Government Spending

Obama and The Debt: A Love Story


courtesy IBD

Last night in his State of the Union address, President Barack Obama claimed

Over the last few years, both parties have worked together to reduce the deficit by more than $2.5 trillion… As a result, we are more than halfway towards the goal of $4 trillion in deficit reduction that economists say we need to stabilize our finances.

The folks at Investors Business Daily suggest that the president's fudge factor on that claim should induce the political equivalent of a diabetic coma:

When the [president's debt] commission filed its report in 2010, the national debt was $9 trillion, or about 63% of the nation's GDP. The national debt today is over $12 trillion, and has already surpassed 76% of GDP.

Had the debt commission's plan been adopted, the deficit this year would be $646 billion, and on its way down to $279 billion by 2020. And the debt would be holding steady at about 65% of GDP.

Instead, this year's deficit will be $845 billion — even after the alleged $2.5 trillion in savings that Obama touts — and will start climbing again in three years, reaching back up to $1 trillion by 2023, according to the latest forecast from the Congressional Budget Office.

The national debt, meanwhile, never drops below 73% of GDP, according to the CBO, and starts climbing after 2018, reaching 77% of GDP by 2023.

More here.

As a technical note, the figures above represent debt held by the public, which is a subset of total federal debt. When you factor in the debt that government agencies owes to each other (the gross debt), the current figure is actually $16.4 trillion, or more than 100 percent of GDP. That's important because when gross debt is greater than 90 percent of the economy for five years, economic growth tends to slow by 1 percentage point a year for periods that can last for 20 or more years. As awful as it is to have public debt levels climbing toward 80 percent of GDP, the fact that we've had gross debt higher than 90 percent of GDP since 2008 means we're in a "debt overhang" situation that may well retard growth for the next quarter-century.

NEXT: Matt Welch at on Obama's Do-Something Plan for a Have-Nothing Government

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  1. “Kids, we used to go to Disney World twice a year, but lately we’ve been going four times. I’d say we should go ten times this year, but our finances look a bit shaky. So let’s just go eight times.
    I’m sure Mr. China, our neighbor across the street, will be happy to lend us the money when he sees we’ve knocked 20% off our entertainment budget. If we can keep up this rate of reduction, hell I’ll be able to buy the amusement park for you kids in a few years with the Trillion dollar coins I’m making in our basement.”

  2. As a technical note, the figures above represent debt held by the public, which is a subset of total federal debt.

    I suspected as much when I saw how “slowly” the debt chart was increasing.

    1. I think if you GAAP the federal fisc, our deficit last year was something like $6TT.

      1. The GAAP numbers really need to be made more public.

        And criminal charges should be filed when departments cant be properly audited.

        1. I think a brazen congressperson (Rand perhaps) should propose legislation forcing the govt to produce budget numbers in accordance with GAAP.

          1. That was already done back in the 90s.

            They do produce them, but no one reports on it.

        2. What? Public sector workers directly liable for their actions just like private sector workers with similar responsibilities? Unpossible!

  3. How the hell do you expect me to pay my mortgage if I don’t get another credit card? WTF!

    1. Listen, it’s pretty obvious. You don’t get another credit card, you take your car to the pawn shop, and use that loan to pay the mortgage.

  4. And dont forget the GAAP debt, which makes both those numbers look tiny.

    1. Standards are for the little people, robc.

      1. You calling me a dwarf?

        1. No, I’m calling you a midget. So get to work on those GAAP numbers for your brewery.

          1. Actually, that is what Im doing today. Im revising business plan financials based on some new info.

            1. Well…alright then. Keep at it.

            2. Please please please tell me, a fellow Kentuckian, that you’ve considered my alcohol proclivities and decided that, as part of a strategic business plan, you will integrate cider in to your beer fold.

              Beer sucks.

              1. Have you tried beer with your deep dish pizza?

                1. I’ve had deep dish exactly once, and decided that it wasn’t fit to be called pizza. It’s more a bread bowl full of horrible sauce in which there are various “toppings” drowning and crying for help.

                  I take the insinuation that I would dare eat that abomination as an insult, sir; I demand satisfaction!

              2. I’ve tried making hard cider with mixed results. The problem is that when it fully ferments the end product is dry as a bone. Combine that with the bitterness and astringency that’s already there, and it’s way out of balance.
                The solution is to back-sweeten, but that creates all kinds of problems.
                One way is to sweeten to taste and then bottle. And when they bottles are carbonated to pasteurize them to prevent them from turning into grenades.
                The other is to use potassium sorbate to kill the yeast, sweeten to taste, keg, and force carbonate.
                Either way it’s a pain in the ass so I stick to making beer.

                1. Boil some corn syrup and water. Once it cools add a couple of dark rum to every cup. Pour a shot of the mixture into the bottom of each bottle. It will kill off the yeast and add sweetness. You’re ever so right about the dryness. I may try a mead scrappy jack hybrid as my solution this year.

                  1. couple shots of dark rum to every cup

              3. Beer sucks.

                You are wrong, and I will be happy to prove it to you.

                And no to cider. Talk to your local winery to expand into the apple wine business if that is what you want. As Ive never had a truly good KY wine, Im betting they could do better with cider anyway.

  5. So, if the government agencies are just lending to each other, why can’t they just default on that part of the debt? What could possibly go wrong? We’re just lending it to ourselves, right?

  6. Just to bitch about the graphic: the one on deficits is inverted/counterintuitive. It looks like deficits go down after 2015, when actually they go up.

    1. Yeah, don’t deficits imply that they are negative, meaning that if you have a -$500 billion deficit you actually have a $500 billion surplus?

  7. By cutting back the payments to medicare/aid providers, the government is restricting the supply while at the same time it is adding millions of people into the health care system via Obamacare. Cutting healthcare costs is going to take people spending their own money for healthcare – (think Healthcare Savings Account) and making cost/benefit decisions. Also, when they want the reductions in exemptions/deductions to be applied to lowering taxes – that’s good. When they want it to apply to reducing the deficit, what they are really saying is that they want a tax hike to continue to pay for government spending – which is what we got back on Jan 2nd.

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