How bad is the U.S. budget deficit? It’s so bad that I’ve lost sleep over it during the past year, even though the extent of the deficit rarely makes any local news. Here’s how Brett Arends of the Wall Street Journal summarizes the situation:
The federal government is expected to borrow $1.6 trillion this year, or about $15,000 for every household in the country. Over the next 10 years it’s expected to borrow a total of $8.5 trillion. And the government was already deeply in debt to begin with. . . Remarkably, the Treasury market has not yet panicked about the deficits: Yields have barely risen this week. Embedded in the market is a long-term inflation forecast of about 2.5 percent. I call that a dangerous complacency.
After giving the bad news, Arends gives some advice on how to protect your savings, though he doesn’t sound optimistic.
But if we look at the deficit at a percentage of the GDP, it is still much lower than it was around in the late 1940's.
http://zfacts.com/p/318.html
<img src="http://zfacts.com/metaPage/lib/National-Debt-GDP.gif" alt="Deficit vs GDP" width="425">
Whatever this may mean.
Dan: I know that a lot of people like to pull out that number of debt as a percentage of GDP. I'm not an economist, but I don't see that percentage as reassuring. Especially when we are entering a period of extraordinarily high personal debt, combined with massive stress on almost every natural resource upon which we depend, including the rapid depletion of our oil supply, for which there is no substitute in sight. http://dangerousintersection.org/2009/11/24/denia…
One major problem with GDP is that it ignores social and environmental costs of production. Some of those old debts are coming due.
But it is a reasonable indication of the size of the economy and strength of the dollar. By normalizing the debt to the GDP, it indicates how big a piece of the economy those un-graspably large numbers really are.
70% is big. But it is only double the lowest level in the last century, and only a nudge above what Reagan/Bush grew it to a couple of decades ago.
Here's another way of looking at this budget. What if we had just ended a 20-year program of financial belt-tightening, and celebrated "DEBT FREE AMERICA"? The President gets on the television and announces that we've just paid off an amount of debt equivalent to $100,000 per American household, and that the the money that was being used to service this debt is now available to bolster the infrastructure of America. We can now afford to research energy and new modes of transportation. We can now afford to explore space like we want to. We can reduce class sizes at American school. All because we are no longer having to shovel massive amounts of tax money to service a horrendous national debt. That would be great news, right?
Then why is it not a reason for an equally intense national sadness and despair that we are embarking in a LONG sad journey in the opposite direction?
The economists who keep pulling out the ratio of debt to GDP are missing the point, that this is a bad thing that we are piling up debt. They are merely arguing that it MIGHT not be catastrophic, because one way of playing with the numbers shows that we were a bit more irresponsible many decades ago, and somehow we survived as a nation.
Talking about debt to GDP ratio is a pathetically low bar. We should be aspiring for positive change, not justifying this massive national failure of being unable to manage our money (mostly because we are a warmonger nation).