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Goldman's Essay On Why The US Debt Load Is "Not Too Concerning"

Tyler Durden's picture


Goldman has been on a roll this week. After losing all credibility (or whatever they had) with the markets, the objective media and Main Street, but not their clients, who were the ones losing the most for interacting with the squid, yet refuse to take their business elsewhere for fear of being locked out from the market monopolist with the greatest amount of inventory (yes, economies of scale when compounded with not so subtle forced liquidations of key competitors end up in monopolistic outcomes), now their economic team is taking a gamble with its own reputation (this is the team that won the best big bank economic team aware for 2009). In a note distributed to clients, entitled "What's the Right Measure of US Government Debt?" Andrew Tilton and Alec Phillips try to present the case that contrary to what you may have heard, the $12.8 trillion of US debt is not really worth losing sleep over. In fact the next time Goldman needs a bailout and the resultant $2-20 trillion of new debt are added to the make the 2s30s at about 100%, that should not be a source of concern either.

We present the "essay" in its entirety.

What's the Right Measure of US Government Debt?

Investors prone to worry about the sustainability of government debt may feel increased anxiety given the wide variation in estimates of government liabilities.  In today’s comment we list some of the major reasons why figures differ and organize them in a common framework.

When reviewing debt figures it is important to distinguish between a) federal and state/local debt, b) gross vs. net debt, c) present vs. future obligations, d) on- vs. off-balance sheet commitments, and e) stronger vs. weaker commitments.  For those focused on the federal government’s near-term financial condition, federal net debt of about 50% of GDP (including net GSE liabilities) may be an appropriate measure; for those wishing to compare government debt sustainability across countries, gross general government debt to GDP of 70% is probably a fairer comparison. Unfunded liabilities of 200%+ of GDP are extremely worrisome, but serve mainly to make plain that fiscal policy must and will change.

As many economies and markets recover from the worst of the financial crisis, investors have turned their attention to the creditworthiness of governments.  The fiscal support needed to contain the financial damage and kick-start growth has been considerable, and has naturally raised questions about the sustainability of government borrowing in many countries.

One source of anxiety for many investors has been skepticism regarding the commonly used government budget statistics, which exclude a variety of off-balance sheet liabilities.  This skepticism has in turn led to a plethora of estimates about the “true” amount of government debt, from federal debt held by the public (54% of GDP in 2009) to the present value of total government liabilities (several times GDP).  In today’s comment we list some of the major reasons why estimates differ, and organize them in a common framework.  Though still incomplete, the table below may serve to provide some context for the various estimates of debt. (Note that some figures are our estimates, and in cases where 2009 figures are unavailable, we have used 2008 data.)

A good deal of the confusion stems from the various forms of governmental obligations that exist.  We can distinguish among these in several ways:

1. Federal vs. state/local.  Although some analyses focus only on state and local obligations as a share of state GDP in evaluating municipal debt sustainability, or on federal debt/GDP in evaluating federal fiscal sustainability, it is more instructive to combine the federal, state, and local debt burdens as a share of GDP, given that the revenue used to pay interest on this debt ultimately comes from the same source – the income generated by the economy.  For example, while the current federal debt/GDP ratio is generally viewed as sustainable, it would appear less sustainable if there were other claims, such as taxes to fund state/local debt, on the same income.  A second justification for a combined “general government” approach is to net out claims between state and federal governments; states hold Treasury and GSE securities that comprise some of the gross federal debt in the table below, but net out once the balance sheets of governments at all levels are consolidated.

2. Gross vs. net debt.  This distinction used to be important mainly at the state/local level, where governments have in aggregate typically held financial assets roughly equal to and sometimes exceeding credit market liabilities.  At the federal level this distinction has been much less important, as the Treasury has typically held little by way of financial assets. However, recent financial market intervention has resulted in additional assets and liabilities coming onto the federal balance sheet, either officially or unofficially.  First, the Treasury financed its TARP program through debt issuance, but used nearly all of the proceeds to purchase financial assets with considerable value.  Second, the Treasury significantly strengthened the implicit federal guarantee of GSE liabilities when it put them into conservatorship in 2008, effectively increasing the amount of federally backed debt. However, the GSEs hold nearly an equivalent amount of assets.   Thus the net effect of financial stabilization programs on debt levels is considerably less significant than the change in gross debt would imply.  

3. Present vs. future obligations.  Any discussion of fiscal sustainability would be incomplete without a discussion of future obligations, particularly those related to retirement-related programs.  As shown in the table below, governments hold significant assets in pension funds (in the case of state/local) and intragovernmental trust funds (in the case of federal). These assets, along with revenue that continues to be collected through dedicated payroll taxes, are in most cases sufficient to pay current obligations related to these programs. However, these programs are far from balance over the long term; pension plans for retired government employees are underfunded by 33% of GDP according to estimates from the Pew Center on the States and the Government Accountability Office, and federal entitlement programs face an unfunded liability of at least 129% of GDP (based on 75-year deficits calculated by the Social Security and Medicare trustees) if current policy remains unchanged.

4. On vs. off-balance sheet.  Although on-balance sheet commitments should obviously be counted toward debt totals, off-balance sheet commitments can be more subjective.  First, there is no agreed-upon amount for many of these obligations, such as the pension or entitlement shortfall noted above. Second, it isn’t clear where to draw the line—for instance, most observers count some form of pension underfunding, and while many analysts left out GSE obligations before the entities were put into conservatorship, we suspect more are inclined to include them today.

5. Strong vs. weak commitments.  How off-balance sheet commitments are treated depends in large part on the degree to which governments are (or are perceived to be) bound to make good on certain obligations. For instance, there is little dispute that debt service holds the top spot in the priority of claims on governmental revenue, particularly at the federal level.  Pension obligations come only slightly below; there have been few episodes of state and local governments reneging on pension obligations, and in some states they hold as high if not a higher legal position than debt service.  On the other hand, entitlement programs represent a softer commitment. Medicare Part A, which is financed through dedicated payroll taxes placed in a trust fund, represents a fairly strong commitment to future retirees.  The rest of Medicare (Parts B and D), which bases eligibility on Medicare Part A but is financed out of general revenues and premiums from current enrollees, is more of a hybrid, with not quite as strong a commitment to leave benefits unchanged. Medicaid, by contrast, is financed entirely out of general revenues, and only a fraction of the taxpayers who pay for the program will use it.  



What’s the appropriate measure to use?  It depends on the purpose, but we would highlight three main ways of looking at the numbers:

1.  For assessing the federal government’s current financial position.  Here, we would focus on net on-balance sheet government debt, plus net debt related to GSE/financial sector commitments: these are the obligations that are likely to be relevant in the very near-term, less the liquid assets available to pay them.  This particular measure is not too concerning, at just under 50% of GDP in 2009.  Of course, the budget situation is deteriorating rapidly: we expect the current-year federal deficit to exceed 10% of GDP, and see deficits still in the mid-single-digit range through the end of the decade.

2.  Debt sustainability, especially for international comparisons.  At the international level, gross general government debt (70% of GDP in the US) is probably the most widely used measure.  This includes state and local obligations, some of which ultimately could be backed by the federal government in a crisis.  It does not net out assets, since the liquidity and quality of government assets is difficult to compare across countries.  Ideally, we’d like to compare net general government debt, including the likely cost of contingent liabilities, but in practice this is very difficult. 

While we’re on the subject, it’s worth pointing out that comparisons of the debt of certain US states with other sovereign nations are apples-to-oranges.  The economic situation of states is clearly affected by federal government policies and debt, and so at the least, one should apply a pro rata share of federal government debt if making any kind of international comparison.

3.  To gauge the magnitude of decisions facing policymakers.  Here, total net debt of all types, including unfunded entitlements, is probably the best measure—simply because it makes plain that the current combination of government tax and spending policies is unsustainable and will require tough decisions soon.  Higher taxes are likely to be part of the solution, but reform to entitlement spending also is inevitable.  For exactly this reason, we don’t think that debt/GDP figures of 200%+ are a good representation of the United States’ current position.  They are based on an assumption that policy doesn’t change, but we know it must.

Andrew Tilton / Alec Phillips



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Sun, 04/25/2010 - 21:08 | 317393 BlackBeard
BlackBeard's picture

Are they trying to break into the financial media industry?  If that's the case, they've got to try harder.  CNBC has a HUGE lead on the bullshit being served per programming hour.

Sun, 04/25/2010 - 21:22 | 317409 SWRichmond
SWRichmond's picture

Nah, they're sucking up to uncle.

Mon, 04/26/2010 - 07:36 | 317722 ZackAttack
ZackAttack's picture

Yep, a squid pro quo for all the 'help' over the years.

Mon, 04/26/2010 - 10:30 | 317939 weinerdog43
weinerdog43's picture

"squid pro quo"


+1000!  Excellent!

Sun, 04/25/2010 - 22:29 | 317502 FEDbuster
FEDbuster's picture

They are all just financial fluffers for the limp dick Uncle Sam.

Sun, 04/25/2010 - 21:14 | 317397 chealy3
chealy3's picture

still wating

Sun, 04/25/2010 - 21:22 | 317403 Everyman
Everyman's picture

Is any news media financial or otherwise going to start doing some damn investigative reporting???

Good lord the squids all collapse the economy by designing these CDS and MBS BS, and then ask for money, get it, give bounues and then tell us the bill to the taxpayers is...


"NOT TOO BAD"!!!!!!?????

In the immortal words of John Stewart:  "Are You Funcking Kidding me????"


"I am Joe's Raging Bile Duct."

"I am Joe's Grinding Teeth."


In the offbalance sheet portion:

"...and while many analysts left out GSE obligations before the entities were put into conservatorship, we suspect more are inclined to include them today."

GEE, since they are now TRILLIONS I would think they would need to be "included" in the balance sheets!!!  Are these guys for real, or just that damn dumb????

Sun, 04/25/2010 - 21:18 | 317404 BrianOFlanagan
BrianOFlanagan's picture

what a giant pile of hot stinking dog doo. 

Sun, 04/25/2010 - 23:17 | 317541 whatsinaname
whatsinaname's picture

Will the giant pile of hot stinking dog doo smell any better when illegals (are forced to) leave the US ? Is the action in Arizona start of a trend and will it kick off massive inflationary pressures for the USA ? How will the bond market react then ? Will debt still not matter ?

Sun, 04/25/2010 - 21:24 | 317410 docj
docj's picture

The arsonist, surveying his handiwork, with smug approval.

Sun, 04/25/2010 - 21:28 | 317417 chealy3
chealy3's picture

Temptation’s page flies out the door
You follow, find yourself at war
Watch waterfalls of pity roar
You feel to moan but unlike before
You discover that you’d just be one more
Person crying

Sun, 04/25/2010 - 22:09 | 317480 AccreditedEYE
AccreditedEYE's picture

+13 billion

Sun, 04/25/2010 - 21:24 | 317411 casino capitalism
casino capitalism's picture

Self-serving @ssholes.

Sun, 04/25/2010 - 21:26 | 317412 Everyman
Everyman's picture

"...simply because it makes plain that the current combination of government tax and spending policies is unsustainable and will require tough decisions soon.  Higher taxes are likely to be part of the solution, but reform to entitlement spending also is inevitable.  For exactly this reason, we don’t think that debt/GDP figures of 200%+ are a good representation of the United States’ current position.  They are based on an assumption that policy doesn’t change, but we know it must."

Gee, I wonder if that includes all the claw backs from all the bailed out organizations, as well as sharing some of the profit with the taxpayers of the United States, since they footed the bill for GS's assinine risk.

How can these guys print this shit with a straight face???

Sun, 04/25/2010 - 21:45 | 317452 All_Is_Well
All_Is_Well's picture

Because they know deep down inside that, it's all a sham, based in fantasy, and the money is worthless!

Sun, 04/25/2010 - 23:53 | 317567 Fox Moulder
Fox Moulder's picture

Straight face? They are laughing all the way to ... well you know the rest.

Mon, 04/26/2010 - 00:51 | 317603 Augustus
Augustus's picture

Sure Goldie shares profits.  First it paid back the money with interest and profits on  the warrants.  Then it pays income taxes on its profits.  Then the goldie employees getting the bonuses keep NYC from collapse with their taxes.  As for you, they will give you a tip for that shoe shine.  Be happy.

Sun, 04/25/2010 - 21:34 | 317427 chealy3
chealy3's picture


Sun, 04/25/2010 - 21:34 | 317428 snowball777
snowball777's picture

We gonna chase dem crazy baldheads out of town...



Sun, 04/25/2010 - 21:35 | 317434 tmftdoyle
tmftdoyle's picture

Government policy must and will change. that is exactly the point; these changes will be massively contractionary to the economy. 

Sun, 04/25/2010 - 21:35 | 317435 tmftdoyle
tmftdoyle's picture

Government policy must and will change. that is exactly the point; these changes will be massively contractionary to the economy. 

Sun, 04/25/2010 - 21:37 | 317437 chealy3
chealy3's picture

yawn, again

Sun, 04/25/2010 - 21:39 | 317442 SayTabserb
SayTabserb's picture

Well, that's nice to know. I still can't follow, however, what is meant by the Social Security Trust Fund as an "asset" offsetting the future liability for old age pensions (actually, current deficit, since it's already running negative). The Trust Fund is simply a crime scene, is it not? The forensic, accounting record of money taxed and taken, spent on other general progams, and replaced with more debt. How can that be an offsetting "asset?" Also, what assumptions are they using about unemployment and growth? The USA is taking in about $2.2 trillion a year in gross taxes, spending about $3.5 trillion. What exactly is going to turn those numbers around? What assumptions are they using about future Treasury debt interest rates? And why did the GAO just publish a forecast that by 2020 (a little over 9 years from now), Social Security, Medicare, Medicaid and interest payments would, by themselves, take up 93% of federal spending? I don't see how this rosy forecast can be reconciled with that. Is this simply more Goldman fraud?

Sun, 04/25/2010 - 21:42 | 317445 Tart
Tart's picture

This just in from Bloomberg "Stocks in U.S. Cheapest Since 1990 as Analysts Boost Estimates".......story to follow.........forget buying at 666 when it's much cheaper to buy at 1200

Sun, 04/25/2010 - 21:43 | 317447 chealy3
chealy3's picture

yes, and yawn again..

Sun, 04/25/2010 - 21:45 | 317451 MsCreant
MsCreant's picture

Never mind if you can eat it or not, if we all bought PMs we could take this system down. If we could get enough people doing it, they couldn't pull this sleight of hand crap. It would be taking back our power that we gave to them when we let them take us off the gold standard.




Sun, 04/25/2010 - 21:50 | 317458 chealy3
chealy3's picture

how many people will it take?

Sun, 04/25/2010 - 22:15 | 317486 Hansel
Hansel's picture

I'm doing my best!  I even figure some people are half-assing it, so I bought their share too.  :)

Sun, 04/25/2010 - 22:46 | 317516 chealy3
chealy3's picture

it will take more than that

Sun, 04/25/2010 - 22:22 | 317496 BrianOFlanagan
BrianOFlanagan's picture

Agreed, time to starve this freakin beast by pulling all our money out of this corrupt system. 

Sun, 04/25/2010 - 23:12 | 317539 whatsinaname
whatsinaname's picture

Do we have a system ?

Sun, 04/25/2010 - 23:21 | 317542 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Die Fuckers!

Ill Bill feat. Immortal Technique- War is My Destiny:

Mon, 04/26/2010 - 01:58 | 317633 Alienated Serf
Alienated Serf's picture

o/t- since you like hip-hop, check out uncommon valor by jedi mind tricks with RA the rugged man

Mon, 04/26/2010 - 14:52 | 318453 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Some of the best in the game right there.

Sun, 04/25/2010 - 21:54 | 317459 Crab Cake
Crab Cake's picture

"Although on-balance sheet commitments should obviously be counted toward debt totals, off-balance sheet commitments can be more subjective."

This coming from a corporatized investment bank?  Who'd of thunk it. 

I can only speak for myself, but I don't believe a damned word I hear coming from DC (from either corrupted party), Wall St, or the "main stream" media.  All I hear is blah blah blah, lies, and spin.  Full faith for their bullshit fiatsco credit empire?  Whoever is counting on that from me can go F themselves. I'd rather live in the woods in a tent, and die young, than have anything to do with any of these "interested parties."  The only reason I haven't gone guerilla is the good of my family, but rest assured that I will resist in any way possible until the day I stop breathing breath.

Ditch your mortgages if you can, toss your credit cards, don't do business with Wall St and/or invest, live a cash/barter life, don't do business with banks if at all possible and certainly not TBTF, and don't pay taxes through your paycheck (make the bastards wait, or don't pay at all).

I have had it with this hypocritical so called Republic.  We aren't citizens!  At best we are consumers, and at worst we are corpo debt slaves/livestock.  Fuck it all.  Fuck DC, Wall St, the ratings agencies, the political parties, the corporations, the military, the oil based economy, the War on Drugs, the media, the accountants, the lawyers, the ass backward education system, the nouveau aristocracy Bilderberger/CFR/TC, the Fed, the banks and bankers.... Fuck them all.

Even if this country manages to stay together long enough, I'm going off the grid, and will no longer be a participant.  Full faith my ass.  I'm done in any way I can be.  This is war.

Sun, 04/25/2010 - 21:56 | 317464 chealy3
chealy3's picture

stop venting, defeat the enemy from within

Sun, 04/25/2010 - 22:14 | 317479 Crab Cake
Crab Cake's picture

Oh, I assure you, I know fucking samsara too.  My participation dies with my ego first on the hit list.  I'm prepared to live in a cave with just the clothes on my back. I will let my rage pass through me into this world and leave not a stain, for it is not mine.  It is the balancing force of the universe, pure energy.  I'm not body, emotion, thought, time, my name, or action.  There is no control.  There is one escape, and only one.  Non attachment, and right living; the way and the life.

Emotion is not to meant to be contained.  Like all other appearance/reality, it is. The danger is in attachment to it.  I'm not entitled to anger, as the sea is not entitled to a storm; it just is.  The storm will pass, and calm seas return.  Neither calm nor the storm is right or wrong, they just are.  Freedom lies in attachment to neither.  This I understand, this I do my best to practice.  Liberation is not freedom from emotion, but rather the recognition of what it is, and letting it leave no stain upon one's being.  In this way balance and equanimity follows. 

Long live the forest, let it burn. 

Since I have addressed your statement.  Perhaps you will return the favor?  What is within, and what is without?  Hmmm?  Do you believe that to be clear?

Sun, 04/25/2010 - 22:17 | 317490 chealy3
chealy3's picture

recognition of what it is

Sun, 04/25/2010 - 22:22 | 317493 Crab Cake
Crab Cake's picture

Go fuck yourself, if there is a yourself to find.

Sun, 04/25/2010 - 22:30 | 317503 chealy3
chealy3's picture

no need for anger, wasted energy

Mon, 04/26/2010 - 10:41 | 317965 weinerdog43
weinerdog43's picture

"wasted energy"

like your post?


Sun, 04/25/2010 - 23:47 | 317563 Hulk
Mon, 04/26/2010 - 00:47 | 317601 Crab Cake
Crab Cake's picture

I love it.  Thanks for posting. 

"Freedom's just another word for nothing left to lose." - Janis Joplin

Most consider that a confession of desperation. A person has lost everything, and now has nothing; freedom.  Look again.  Empty your cup. 

Me and Bobbie McGee

Sun, 04/25/2010 - 22:47 | 317517 Hulk
Hulk's picture

nicely done crab cake, nicely done...

Sun, 04/25/2010 - 22:01 | 317470 Nihilarian
Nihilarian's picture

Nothing is more permanent than "temporary" arrangements -- patriot act, iraq/afghan wars, income tax, deficits...

Sun, 04/25/2010 - 22:05 | 317475 chealy3
chealy3's picture

at what point do we stop talking about things that already known?

Mon, 04/26/2010 - 00:14 | 317580 snowball777
snowball777's picture

When you stop whining and step up to the plate, chief.

Mon, 04/26/2010 - 02:08 | 317638 Alienated Serf
Alienated Serf's picture

when do you stop answering questions with questions?  state your case or STFU

Mon, 04/26/2010 - 09:03 | 317784 pan-the-ist
pan-the-ist's picture

Hey Socrates, we find your method to be vulgar and ugly.  Usually newbs who do this don't have the answers and want to appear wise.  Put up or shut up. (Which is to say, please write something with substance and add to the discussion.  You already have one foot in the grave here (that's a warning).)

Sun, 04/25/2010 - 22:15 | 317489 Missing_Link
Missing_Link's picture

Just when I thought Goldman could not possibly piss me off any more.


Sun, 04/25/2010 - 22:21 | 317492 DavosSherman
DavosSherman's picture

PHUCKING MORONS. Scr*w the debt - it is all about the deficit, which using GAAP is 9 trillion, we can't borrow that anymore - game over.

This from a company who helped blow up the economy and then turns around and professes to be "Doing God's work."



Sun, 04/25/2010 - 22:35 | 317509 Al Huxley
Al Huxley's picture

That would seem to be the sane conclusion, but it contradicts the weekly auction results and unrelenting bullishness in the markets.  Obviously there is still plenty of demand for US govt debt.  Whether this is China, Japan, UK, or the domestic population, or actually the FED monetizing hasn't been determined, but so far, the superficial observation is that 'deficits don't matter' (still) and there is no consequence associated with this ridiculous pillaging and abuse.  

Based on history, this is patently false, but who knows how long it will take to be exposed - one year? 10 years? 50 years?   DOW could go pretty high on lies, deceit and unwarranted optimism before reality finally forces resolution.

Sun, 04/25/2010 - 22:36 | 317510 Leo Kolivakis
Leo Kolivakis's picture
Greek TV Show Radio Arvyla Presents Max Keiser (Eng sub):

Sun, 04/25/2010 - 23:55 | 317568 Crab Cake
Crab Cake's picture

I have to give credit where credit is due, that was awesome.  Thanks for posting it Leo. 

Now if only a rant like that could be played on US mainstream nightly news.

Mon, 04/26/2010 - 00:49 | 317599 Tethys
Tethys's picture

Nope.  We get this instead:

PORTLAND, Ore. — The docks are humming again at this sprawling Pacific port, with clouds of golden dust billowing off the piles of grain spilling into the bellies of giant tankers.“Things are looking up,” said Dan Broadie, a longshoreman. No longer killing time at the union hall while waiting for work, instead he is guiding a mechanized spout pouring 44,000 tons of wheat into the Arion SB, bound for the Philippines.


At malls from New Jersey to California, shoppers are snapping up electronics and furniture, as fears of joblessness yield to exuberance over rising stock prices. Tractor trailers and railroad cars haul swelling quantities of goods through transportation corridors, generating paychecks for truckers and repair crews.




On the factory floor, production is expanding, a point underscored by government data released Friday showing a hefty increase in March for orders of long-lasting manufactured items. In apartment towers and on cul-de-sacs, sales of new homes surged in March, climbing by 27 percent, amplifying hopes that a wrenching real estate disaster may finally be releasing its grip on the national economy.

"fears of joblessness yield to exuberance over rising stock prices".  R.O.F.L.


Mon, 04/26/2010 - 06:25 | 317699 Crime of the Century
Crime of the Century's picture

NYT = Baghdad Bob

Mon, 04/26/2010 - 01:02 | 317607 Augustus
Augustus's picture

It is the steady diet of that nonsense that has brought Greece to the current condition.  It was not GS which made the reports to the EU concerning Greek finances.  But the Greek govt. was just a victim I suppose since they should not have been allowed to borrow when they asked for loans. 

Sure, baby, sure.  Every wino sings that same tune.

Sun, 04/25/2010 - 22:59 | 317527 Everyman
Everyman's picture

Maybe the end of "Fight Club" is what GS needs?

Sun, 04/25/2010 - 23:01 | 317529 chealy3
chealy3's picture


Mon, 04/26/2010 - 00:43 | 317597 Moneygrove
Moneygrove's picture

I want to beat some goldman a$$ !!!!!!!!!!!!!!!!!!!!!!!!! 

Mon, 04/26/2010 - 00:24 | 317586 dumpster
dumpster's picture

bone heads

eric sprott

The rating agencies’ ranking of the United States is even more disconnected from reality. To believe that the US sets the benchmark for sovereign debt credit ratings is preposterous. While we have written ad nauseam about the excessive debt issuance by the United States, we found a recent update written by United States Government Accountability Office (GAO) to be particularly instructive. The update noted the US’s budget deficit equivalent to 9.9% of GDP in 2009 – the largest since 1945 – and stated that without significant policy changes the US government would soon face an “unsustainable growth in debt”. This was not news to us. It goes on to state, however, that using reasonable assumptions, “roughly 93 cents of every dollar of federal revenue will be spent on the major entitlement programs and net interest costs by 2020.8 This is news! In less than ten years, using reasonable assumptions, there will essentially be no money left to run the US government – 93% of all tax revenues the US government collects will go to pay social security, Medicare, Medicaid and the interest costs on their national debt. This implies no money left over for defense, homeland security, welfare, unemployment benefits, education or anything else we associate with the normal business of government. And the US government is rated AAA!?


the goldman guy is sucking a tit of stupid . raised on the gruel of Keynesian poison and left over trash from the kitchen sink .. waiting for his next government bonus check

Mon, 04/26/2010 - 00:25 | 317588 chumbawamba
chumbawamba's picture


Mon, 04/26/2010 - 00:59 | 317606 Moneygrove
Moneygrove's picture

no one is counting the money usa will get from iraqnam !!!!!!!!!! Dick Cheney said the war would pay for it self !!!!!!!!!!!!!!!!!!!!!!!!!!!! 

Mon, 04/26/2010 - 01:05 | 317610 Augustus
Augustus's picture

Several articles available about the finances of Chile.  They are going to borrow a bit to finance the earthquake reconstruction.  I believe I read that the current debt is about equal to 1% of GDP.  Sounds as if it is possible to operate a govt. in a sound manner.

Mon, 04/26/2010 - 01:22 | 317618 lovejoy
lovejoy's picture

Hate to say it, but their conclusion is correct. Debt levels are not an issue unless you borrow in a foreign currency or have a convertible currency. 

However, their analysis demonstrates total lack of understanding of the monetary sysytem

Governments (but not states) have no revenue constraints. Governments with a non-convertible and free floating currency can never go insolvent, unless the government decides to do so. So it can spend (credit bak accounts and add reserves). The only limitation on spending is that if unemployment reaches say 2% and underemployment 0%, the economy is probably operating at its real capacity and so any government spending after this would mean inflation. But that is only if the government does not raise taxes. If the government raises taxes, the government takes spending capacity from the private sector and so reduces the risk of inflation.

We currently have high unemployment and underemployment and the government, who still thinks it is on a gold standard, is raising taxes, when raising taxes is the last thing you want to do in this economy.

Always remember -- the government does not need to tax in order to spend.


Mon, 04/26/2010 - 05:30 | 317690 lewy14
lewy14's picture

Krugman - izzat you?

Mon, 04/26/2010 - 07:13 | 317714 BorisTheBlade
BorisTheBlade's picture

Always remember -- the government does not need to tax in order to spend.

Until it does.

Mon, 04/26/2010 - 07:34 | 317719 Catullus
Catullus's picture

It's a good point. But what happens when a government needs to buy something not produced in its country? The seller in the other country may demand payment in something other than 1s and 0s. Then there's a problem

Mon, 04/26/2010 - 09:32 | 317813 kaiserhoff
kaiserhoff's picture

Brilliant analysis.

How much Zimbabwean currency would you like?  I also have a bridge and some swamp real estate for sale.  Your people should talk to my people;)

Mon, 04/26/2010 - 02:34 | 317628 dumpster
dumpster's picture

Debt levels are not an issue


but for the level of capital to repay the debt . a distortion of the best use of funds ,

if debt is not an issue ,, send every one a million bucks. just charge it to the national ozone layer

but for you i bet debt is a killer .

oh i know the government is a different animal.


really ,, and your great Austrian economics back ground made you say that  or was it Keynesian fodder feed into your cerebral cortex


unless they are so high . that the fiat created sends the economy in to a hyperinflation. 

Mon, 04/26/2010 - 04:49 | 317679 Sudden Debt
Sudden Debt's picture

The reason why America is printing new 100$ bills is not so much for counterfitting reasons.

You have a certain time to bring them in, and after that time, you can still bring them in but the FED can print new notes to replace all the 100$ bills as noted in the books! If you turn in old 100$ bills in 1 or 2 years, they substract that amount from the pile: "LOST OR DESTROYED 100$ BILLS".

Funny thing is: THEY MAKE BILLIONS on that scam because 100$ is the most common note to be used in asia for transactions and which are locked in safes!


Those bills will be turned in later (most of them at least) and the fed will be obliged to delete profits on those notes. BUT for now, they can trick these profits into "LESS DEFICIT".

Any trick will do, and COUNTERFITTING MY ASS! If you want to replicate them and you have the technology, they will be able to copy them anyway!

They are just using "every trick in the book" to lower the deficit FOR NOW, untill it blows over in 1 or 2 years. If it blows over in 1 or 2 years...

Mon, 04/26/2010 - 04:55 | 317682 DrStrangelove
DrStrangelove's picture

well if goldman and moodys say the debt is good, it must be FACT

Mon, 04/26/2010 - 05:06 | 317686 Jo
Jo's picture

'See - we really are good guys; now, drop the charges.'

Mon, 04/26/2010 - 05:48 | 317693 verum quod lies
verum quod lies's picture

I think it's called chutzpah (i.e., shameless audacity). Hey, your sleeping with my wife! No I'm not. But, but, ... I caught you in bed with her! What wife, whatever do you mean? I don't see anyone here. ... Debt, what debt? Let's just get our terminology straight first ... , and repeat after me, "there is no place like debt, there is no place like debt ... ." Now, would you like to buy a CDO-cubed?



Mon, 04/26/2010 - 05:50 | 317694 verum quod lies
verum quod lies's picture

Crab Cake is right, it's simply absurd and pure madness, therefore go as Gault as you can.


Mon, 04/26/2010 - 06:42 | 317704 islander
islander's picture

Numbers/Stats and words can be twisted to tell a story that suits any purpose. Sleep, obey authority, consume. Die a slave.

Mon, 04/26/2010 - 06:42 | 317705 BorisTheBlade
BorisTheBlade's picture

Each and every Ponzi scheme works ... until it doesn't, so there is never a time to be concerned with Ponzi scheme's liabilities that usually grow exponentially ... except for the moment when everyone realizes it is a Ponzi scheme. At this point it's too late.

Mon, 04/26/2010 - 07:42 | 317725 ZackAttack
ZackAttack's picture

I don't think the distinction between public and private debt is all that meaningful when the former backstops so much of the latter.


If the FDIC guarantees GE's commercial paper, is that really private debt?

Mon, 04/26/2010 - 09:08 | 317790 ella
ella's picture

Goldman is right, from Goldman's perspective.  How can they make money on debt if public and private debt is reduced?  After all aren't they doing God's work?

It is all about Goldman all of the time.

Mon, 04/26/2010 - 09:20 | 317798 Hondo
Hondo's picture

This is the most insanely stupid argument I've ever heard.......there is no credibility in this argument and it can be toasted by a high school student........they are now grasping to "become" relevant.

Mon, 04/26/2010 - 09:59 | 317883 potatomafia
potatomafia's picture

Well, when they put it that way....  Bring on the debt!!!

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