This page has been archived and commenting is disabled.
How I Learned to Stop Worrying and Love the Debt: FAQs About the National Debt
The handwringing over the supposedly disastrous consequences of our growing national debt shows no sign of abating anytime soon. Perhaps most troubling is that the unwarranted alarmism comes not just from rabid ever-grizzlies like ZeroHedge but also from some respectable information sources. At every turn, the Cassandras remind us that the US has total outstanding national debt of $11.8 trillion and $3 million of new national debt every minute. (They conveniently fail to mention that that's only a 100% increase in the debt since 2001.) They seem to get satisfaction from pointing out that the debt is so large, it doesn't even fit on most calculators. And they note that even according to the conservative estimates of the Obama Administration, the federal budget deficit in 2009 will be $1.6 trillion, over 11% of the overall economy, the highest on record since the end of WWII. And that in 2019, the national debt will represent over 75% of GDP, the highest proportion since just after WWII. They claim that, in these circumstances, the international reserve status of the dollar will not survive, leading, at best, to a crippling rise in interest rates and the cost of debt service, and at worst, a collapse of the American monetary system. Either way, they claim, the US economy will "teeter on the edge of a black hole." Defeatist data like these are causing pundits and ordinary folks alike to start thinking about the issue -- never a good thing. It's clear the debt hysteria won't ebb until either Americans are distracted by a new reality show or the experts debunk the myth that debt is bad. Fortunately, Congressman Pete Stark has gotten the ball rolling by noting that the national debt is actually an indication of our country's wealth (before politely telling his interviewer to "get the fuck out or I'll throw you out the window"). And Nobel-winning economist Paul Krugman has helped out by suggesting that national debt doesn't really matter. I fear, though, that these lone voices of fiscal sanity won't be enough. So, in an attempt to break down the facts in a way that a six-year-old -- or even Tyler Durden -- could understand, I've composed clear, straightforward answers to frequently-asked questions on this much-misunderstood topic. Feel free to add any queries not addressed, but I think this pretty much ends the debt debate. (However, if after reading the FAQs you're still a bit anxious about the debt, you're in luck. The Treasury Department has been kind enough to allow concerned citizens to make a "gift" to the government to reduce the debt.)
FAQs About The National Debt "Will the growing federal deficits increase the US's borrowing costs, creating a vicious cycle of spiraling debt?" Once upon a time, people thought so, but recent economic history has proven that theory wrong. In fact, debt and borrowing costs enjoy an inverse relationship. For example, in the past few years, the national debt and deficit have skyrocketed, but interest rates have plummeted to record lows. Ergo, the more debt we assume, the lower our borrowing costs will be, which will allow us to access funds to service the balooning debt at ever-cheaper prices. By my calculation, if the US had the good sense to increase its debt by a few trillion more, we could reach a point where investors pay for the privilege of lending us their hard-earned cash. "Doesn't a massive federal deficit mean we're spending much more than we produce?" Absolutely. That's the beauty of it -- you get to spend money like a drunken sailor even though you're on a drunken sailor's salary. "Won't investors stop lending to us altogether at some point?" This is America. Governments, corporations and individuals in this country and around the world are lined up around the block waiting patiently to throw money at us. Since the queue's end isn't even visible from here, there's no reason to believe it actually has an end. "Don't sound principles of personal finance dictate that it's unsustainable for an individual to continue borrowing and spending more than he earns?" Yes. In short order that person's credit rating will fall, which will require him to pay more to get additional credit. At some point -- and it won't be long -- lenders will refuse to provide any more credit. If he isn't able to increase his income to meet his debt service obligations and other expenses, he'll go bankrupt. "Wouldn't the same thing happen to a government that borrows and spends more than it produces?" Yes. "So, doesn't that mean the same thing will happen to the US Government?" No. The economic realities applicable to individuals and other governments don't apply to the US. This phenomenon is what's known as the economic component of American Exceptionalism. "What makes the US exempt from economic reality?" A surplus of factors. First, the almighty dollar. For decades it has been the international reserve currency, which is a fancy way of saying the rest of the world has eternal blind faith in our money. In God we trust. In the Dollar they trust. Second, we have the largest economy in the world, which means the rest of the world knows that a hole in our boat would drag the rest of the world's dinghies to the bottom of the ocean with us. That keeps them cooperative. And third, America is the greatest, freest, richest, most egalitarian country in the history of the world. We're a beacon to the rest of humanity. We're the modern age's greatest national success story. These colors don't run (except, of course, where the red, white and blue at issue are the colors of France.) And, what's more, we're the greatest. How could a country like that go bankrupt? "But hasn't China hinted at replacing the dollar as the reserve currency?" China schmina. "Isn't China expected to overtake the US as the world's largest economy?" That's not going to happen any time soon -- at least not for 3 or 4 years. And if and when it does happen: China schmina. "Isn't deficit spending by the government contrary to conservative economic principles?" Not at all. Government debt as a means of centrally planning a nation's economy is what laissez-faire capitalism is all about. For those whose French is rusty, "laissez-faire" generally means "let-do," "leave-alone" or "step-the-fuck-off, Uncle Sam". Except when the economy veers off the anticipated course, in which case it means "government-should-intervene-by-sticking-its-arm-up-the-economy's-ass-and-making-it-dance-like-a-hand-puppet". Worry not -- Adam Smith and Milton Friedman are resting peacefully. "What about the Fed's policy of monetizing the debt by expanding its balance sheet? Isn't that even more dangerous because it finances deficit spending by, in effect, printing money?" That's what the press is there for. Printing money devalues a currency, sparks inflation and merely postpones an inevitable day of painful reckoning only when third world countries do it. "Are you sure we've got nothing to worry about?" As sure as I am that the Obama Administration's deficit projections are right on the money. "So, debt is, for lack of a better word, good?" Precisely. Debt is right; debt works. Debt clarifies, cuts through, and captures the essence of the evolutionary spirit. Debt, in all of its forms -- debt for bank bonuses; debt for shiny new cars; debt for that i-Phone app that makes the farting noises of different ethnic groups around the world -- has marked the upward surge of consumerkind and debt, you mark my words, will not only save Ben Bernanke's job, irresponsible homeowners and Citigroup, but also that country with a mild case of economic performance anxiety called the USA. Mr. Dover will be on a secret fact-finding tour of Europe for the next few weeks.
**Special thanks to TomJoad for suggesting the brilliant title.
- advertisements -
I'm going to pop my Lee Greenwood tape into the cassette player and read this article again.
This is a great help, thanks so much. So I want to put my 80 year-old mother's savings in the stock market where it belongs. Not that things are getting better, I want to take advantage of margin lending. Do you think 50% is too aggressive. I will only buy the quality names, mainly banks that have already shot up in price and proved they are going to thrive. thanks again
AIG on the dips!
lmao
LOL
This article is amazing. Thank you so much for answering my questions.
See what I mean, everyone? Even some of the experts needed to be set straight on this topic.
Ben-ja-min... Ben-ja-min... Ben-ja-min.........
Hey PM, I thought they were supposed to defend 78? What the hell?
The US isn't the only basket case out there. New Zealand debt has already breached the 100% to GDP and is on fast track to becoming another Iceland.
Yes write the senate to add 5 more zero's to the amount. Geez Clinton had no problem with the money and china gate. Bush's never minded. Why would the taxpayer even consider the Senate to buck bazillions for some stimulas for there masters. Krugman feels his calculator can finite math and stop trends on a dime. http://www.alanwattsentientsentinel.eu/english/transcripts/Alan_Watt_Blurb_Sir_James_Goldsmith_US_Senate_Speech_Oct192007.html
Somebody get the whip out and flog the serfs scared to save there last dollar to survive the noble efforts of the wise masters.
http://research.stlouisfed.org/fred2/series/SAVINGSL
By the way the "How I stopped worrying and loved the debt" was from Dr. Strangelove, and the full title was "How I stopped worrying and learned to love the bomb." there were two bombs, "hi there" and "dear John" perhaps from the last two administrations.
The only way out of this thing is through peaceful revolution. We were in a far worse mess in the 1850s so we formed a new party and fixed it, albeit by a very bloody war. I think the same thing will happen without the war however.
I suspect Newt Gingrich will break away from his party along with Ron Paul and form a new party that will have the ability to clean up the mess. I see no other way out.
wow, for a second there i thought you were actually referencing alan watts:
http://www.alanwatts.com/
“The reason we want to go on and on is because we live in an impoverished present.” ~AWatts
you got that fancy china-made blu ray dvd player. what have they got? some fancy printed paper. such a clever scheme, got the chinese to work for you for free AND front you the inputs of manufacturing. Long live America!
What's wrong with debt?? at least you got your hands on that china-made dvd player watching fake china-made dvds while the chinese only have some fancy printed paper to show for it.
My laughter started with the name "Ben Dover."
Facts? I don't need no stinking facts! Tim Geithner
"Excellent article! Finally someone who understands the complex algorithms I was using to accumulate debt" Bernie Madoff
"Where was this guy when I needed him?" Carlo Ponzi
"When one bank closes another bank opens" Goldmen Sachs trading seminar
"What's for lunch?" SEC
It could only be bested if Dover sang,"We are the champions" in a Freddy Mercury leotard with Kiss boots and a tiara. All made in China and all paid with plastic fantastic.
Doesn't all this debt worry you at all?
Debt schmedt, we've got the bomb.
But aren't you worried about ending the world in thermonuclear war?
Hell no, look, nobody will blow us up. If they did, how would we pay them back?
So you'll just blow everyone else up then?
Say, that's a pretty good idea. Then we don't have to pay them back.
Ha ha ha ha ha ha... good one!
"As sure as I am that the Obama Administration's deficit projections are right on the money."
Classic.
Awesome. One of the funniest articles I've read on ZH, if not THE funniest.
It's not nonsense, it's satire, and excellent satire.
As an international expert in ethnic fart sound wave theory, and from the stench, I believe Mr. Dover must be French.
What is this man smoking?
"debt has marked the upward surge of consumerkind and blah blah"
Debt and devaluation have also marked the beginning of the end of many an empire that im sure the residents of which, at the time, thought was invinsible and immortal and 'the greatest'... Empires rise and fall and if you think pumping infinite fiat is good, you too are drinking the kool aid. Not even taking into account who this supposed debt is owed to, the compounding interest, the taxation and exploitation of the 'upward surging consumerkind', and etc. etc. ad nauseum.. This post is nonsense.
Chillax everyone... at least he's smart enough to get the basics right...
Whew, Ben I felt the breeze from that from the evil iinthesky, too bad most these folks don't
know you from these parts in the greatest state in the union err I mean the WORLD!
This started to happen to my dad once he got to be around 80.
tinyurl.com/62qnkz
We have some lovely parting gifts for you in the back.
LOL... I love the ones that don't get it... they are funnier that Mr. Dover :-)
You do know that you are very difficult to find these days... and I'm soooo retarded that I can't find the squid thread we had going anywhere.
Answer : Toronto is HQ for majority of time... but I cover a wide geographic terrain at times.
After the wild party on ZH over the weekend it is impossible to find anything that you wrote... I think that Open Thread was pushing 700 comments... then Andy opened an Open Thread for another 150 comments or so... everyone was really subdued on Monday night listening to Radio Zero and there was nothing left to say that hadn't already been said a 50 different ways by 50 different people.
Have never been to Toronto... do they have good calamari... the ColossalCalamariCo is the only brand I like... :-)
There ya are...
I've never seen the second page option... so I saw the numbers going up but was dumbstruck. Needed to get out anyway so I went for a looong walk in the woods. The salmon were in the streams spawning... it was beautiful!
We have GREAT calamari restaurants. Actually WE have great calamari restaurants. Just the bricks and mortar. Never see the menu or the bill... hence i don't know how to spell c-a-l-a-m-a-r-i.
Your from... wait... let me guess... Minnesota?
Oh... and how exactly do you get radio zero?
Marla will pre-announce in a posting on the main ZH page that she will be hosting Radio Zero at a certain time that evening... there is no rhyme or reason as to when she does it... but it is usually over the weekend and she is usually late... then she will provide a link for you to click on when she is ready to start... I think I use iTunes as my player... then she will play 'electronica-type' music for as long as she wants... she mixes some of it herself... I wasn't familiar with that type of music but it is really good... sometimes the sessions go all night... you can then chit-chat with others on that thread just like in this comment section. It is a pretty fun when you're in the mood for that kind of chillaxin at home... rather than going out.
Yes... Minnesota has been my home for the last 12 years or so... before that much warmer climates... these 6 month winters are a real problem... to long... I depart frequently throughout the winter for warmer venues.
So whatz up with... Actually WE have great calamari restaurants. Just the bricks and mortar. My interest is peaked.
My good friend Andreas has sizable R.E. 'empire' over here. I just try to keep the bugger out of trouble. I come here to get a heads up on what problems may lie over the horizon... I love this site! You?
Ooops it's 11:30 already... gotta go... see ya tomorrrow Minnesorta...
:-)
I'll have you know, sir, that I never smoke it while typing.
Irony, since the times of Charles Dickens " a modest proposal" , flies over the head of many.
Sad....
whooosh!
Is the captcha still on?
It flew so fast over his head that he couldn't even tell what it was :-)
Buy stocks in manufacturers of lipstick and wheelbarrows.
As in 'lipstick on a pig' and 'wheelbarrows of worthless money'?
you are a quickie. pardon my lack of english skillz.
Printing money devalues a currency, sparks inflation and merely postpones an inevitable day of painful reckoning only when third world countries do it.
Classic
from wikipedia;
"The term Third World arose during the Cold War to define countries that remained non-aligned or neutral with either capitalism and NATO or communism and the Soviet Union."
sooooooo....isn't the USA a third world country?
the USA is non-aligned with capitalism now. right?
No, you don't get it. Obama Administration in all its infinite wisdom will make sure that the United States represent both capitalism (as it always did) and communism (as of recently) making the rest of the world comprising of the Third World Countries (changes in all maps should ensue).
The new phenomenon of combining Capitalism and Communism will be marked by historians as the turning point in the history of humanity. The only debate worth participating in the prosperous centuries to come will be how to call it: Capitanism or Commutalism.
No, but you almost got it! China has already done the combo number, and now its called Sino-sitisalism.
But what's wrong with communism anyway? American corporations have long embraced it, offshoring plenty of American jobs and technology to China and Vietnam.
Sino-sitisalism? That's gotta be some Chinese fake like Adabas, even google gets puzzled ovet it.
But going back to communism: the only wrong thing about it is that it has never existed :) Even in Soviet Union there were these 5-year plans (Pjatiletki) and the arrival of communism to soviet people was pushed to the next Pjatiletka several times. They finally stopped doing this back in 80's and under Gorbachev rule they were just talking about 'reforming socialism'. So, communism never really failed as a working system as it always remained a pure idea (what has collapsed in USSR was effectively some kind of state capitalism).
"communism never really failed as a working system"
Sorry. The facts do not agree with you.
Try reading this:
http://mises.org/store/Requiem-for-Marx-P522.aspx
Thanks!
At least in a way that communists defined communism themselves, it was never claimed that there was a communism, but that's more of a semantical argument.
PS
I regularly read mises.org, so pretty much aware of free market arguments.