Debt Presidents

To his (partial) credit, President Obama at least acknowledged the existence of a long-term fiscal problem in last night’s State of the Union address, noting that “we have to confront the fact that our government spends more than it takes in.  That is not sustainable.” But he made it sound as if getting the budget under control was little more than a single item to be checked off on the national to-do list. The word “debt” appeared in the speech exactly once.

But the mounting national debt is not just a problem. It is the problem. We are out of money. The national wallet is virtually empty, the bank account dollars are all spent, and the line of credit is about to get more expensive. All other policies—from health care to unemployment to infrastructure spending to the tax code—must be considered in the context of the debt.

Today, the Congressional Budget Office offers yet another reminder of the bleak fiscal situation:

The United States faces daunting economic and budgetary challenges. The economy has struggled to recover from the recent recession: The pace of growth in output has been anemic compared with that during most other recoveries and the unemployment rate has remained quite high. Federal budget deficits and debt have surged in the past two years, owing to a combination of the severe drop in economic activity, the costs of policies implemented in response to the financial and economic problems, and an imbalance between revenues and spending that predated the recession. Unfortunately, it is likely that a return to normal economic conditions will take years, and even after the economy has fully recovered, a return to sustainable budget conditions will require significant changes in tax and spending policies.

Under current law, deficits will total nearly $7 trillion between 2012 and 2021. Publicly held debt as a percentage of GDP is projected to rise to 77 percent over the same time period, far past the 60 percent threshold most economists believe is safe maximum, and venturing ever closer to the 90 percent mark that many experts think makes a debt crisis much more likely.

That sounds bleak. But it’s actually worse than it sounds. Those projections rely on current law rather than current policy. According to the CBO, if Congress continues to extend provisions relating to the recent tax deal, the alternative minimum tax, and Medicare’s physician reimbursement rates—all of which have already been extended over the past couple years—total deficits between 2012 and 2021 will hit $12 trillion. The nation’s debt to GDP ratio, meanwhile, will hit nearly 100 percent.

That’s a whole year’s worth of GDP swallowed up by what we owe. If it happens, it will be a product of Democrats and Republicans working together, in succession, to refuse to address the problem. It’s a recipe for crisis.

The bad news doesn't stop there, either. As Kevin Williamson notes, the CBO says Social Security is now permanently broke:

The CBO’s revenue/expenditure estimates now place the program in permanent deficit. There had been some hope that payroll taxes would recover sufficiently post-recession to put the program back into the black (the theoretical black) for at least a few more years, putting off the day of reckoning for an election cycle or more. No more: The new CBO estimates put Social Security in the red for as far as the eye can see.

In theory, Obama at least acknowledges the problem. But overall it’s not clear what, if anything, he would do to seriously confront the country's growing debt. He says he's for "cutting excessive spending wherever we find it." But when it comes to, say, Social Security, he's not for any proposal that reduces future benefits. 

Last year, when asked about solutions, Obama would point to his fiscal commission. “This can’t be one of those Washington gimmicks that lets us pretend we solved a problem,” he declared in last year’s State of the Union.

But at the end of last year, the fiscal commission’s recommendations landed with no administration support. Turns out the commission was a gimmick. It may not have let anyone pretend they’d solved the problem, but it did let the administration spend a year pretending it was working on it. As with the debt problem itself, President Obama has acknowledged their work. But he has declined to endorse their solutions.

The commission, though, went away. In time, most of its proposals will be forgotten. Unfortunately, you can’t say the same about the debt.

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  • sevo||

    “we have to confront the fact that our government spends more than it takes in. That is not sustainable.”

    And his idea of confronting the shortfall is to spend more.

  • Libertarian||

    I guess Obama hasn't gotten around to reading Robert Rubin's article that was distributed at Davos this week. An excerpt:

    The risks of our fiscal position are serious and multiple. And while these risks become more severe over time as our debt position worsens, all of these either have begun to materialise or could do so in the near term, so we should act now.

  • fish||

    Who is this Robert Rubin? I know a prominent Robert Rubin who was an enabler of central bankers and stupid politicians.....dunno....doesn't sound like the same guy!

  • ||

    In theory, Obama at least acknowledges the problem. But overall it’s not clear what, if anything, he would do to seriously confront the country's growing debt.

    He's going to give us high speed rail and windmills. What the hell more do you want?

  • Paul||

    He's going to give us high speed rail and windmills. What the hell more do you want?

    Higher speed rail and windier windmills.

  • ||

    A tired horse and a broken lance?

  • ||

    That's an insult to the honorable and noble Don Quixote.

  • ||

    In the Plaza de Espana in Madrid, the Cervantes monument has a statue of Don Quixote. It is truly a wonderful statue. What I like best about it is Rosinate - the exhaustion and pain in that poor horse's expression tells the full story of all it has been through. The sculptor must truly have loved horses.

  • ||

    What great characters (including the horse!) and story.

  • johnl||

    A windmill powered highspeed train.

  • Tony||

    Why is debt the problem? Are we in danger of defaulting?

    Focusing on debt as the problem means you start doing very counterproductive things, like imposing austerity. Look at where that's gotten Britain and any number of other countries that have tried it. It is counterproductive. The only way to solve the debt problem is to get the economy into a virtuous cycle whereby growth itself results in greater government revenue. Growth will not happen by taking money out of the economy.

    But let's not kid ourselves. Balancing the budget isn't the goal for you guys, it's using debt as an excuse to cut government, that is, to impose your quasi-anarchic religion on the rest of us.

  • Paul||

    Growth will not happen by taking money out of the economy.

    Tony, you inadvertently stumbled upon the truth, but perhaps not in the way you intended.

    Wealth transfers from productive sectors of the economy to non-productive sectors of the economy is taking money out of the economy.

  • Tony||

    Wealth transfers from productive sectors of the economy to non-productive sectors of the economy is taking money out of the economy.

    Okay but you're just using the word "productive" as a bludgeon. Government can do productive things. It can pay people to build infrastructure. How is that not productive? Certainly more so than sending even more money to China to buy cheap plastic crap, which is what happens increasingly in the private sector.

  • fish||

    Government can do productive things. It can pay people to build infrastructure.

    Yep and to do this it needs to take money through taxes that would be spent or invested on private production or.....on buying cheap plastic crap through consumption. But it still involves diverting money from the private sector to government which does a woeful job of conceiving and managing useful projects....by wasting significant portions of it complying with all the other crap the government contracting entails....cough cough.....Davis-Bacon.....cough... woman and minority owned business etc.! Why all this chirp about "infrastructure" anyway? Infrastructure produces nothing that sells and does next to nothing to help with exports. Exports which might actually help to balance the books a bit!

  • Paul||

    It can pay people to build infrastructure. How is that not productive?

    It's only productive if that infrastructure is needed. If it ends up building cars no one's buying, it's a drag on the economy, not a boost to it.

  • The Other Kevin||

    Bigger government = more spending. You cannot separate the two.

  • Sudden||

    Youo are so wise and all knowing Tony....

    our GDP is over three times higher than it was in 1980 (nominal dollars, didn't have the chance to look up real terms) and yet our national debt is nine times higher than it was in 1980. Something don't add up in your proposal.

  • fish||

    The only way to solve the debt problem is to get the economy into a virtuous cycle whereby growth itself results in greater government revenue.

    And this helps how?

  • Tony||

    Public investment until the private sector can sustain the requisite amount of growth on its own.

  • Destrudo||

    Nice idea. Too bad it hasn't worked in...oh, the history of the planet or so.

  • Tony||

    Oh really, I could have sworn we were in fact out of a recession that, left on its own, was generally supposed to result in a sustained depression. What happened?

  • fish||

    God! I thought like all the other lefty dimwits you had learned that Keynes was someone to run away from. Even Krugman is checking his watch and looking for an exit.

  • Tony||

    Two major recent events have proven Keynes right and Austrain supply-sider bullshit artists wrong: the Bush tax cuts, which only exploded the deficit, and the stimulus spending for the recession, which worked.

  • fish||

    Even the Keynesians are saying that the stimulus hasn't worked....that's why they want to double down with QE 3, QE 4 etc. You still haven't addressed all the debt that now exists and will continue to exist and grow in perpetuity or until the whole Ponzi collapses.

  • sevo||

    Tony|1.26.11 @ 3:33PM|#
    "Two major recent events have proven Keynes right and Austrain supply-sider bullshit artists wrong: the Bush tax cuts, which only exploded the deficit, and the stimulus spending for the recession, which worked."
    Lying asshole.

  • ||

    It's hard to discuss anything with someone who makes up facts like Tony.

    1) Bush tax cuts have been around since 2001 and 2003. The deficit from 2001 to 2006 (Republican Congress and Bush) was between 100 billion and 450 billion, which was only 1 year.

    2008 and onward the deficit was 450 billion to 1.8 trillion.

    So your saving that all of a sudden the tax cuts had a snowball effect.

    Has nothing to do with a federal budget that has almost doubled in a decade, and increased 38% on an annual basis over the last four years right? All the tax cuts.

    2) The stimulus - most economist think the stimulus increased the recession. Look at the housing market, the bottom hasn't been reached yet because of government intervention, no jobs were created from it (but all the jobs were saved except for the ones they didn't want).

    The facts are you can't spend your way out of problems. But you can make up anything you want Tony if it helps you sleep better.

    Now, I have to return to being a productive member of society. I'm lucky I get to help pay the tax bill

  • Tony||

    Citation for that "most economists" claim?

  • fish||

    To whom are you assigning homework? Me, Spaceno? If its me depending on the day and audience, the Krugster is claiming that it should have been bigger and that it worked....these two conditions and accompanying claims are occurring concurrently. I haven't checked but if Krugs is saying it DeLong is breathlessly repeating it! You can throw the Bernank in the mix too. He's gone out of his way to not answer every time he is asked if we are done monetizing yet....implying 3 and 4,and 5, 6,7.....n-1, n are probably on the way. Geithner isn't an economist. He's the bagman....err...bagboy. Presently threating that if the debt ceiling isn't raised the world will end.

    Hope this helps.

  • ||

    Canada hit the debt wall in the early 1990s.

    The federal government was over-indebted and the IMF was starting to downgrade Canadian bonds. So Canada had austerity budgets - with severe cuts - for nearly six years until we got back into surplus.

    This did result in slower growth and a lagging economy during those six years. However, growth did get back on track after that and Canada has been outperforming most G-8 countries since then.

    Your "virtuous cycle" of growing revenue will not happen if the US keeps digging itself into a hole. As the deficits get bigger, interest rates are going to rise and you are going to have a viscious cycle as higher interest rates lead to ever higher deficits leading to higher interest rates again.

    In the 1970s, the US attempted to spend its way out of multiple recessions, leading to stagflation.

  • Warty||

    virtuous cycle whereby growth itself results in greater government revenue

    Hear that? Government is virtue.

  • Warty||

    Feel free to pretend that I replied to Tony's drivel, if you like.

  • Paul||

    The federal government was over-indebted and the IMF was starting to downgrade Canadian bonds. So Canada had austerity budgets - with severe cuts - for nearly six years until we got back into surplus.

    All that and poutine.

  • Vermont Gun Owner||

    Poutine almost makes Canada worth existing.

  • Tony||

    Aresen the problem we are having is not too much demand, but not enough. We are not really in danger of inflation (or too much growth), which is half of stagflation.

    Your concerns are not without merit in theory, they just aren't the most important ones right now, and austerity measures are only going to bring your concerns closer to reality.

  • sevo||

    "austerity measures are only going to bring your concerns closer to reality."
    Arithmetic wasn't your strong suit was it?
    You can't spend your way out of debt.

  • Michael Ejercito||

    Why is debt the problem? Are we in danger of defaulting?


    Here is a hint for you.

    Take out fifty credit cards and max them out. You can spend them on anything you want, from sports cars to luxury steroe systems to vacations in Vegas to gay male prostitutes.

    Get back to me after a a year or two.

  • ||

    You know what? People who behave irresponsibly have no place in government. If we'd hold them to that standard alone, we'd be a hell of a lot better off.

  • Mike M.||

    Poor Tony the Schmuck, he still can't come to grips with the reality that his ilk has put western civilization on the precipice of bankruptcy. There are still many stages of grief left to go through.

  • ||

    Growth will not happen by taking money out of the economy.

    You mean, taking money out of the economy to service our debt is a dead-weight burden on the economy? One that gets worse the more debt we have?

    I couldn't agree more.

  • Paul||

    Government budgets aren't like household budgets... or something.

  • Tony||

    Furthermore, debts only matter when we have a Republican administration and the money is spent on things I don't like.

    When a Democrat is in office, the debt doesn't really matter, and spending money we don't have on things I like actually creates money.

    Every economist agrees with me on that, except the racist ones.

  • Paul||

    The only way out I can see for the individual is to simply stop participating in the system.

    How one does that is anyone's guess.

  • Drax the Destroyer||

    You just need to get enough people to stop paying their taxes and to somehow (at least) frustrate the feds when they come to collect. Unfortunately, nobody wants to be the first in the "I'm getting raped in prison because I didn't pay my taxes" pool. Ironically, it's like someone(s?) has to take it for the team for individuals to break free...

    Outside of this, I propose death faking. Once many people have different identities, invalid social security numbers, rocket launchers, and assests in hidden Yuan/Gold reserves, Chony's lord and master can only deport the non-believers or kill them. I'm willing to bet it won't have the money for any of that if it ever came to it.

    Of course, both of these technically insane paths require gigantic balls. My ex-wife threw mine down a storm drain...so good luck.

  • Michael Ejercito||

    You just need to get enough people to stop paying their taxes and to somehow (at least) frustrate the feds when they come to collect. Unfortunately, nobody wants to be the first in the "I'm getting raped in prison because I didn't pay my taxes" pool. Ironically, it's like someone(s?) has to take it for the team for individuals to break free...


    The only way would be to somehow destroy the system.

  • ||

    Didn't someone write a book about that ?

  • Paul||

    Confiscate this man's weapons.

  • cynical||

    Maybe if the Rs fuck this up, the Tea Party will live up to its name and just boycott the government?

  • Michael Ejercito||

    The big problem with cutting spending is that we have dishonest media networks that has too much influence in public opinion, as Tulpa had pointed out .

  • Slut Bunwalla||

    As Kevin Williamson notes, the CBO says Social Security is now permanently broke:

    What? How can this be? I just got a letter recently from the Social Security Administration promising, promising, that there would be plenty of money to pay my benefits when I reach retirement age in like 40 years! Kevin Williamson must be a dirty liar!

  • fish||

    Ah, Bunwalla....your answer lies in the verbosity and tortured explanations of The Greenspan who promised that all dollars owed would be paid but there would be no guarantee what those dollars would purchase. Then again he may have been speaking of Zimbabwean currency.

  • Slut Bunwalla||

    I'm certainly not counting on SS helping me much when (if) I eventually retire. But whatever, I'm not even 30 yet. Who knows what things will be like by the time I'm 65 or 67 or whatever.

  • ||

    I cannot imagine the government ever solving this problem. Neither the Republicans nor the Democrats can let go of their respective grandiose schemes which they justify with idiocies like "...but we're the wealthiest nation in the world" or "...but we're the world superpower".

  • ||

    If we can put a man on the moon, then surely we can (fill in your preferred government spending here).

  • ||

    what moon landing?

  • ||

    We can't put a man on the Moon. We could once, but that was forty years ago.

  • ||

    We could too do it again. But with a Russian rocket. And, he'd have to stay.

  • ||

    And he'd have to arrive dead.

  • ||

    Picky picky.

  • Paul||

    Only with alternative energy. Some sort of windmill on the rocket would probably be in order.

  • ||

    Green!

  • cynical||

    We have to wean our nation off its dependence on foreign credit. Or something.

  • David N||

    I also don't see anyway this debt problem can be politically solved. No politician is gong to stick his head out for massive government spending cuts when such cuts are bound to cause serious pain and recessions in the short term. We can only hope that the economic implosion doesn't happen in our lifetimes, or that some incredible technological breakthrough like cold fusion or Rand's motor comes about that would immediately create a huge boom.

  • fish||

    We can only hope that the economic implosion doesn't happen in our lifetimes....

    Yeah! Lets hope the ass fucking passes us by and finds the children.

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