Federal Debt

FederalDebtby Cato   12/2/14
“Debt held by the public” in the graphic below is Treasury bills, notes and bonds. “Intergovernmental holdings” are special bonds, the debt of the federal government to (so-called) independent agencies, the largest of which is the Social Security Administration. Keynesian economists like Joe Stiglitz and Paul Krugman ignore that intergovernmental total on the argument there’s no legal obligation to fund Social Security.  Legally this is true, since the SCOTUS has so ruled repeatedly.  Politically that argument is completely asinine.

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So in due time … by 2031 if the current SSA estimate is correct … that $5.1 trillion will have to be funded, and the only way to do that is to sell more Treasury bills, notes and bonds, print more money, or collect more taxes.

That $5 trillion, of course, is on top of another ~$7 trillion in additional federal deficits over the next 10 years, the best current CBO forecast.  $25 trillion in total debt by 2024, best case, best guess.

Two factoids fall out of this.

1)  To keep the debt-to-GDP ratio under 100% the economy is going to have to grow at 4% annually for the next decade … about double the pace it’s grown in the last 10 years.  What are the odds?  Growing at 3% on average would leave us at 111% of GDP in 2024.  A 2% growth rate leaves us at 121%.  Split the difference and say 116% by 2024.  There’s only one country in the EU with a central government debt-to-GDP ratio that high today, Italy.  So we’re roughly on track to become Italy in 10 years.

2)  If the average interest rate on government debt in 2024 is 4%, about the long term average, the annual interest expense will be $1 trillion a year.  That’s just the interest.  The government only has three sources of money to tap to pay that interest every year: borrow, tax, print.  Choose your poison.

Obama wants the US to be the EU.  Unless something changes radically and very soon, he’s going to get his desired result.

h/t to ZeroHedge for the graphic


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8 Responses to Federal Debt

  1. Timothy Lane says:

    A number of people have pointed out that liberals (led by the Fascist Messiah) want to Europeanize America. You have shown one of the costs. In particular, people should consider the problem of bailing out the country that everyone else relies on to bail them out.

  2. Kung Fu Zu Kung Fu Zu says:

    Obama wants the US to be the EU

    I fear he wants something much worse than that.

    • NAHALKIDES NAHALKIDES says:

      Agreed, KFZ. Obama wants the US to be what the EU is well on the road to becoming, namely a socialist/communist dictatorship.

  3. NAHALKIDES NAHALKIDES says:

    Good quick look at our terrible debt situation, Cato. I will add only that Republicans will never get spending under control unless they advance moral arguments against social welfare programs – if they just say “this costs too much” they’re going to get beaten again.

  4. SkepticalCynic says:

    One line of this reminds me of a joke Andy Rooney told a while back. The modern parallel to it would go like this. The President calls a meeting with all of the heavy weights. He explains that we need more money badly and asks for a suggestion. The first to reply says, “We could borrow more money.” The pres says, “That’s an idea, anyone else?” The second guy says, “We could double the taxes.” The pres says, “Yeah, that’ll work, anyone else got an idea?” The third guy says, “We could print more money.” The pres says, “That’s a good idea, too. Expedite all three, good day gentlemen.”

  5. SkepticalCynic SkepticalCynic says:

    I am an old man. I became interested in government and all of its spending in my early twenties. My next door neighbor and I talked many times and agreed that the movers and shakers of all levels of government cannot continue like this. I have watched this growth in government and its spending at all levels now for close to fifty years and have expected a disaster. How can this country continue to do what it has been doing and never have a day of reckoning? How? Had I operated in the same manner as my fellow legislators, my financial being would have been a disaster over forty-five years ago.

    • Timothy Lane says:

      Well, for starters, you can’t make your own money. As an early classical economist observed during the Napoleonic Wars, there’s a lot of ruin in a nation.

    • Brad Nelson Brad Nelson says:

      Unfortunately, Mr. Cynic, a day of some kind of reckoning will come. And you can expect the Republicans to apologize for being alive and trying to convince everyone they are not racists while the Left, in their usual fashion, does not let yet another crisis go to waste.

      That is, I don’t expect any crisis to present an opportunity for reform. Likely it will present a ready excuse for the statists to exert more control over our lives and our economy. You can bet your bottom dollar on that….if you have any dollars left after the crisis.

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