David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, helps you understand both the short-term and the long-term picture of the federal debt.

Category: Economy, Taxes and Policy, Video

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.

7 Responses to “Federal Debt: All You Need to Know in Three Minutes”

  1. Paul Mathis says:

    Out Debt has NEVER been a Problem for Us, Ever.

    During WWII, the deficit in 1943 was 30% of GDP and the debt reached 120% of GDP by the end of the War. The result? The U.S. became the most powerful, prosperous nation in the history of the world.

    We print our own money so we cannot go broke. If we grew the economy at 4% instead of 2% the debt would shrink as a % of GDP. China has twice the rate of economic growth that we have because they invest in their country just like we used to do, e.g., Interstate Highway System, Hoover Dam, etc.

    Wessel concludes that our debt is not sustainable, but he offers NO explanation because there is none.

  2. barbacoa666 says:

    It seems to me that interest payments as a percent of GDP is the item with most meaning, as the ability to pay obligations determines Fed solvency. Not debt (look at it this way, if debt were a concern here, interest rates would go through the roof). The Federal government borrows at very low cost right now. So interest payments on the Federal debt as a percentage of GDP are actually at the low end of the historic range: http://goo.gl/903mSz

    If the economy tics up => tax receipts will rise and so will interest rates. Assuming spending doesn’t change much from what it would have been, the government will accrue less debt, but pay a higher interest rate for what is borrowed => Interest payments as a percentage of GDP probably don’t change markedly

    If the economy tics down => tax receipts will drop and so will interest rates. Assuming spending doesn’t change much from what it would have been, the government will accrue more debt, but pay a lower interest rate for what is borrowed => Interest payments as a percentage of GDP probably don’t change markedly

    If the economy stays flat, Interest payments as a percentage of GDP probably don’t change markedly

    So I don’t see any particular reason to be concerned about the Federal debt.

  3. DeltaV says:

    It is interesting to me that in order to provide a fiscal outlook that looks stable, the CBO must assume that (a) there will not be another recession for 75 years, and (b) interest rates will never go higher than 3%.

    Information on the Federal debt level is interesting, but is not really the big picture. Federal debt levels are much higher than they were a few years ago, but much lower than they were at the end of WWII.

    However, total debt levels (federal, state, household, corporate, non-corporate, financial) are in aggregate *much higher* than they have *ever* been before, in particular with regard to income. To be clear, debt / income is at historically high levels across the globe, and increasing. This is why the CBO must assume interest rates will be capped at 3%, since otherwise the debt load (not just for government, but all) would suffocate economic activity and force defaults (including restructuring).

    • DeltaV says:

      I should point out that Bernanke has indicated his belief that interest rates will not rise to normal levels within his lifetime. Another data point reinforcing the unsustainable debt levels. Interest rate will not rise because they cannot rise without causing defaults / restructuring. And, yes, failing to roll over debt is a form of restructuring since it means that that activity is sucked out of the economy.

    • willid3 says:

      why would look at total government debt when we are talking about Federal debt? isnt that talking about oranges and apples?

  4. Livermore Shimervore says:

    This is very much a bi-partisan solution because it takes cooperation from both parties to create new debt in the first place. The Constitution allows only the Republicans currently in control of House, which they have been for 18 of the last 20 years, to raise new revenue to offset any “unpaid” spending. At the same time the Senate Democrats can not spend any money unless the House Republicans cooperate with new appropriations. Hence the system of checks and balances requiring cooperation to spend more than we take in for any fiscal year.
    According to Bruce Bartlett we have been pretty much within our typical spreads on tax revenue as % of GDP albeit on the low side, since 2000. In fact, when we take in total taxes as % of GDP we are not even in the top 30 of the OECD nations. Corporate taxes because of our loopholes mean barely 1% of GDP comes from these taxes. And on the spending side as a % of GDP the DEFICIT is now close to going under 3%, the lowest in decades. It was at nearly 10% when Bush left office. As far as the DEBT as % of GDP that’s going to continue to rise as the economy continues to grow largely due to mandatory spending and military spending — the spending that Congress will never tackle as long as Citizens United type rulings allow for unlimited contributions to political campaigns. Any member of Congress advocating a cut to either entitlements or the military will be blitzed with negative campaign ads funded by the corporations seeking these contracts.
    Meanwhile, on the discretionary spending that Wessell alluded to (unemployment benefit increases,Obama stimulus spending, pork, etc.) this could be halved or eliminated entirely and the growth of mandatory spending would still increase the DEBT as % of GDP because of life expectancy, the greater demand that places on Medicare and the loss of tax revenue from those retired workers who are hitting 65 with barely any savings at all. If you want to fix the DEBT then encourage people to avoid costly home mortgages that keep them out of the savings and investment arena for decades while encouraging them to maintain healthy body fat % in their adult years. That will put less demand for government assistance on healthcare and social security, thus nipping the thrust of the debt right in the bud.

  5. DeDude says:

    The funny thing is to see how how poor their projections are. Just one or two years after these projections show X amount of debt the new projections show 2X amount of debt. How can anybody take these projections serious?