have hundreds of those machines. That is one place where the attempt to compare personal and public finances falls flat on the face. Another is that when Tyson spend $1000 none of that money ever finds its way back to his own pockets again. He does not collect sales taxes from the product nor does he get income taxes from the guy who sells the product (and his suppliers, and their suppliers, etc.), so all the money Tyson spends have a velocity of zero (to him). When he stops spending he does not have to worry that it will cost him money in lost income taxes and having to pay unemployment compensation to those who lose a job because of his lack of spending.

  28. SpendLess says:

    What I hear DeDude saying is that we DO have a spending problem. We just need to spend MORE!

  29. DeDude says:

    All I am saying is that for the country the debt problem is only as big as the economy is small.

  30. SpendLess says:

    We can both agree that we want to help the economy grow, but spending money with the hopes that we’ll get a percentage of that back ultimately hurts the economy. See today’s WSJ article entitled “Stimulus Optimists vs. Economic Reality”, which argues “the total impact of the Keynesian policy is negative over its life.”

  31. [...] of the hat to Barry Riholtz and his blog, The Big Picture, where I originally found this… Filed Under: [...]