Scary Budget Fact of the Day

The United States will officially pass the 100 percent debt-to-GDP line on Halloween. Via Zero Hedge:

We decided to dig into the actual numbers (cancelling out the per capital denominator as it is the same on both sides of the equation) and came to a very disturbing revelation: as of today, total US Debt, is $14.942 trillion (source), obviously an all time high. Q2 GDP as was reported by the BEA three weeks ago, was $15.012 trillion in current dollars. In other words, the spread between total GDP and total debt has now collapsed to an all time low $70 billion. Incidentally, this number was $1.8 trillion at the beginning of 2010. Then we decided to take a quick look at theupcoming bond issuance and find that tomorrow the Treasury will announce approximately $99 billion in 2, 5 and 7 Year bonds to be auctioned off October 25 through 27… With a very appropriate settlement date: October 31, elsewhere known as Halloween. Yes, ladies and gentlemen: All Hallows E'en will be doubly scary this year: for the first time since World War II, US debt will officially surpass GDP on Halloween 2011. 

More from Reason on the impending budgepocalypse here, here, and here. 

Comments

[Enjoy Every Sandwich]

I'm sure that Krugman et al will be along soon to tell us that this is a good thing.

[Suki]

Predicted paraphrase: "Don't sweat it. We can borrow that $70 billion in a few hours and it will make $70 zillion in new economic activity. Full employment will follow."

[robc]

The commissioner of the SEC (no, the other one) said within 15 minutes he could get 4 schools to commit to expansion too.

And yet they are stuck trying to figure out a 13 team schedule for next year.

[Fist of Etiquette]

In other words, the spread between total GDP and total debt has now collapsed to an all time low $70 billion.

It shan't be long until we pine for the days when the gap between debt and GDP was only seventy billion.

[R C Dean]

If by "won't be long", you mean a week and a half, I certainly agree.

[Fist of Etiquette]

Well, I meant on the other side. So three weeks.

[Montani Semper Liberi]

Don't worry. We aren't like Greece because we have our own currency, so we can simply print more when the time comes. What could possibly go wrong?

[Torontonian]

"We aren't like Greece because we have our own currency, so we can simply print more when the time comes. What could possibly go wrong?"

Japan prints their own currency too.

So, if we look to the Japanese experience for guidance, there's a good chance that the US spends the next decade alternating between rounds fiscal stimulus and monetary easing, while the private sector economy stagnates.

One major difference between Japan and the US, is that the Japanese are savers, and nearly the entire Japanese debt is owned domestically. The US, however, relies heavily on foreign savings to finance its debt (and consumption).

In the short-run, the financial crisis has sent everyone worldwide on a flight to safety, which has so far been found in US dollars and treasury securities; thus making it possible for the US government to borrow at effectively zero cost. But markets aren't stupid... in time the world will start to question whether it makes sense to lend money to the US government for 10 years at only 2% interest, knowing that the money supply is being inflated at a jaw-dropping rate.

So, if foreign investors decide that there are better places to park their money, and there is no domestic savings to draw on, then the US stops tracking the Japanese experience (where additional debt issuance is continually met with abundant market demand), and ends up in the situation where the only entity that will lend to the government is its own central bank. This situation isn't unprecedented... it was last experienced recently in Zimbabwe.

[Harry Reid]

The private sector's doing jest fine. It's the government jobs what needs protectin'!

[NotSure]

Pretty sure that people like Tony will point out that Japan is around 200% debt to gdp, so this number is nothing to worry about, forgetting to mention the part where Japan has not moved forward for nearly two decades now.

[Tony]

Japan indeed as a debt that is 197.5% of GDP. Zimbabwe has an even higher ratio of 234.1% of GDP. Both are doing just fine.

[Maxxx]

At the rate we are going we will surpass both by 2020.

[NotSure]

Honestly cannot tell if this is a spoof, because someone like Tony would really believe Japan and Zimbabwe are "doing fine"

[Restoras]

This has to be a spoof. I just don't think Tony is this dumb.

[NotSure]

No, he really is that dumb.

[T]

Let me clear my throat.

DOOOOM!
DOOOOM!
DOOOOM!

That is all.

[Cowboy]

Well obviously its a revenue problem. Just gotta squeeze them richers harder!

[Suki]

Tax corporate criminal Windows users!

[Lord Humungus]

USA! USA! USA!

[John]

You guys just care about this stuff because a black man is in office.

[Barely Suppressed Rage]

And if you like Herman Cain, it only proves how racist you are.

[John]

And when Cain gets elected and these damned racist libertarians are still bitching about the budget deficit, that will just show how racist they are and how a black man can't get a break.

[BigT]

If [insert name] is Prez and the deficit is still huge, everyOne will have a right to bitch.

[R C Dean]

Just wait until interest rates begin to rise, and the debt service payments begin to go up.

I'd love to know

(1) The current weighted average interest rate of Treasuries held by the public (excluding intra-governmental "debt").

(2) The historical weighted average
interest rate of Treasuries held by the public.

(3) What our debt service payments would be at the historical weighted average. Because we will, at some point in the not too distant future, revert to the mean.

A quick Google did not produce. Anybody seen a source for this?

[Troy]

I don't know what the fuck any of that means. I am also certain that there isn't a single member of congress that know what the fuck you just said or its implications.

[Mike M.]

This recently ended fiscal year, debt service payments increased by an incredible sixteen percent, in spite of interest rates going down as low as they can possibly go.

That means there's no longer anything left the Fed or anyone else can do from here on out to keep those payments from skyrocketing for the foreseeable future.

[DEM]

There is zero chance that this situation will end well . . .

[DEM]

Also keep in mind that this analysis is not the whole story because it excludes payments promised under current law, which add up to well over $30 trillion. Since there is zero political will to change any of that, a realistic analysis should add it to the debt, meaning we are way over GDP.

[Tony]

Arbitrarily too much debt! We must cut because I'm scared of big numbers!

[Barely Suppressed Rage]

Arbitrarily not enough taxes paid by "the rich" (arbitrarily defined)! We must tax more because I want more free stuff and I envy those who have more than I do!

[Tony]

If the recent debt ceiling hostage situation was any indication, you debt fanatics will take us over the cliff long before our debt ever could.

[Auric Demonocles]

You mean when the Democrats held the country hostage by refusing to cut spending?

[Tony]

I mean when the Republicans were going to voluntarily cause us to default rather than raise taxes one single penny on the richest 1%.

[Auric Demonocles]

Being unable to borrow more =/= default.

[Tony]

This isn't bad spoofing. I may just have to outsource.

[Jeremy Harmon]

Get over yourself.

[Tony]

Your pathetic psychobabble notwithstanding, if you care about paying down debt, there is a choice between raising taxes and cutting healthcare and retirement benefits for old people, or both. If you're only willing to take from the old and poor, what does that say about your emotional state? Since this is all about lizard brain feelings, after all.

[NotSure]

It is not taking, the stuff promised them was not theirs in the first place. You can tax the rich 100%, the growing costs to pay for your Utopia can not be sustained, who are you going to blame next once that money supply has been drained - and it will drain very quickly.

[Tony]

Did those old people not pay taxes their entire lives? It sure as hell is theirs, if law says its theirs. Just exactly like how law says rich people's income is theirs.

The single largest contributor to federal deficits is Bush tax cuts. You can't take current rates (the lowest in the better part of a century) and declare both that they can never be raised and that you care about paying down deficits.

[NotSure]

Give me a break, how many of those people did actually pay taxes, yet you still support giving them something for doing nothing.

And no you utter moron, the biggest problem to deficits is the increase in spending, spending that is going up and up and up. It will keep on going up because neanderthals like you will support ever more spending on ever more government projects, thinking that have the biggest budgets ever ever is not the problem, but rich people are.

[Moar Taxes!]

Of course the government should spend more and raise taxes! Do you want to end up like Somalia!?!?!?

[TrickyVic]

""The single largest contributor to federal deficits is Bush tax cuts.""

Why look at only one side of the story. You don't get deeper into debt if you don't spend. Although it will take you longer to pay off a debt with less revenue.

But if we can't curb our spending, we need to increase taxes. That's the reason we are screwed. Congress does not want to curb their spending, nor do they really want to be on the record for rasing taxes.

[John]

Shorter Tony, if we would just steal more, everything would be great. Because the government giving you money is just the same as it letting you keep what you earn.

[Tony]

Oh blow it out your ass John, you don't believe taxation is stealing.

[John]

But I also don't believe cutting taxes is the same as spending.

[Tony]

You don't believe anything John.

[CE]

The single largest contributor to federal deficits is Bush tax cuts.

Now you're just making stuff up. Federal tax revenues have increased by 9 percent in the past 10 years, despite the Bush/Obama tax cuts and two recessions. Federal spending in that same time period has increased by 105 percent.

The single largest contributor to federal deficits is increased spending.

[Auric Demonocles]

The actual revenue doesn't seem to matter to him, it's all about the rates.

[Tony]

CBO estimates the tax cuts lowered revenue at least $2.9 trillion from 2001-2011 from what it otherwise would have been. Tax revenue as a share of GDP is lower than it has been at any time since at least 1950.

[NotSure]

Not arbitrary when you have have more debt than you make, especially when you are old like Japan is, and going to be like America.

[Torontonian]

"Not arbitrary when you have have more debt than you make" It's not just that the US has more debt than it makes.

The numbers aren't even an apples-to-apples comparison.

The GDP number includes ALL domestic production, including household, corporate and government spending.

The Federal debt number only accounts for once slice of debt... it ignores household debt, corporate debt, and debt issued by other levels of government (municipal and state).

In my unqualified opinion, a better measure would be the total debt (household, corporate, all governments), dividied by private sector GDP (excluding all government spending). This would show the total debt burden that is being supported by the productive economy.

Another relevant measure would be the carrying costs of all that debt as a percentage of total private sector income.

If you want to look only at federal debt, the appropriate denominator would be federal government revenue, which is only around 18-20% of GDP.

[NotSure]

Not sure if this is what you looking for, but this debt clock says the debt per tax payer is $130 000 !
http://www.usdebtclock.org

[R C Dean]

a better measure would be. . .

Complete and unqualified agreement from me.

[Barely Suppressed Rage]

Hey, this is no big deal, as long as we have "the right people" in office, right?

[TrickyVic]

Top Men

[Raston Bot]

Can we all agree that gold will be confiscated as all central banks race their currencies to zero?

[Zuo]

So I've heard this "astronomical debt" chicken-little crap for at least 8 years now, non-stop, from the party that doesn't hold the presidency. Is shit gonna go down? And if so, how much longer is it going to take? This is getting to be "the boi that cried wolf".

[John]

The boy used to cry wolf about a few feral dogs. Now thanks to Obama, he is crying wolf about Godzilla.

[NotSure]

There will not be a collapse, more like being stuck in an economic swamp, Japan style. Unlike the Japanese who tend to be stoic and have a homogenous society, expect more bongo drummers and the usual marxist/hippie/social justice crowd to protest more.

[R C Dean]

The odds of a collapse are probably pretty low, simply because we are still the biggest economy and the reserve currency.

The odds of a decades-long deleveraging/stagflationary economic fubar are approaching unity.

[Zuo]

The JPY is incredibly strong compared to: the USD, EUR, and GBP. Much stronger than it was a decade or two ago. Japan is still THE world leader in a number of important industries and scientific fields.

Saying "We'll end up like JAPAN" isn't exactly effective doomsaying...

[Jeramy]

So, if I am understanding this correctly, after Oct 31st, if every person and business gave every cent that they make to the government, we still couldn't pay off our debt?

[Auric Demonocles]

We couldn't pay off the debt for a year. Which is why Tony is right that clearly to be serious about the deficit the only path is raising taxes.

[Jeramy]

Okay again I maybe be misinterprating this article. So correct me if I am wrong, but the way I read it is that without massive budget cuts the only way to correct this situation through tax increases would be a 100% income tax on everything.

[Zuo]

"Our" debt. Its not my debt. I had no part in the accumulation of it. Let the parasites get stuck with the bill, like they should have in the first place. Before disbanding the IRS, have them comb through military files, government contracts, welfare lists, social security wards... and billtax the bloodsuckers to pay off the debt that THEY have accumulated.

[CE]

Actually, the problem is worse than debt being equal to GDP, because GDP includes government spending, which isn't "product" at all, but paid out of taxes on actual productivity.

[Brad]

http://www.facebook.com/thepeoplestaxplan

time for us to decide! these career politicians continue to spend on stuff we do not want.

[Canman]

From my VHS collection, I watched the Dec 12, 1992 episode of William F Buckley's Firing Line about the budget deficit. Buckley, former senator Warren Rudman, NTU founder James Dale Davidson and Economist editor Clive Crook were concerned about it. Lester Thurow, Robert Kutner and a couple of liberal economists named David Levy and Robert Eisner argued that because of the dire economic circumstances of the times (benign by todays standards), the government needed to forget about the deficit and do something about the sick economy.

The biggest laughs came when Robert Kutner asked James Dale Davidson if he was a home owner and if he bought his house for cash. JDD replied, "No I am not a homeowner, because I beleive that the economy is going to be ruined by the very policies that your side is following".

RK: "... most homeowners ... barrow the money... aquire an asset and are better off for it".

JDD: "... The average homeowner doesn't buy a house and then without paying for it, or moving, buy another house, and then , the next year, go out and buy yet another house .... That is what the federal government is doing and everyone in this room, and everyone listening to this broadcast will pay, when they create ecomonic collapse, which is what's coming!"

[BigT]

DC is doing fine - it's the richest city in the USA, surpassing San Jose. Barf!

http://www.fundmymutualfund.co.....utualFund+(Fund+my+Mutual+Fund)

[BigT]

http://tinyurl.com/3o6qrh8