It isn't our current debts that have people concerned. It's the combination of current debts and unsustainable future obligations, which are so large that they in fact can't be paid down by just raising taxes. Barring an adjustment in what they are, they grow to the point that they eventually consume 100% of the economy in something like 40 years in conjunction with interest payments, but of course they become completely unsustainable long before then.
There's no solution that doesn't involve cuts, and lots of them. That's not a political statement, at least to me it isn't... it's a math statement. We have obligations in excess of what we could possibly pay down even if we hypothesize a 100% tax that somehow magically draws from a perfectly healthy economy while its happening. The only questions are who gets them, how we do them, and when we do them. Failure to do them at all means we choose the default choice of economic collapse, at which point obligations will still not be paid. There's no solution where we simply honor all of our current "obligations".
(And I would point out that I can't emphasize this point enough. If we do nothing, the default answer is still that we default on everything when the economy collapses. If you value Medicare, Social Security, and everything else, truly value it and not just valuing it the way politicians do as a vote-buying mechanism, you ought to be leading the charge to turn them into something managable, because the worst case scenario doesn't come from Evil Repulicans, it comes from economic collapse. The "evil Republicans" are the only ones taking actions that may mean that Social Security still exists for anyone in 2050.)
Well, there is, technically, which is that some amazing breakthrough in technology suddenly makes us all a lot wealthier very quickly, which is such a long shot it's hardly worth talking about. (And still not worth planning for; should we become radically wealthier we can work out ways to use it when we have it.)
The US health care system is clearly on an unsustainable path. But the reason is that it's grotesquely inefficient compared to other health care systems. Some European health care systems cover everyone for less than half the share of GDP. So cutting costs is definitely necessary. Cutting services is not.
My apologies if this is just rampant ignorance talking (including ignorance of American future obligations), but it appears to me that "The US has future obligations so large that even a magical 100% tax in a magically healthy economy cannot pay for them" is, as they say, an extraordinary claim requiring extraordinary evidence. Or at least some evidence.
And even were that proven (or at least were that to be slightly persuasive), there's still substantial arguing yet to be done, to argue that a refusal to raise taxes at all is an action in _favour_ of coping with debt (indeed, allegedly the only such action).
"Health spending will rise by 5.8% each year from 2010 to the end of 2020, according to actuaries at the Centres for Medicare and Medicaid Services (CMS). In 2020 health care will account for one-fifth of America’s economy."
The article goes on to point out that surveys suggest that the Federal government will be liable for a huge amount of medical obligations... and all this will occur in the country which has the most expensive healthcare in the world.
Staggeringly poor article. Projecting out a trend line by effectively assuming sustained exponential growth is completely retarded. It's really the same as the projections predicting that the sustained 1990s bubble would continue and the US debt would be paid off by 2009.
Considering the demographics involved -- the population as a whole is getting older and health care for old people is expensive as all hell -- it seems the burden of proof is on you to demonstrate why sustained exponential growth in health-care costs will not take place.
The number of new drugs intering the market is decreasing, and once the patent expires on an existing drug most drugs effectivly become free.
Most importantly we spend twice as much of our GDP on heathcare as most contires with universal heathcare for reduced benifits. If the numbers keep getting worse the government can get involved in the supply side of the equation without reducing benifits to patents.
> It isn't our current debts that have people concerned. It's the combination of current debts and unsustainable future obligations, which are so large that they in fact can't be paid down by just raising taxes.
Who is proposing that we only raise taxes, without cuts? The entire Democratic 'compromise' is effectively all cuts.
> The "evil Republicans" are the only ones taking actions that may mean that Social Security still exists for anyone in 2050.
The "evil Republicans" hyperbole might be helpful in dismissing the fact that both parties are horribly complicit in the problem we have now. Neither one of them have done anything meaningful to cut budgets for any of their favorite projects. And that hyperbole ignores the fact that there is a significant percentage of Americans that do not identify with either party [1], and as such are not blaming the 'evil Republicans'.
PS: If growth avergages less than 1.6% for the next 9 years we are going to have an issue. But, a few of those 5+% years and things start to look vary diffrent. Except for SS which recives little benifit from GDP growth only population growth.
Wealth only indirectly influences GDP. If you had 1billion dollars’ worth of Sony stock and don't buy, sell, or receive dividends then the impact on US GDP of you owning that stock vs. someone in Japan is zero.
When you break it down short term GDP growth is dominated by the size of the working population and changes in the value of your currency. Over the long term you need to consider technology and infrastructure improvements but wealthy society’s both expect more from the government and can afford to have their government provide more so that's not really an issue. Thus linking government spending to GDP is fairly healthy activity.
PS: I would happily to drastically cut a lot of government spending, but I also realize doing so quickly would be vary damaging to our economy. I think a flat 25% federal tax including social security that starts at 70 and universal healthcare and excluding any and all tax breaks would be close to optimal, but good luck getting that passed.
<quote>Well, there is, technically, which is that some amazing breakthrough in technology suddenly makes us all a lot wealthier very quickly, which is such a long shot it's hardly worth talking about.</quote>
Wealth? Is there really a lack of wealth in the US? I though the problem was not a lack of wealth, but more a lack of those in the US that possess it in abundance to share it with those who don't (e.g., by paying taxes). Even if some 'technology' came along that could generate wealth, that would very likely still be owned by a minority of the population and would not solve any of the problems faced by the nation as a whole.
In this debate in particular, I think it's critically important to distinguish between "dollars", a currency controlled by the US government, and "wealth", the real things those dollars can buy. As has been pointed out, nobody denies that technically the US can spin up the printing presses and make as many dollars as it wants. However, even ignoring the other catastrophic consequences that would have, there's also the considerations of the real wealth consequences we're committing to. It isn't just "lots of money", it's also things like committing real people to build real facilities so that other real people will take care of the real old people living in those facilities for years at a time on the government's dime. To exaggerate for clarity, we can't afford to have an economy in which everybody is dedicated either to caring for old people, treating old people, or supporting those who do. Somebody's actually got to be able to produce something to feed the economy. Obviously we can't get to this point, but it's not clear how much of our real economy can actually be dedicated to these things, because the support networks can end up being a lot deeper than surface intuition would expect. Studying modern military logistics can be very helpful; in particular, look for the statistics about how many support personnel there are per front-line soldier doing the "actual" military work, and apply the lessons to the "real" economy.
I agree. "Wealth" is what is lost when workers who want to work sit idle because the fed decides that protecting the value of "dollars" is a more important mandate than full employment.
It is a political statement. As the Gr.Grandfather comment said, our debts are denominated in dollars, and can be paid off instantly, simply by printing the money. The only reason we can't is because the interest rates on treasuries would go asymptotic if we did that, because investing in bonds denominated in a currency that has a history of doing that would be a risky thing to say the least.
If the reason for the S&P downgrade was based on the debt, it would be purely political, because along with US treasuries, every security denominated in dollars would have to be equally downgraded simultaneously to make economic sense. They understand this, so this is not the reason they gave - they graded the US on its willingness to pay its debts. I think that's a vast overestimation of the power of unpopular spoiler Republicans (edit: and anti-Chinese xenophobia), but a case can be made.
But, even with the fiscal shape of the US now, investors are buying treasuries with interest rates at historic lows, because if you're not investing in US treasuries, what are you going to invest in? The property bubble was largely a response to super low treasury rates, and since it has burst, there has been a massive run-up in precious metals as a way to store savings and get a rate that beats inflation. Investors (the only people that have to be answered to in questions of government debt) make their evaluation of US debt available in real time, and the evaluation is excellent, no matter what any individual investors/pundits say with their mouths.
The worst outcome of more money printing is that those interest rates start to rise, making the dollar less valuable with respect to other currencies, which will make imported products more expensive for domestic consumers, and make our exports cheaper abroad, stimulating a rise in domestic manufacturing and employment. If in addition, that newly printed money was used to make investments in infrastructure, or simply handed to people with low to negative savings who will immediately spend it, the domestic inflationary effect would be captured by a rise in domestic wages. To the degree that all of this happens is the degree to which the massive trade deficits we've been running since Reagan decline or reverse, and the national debt (the combination of domestic public and private debt) is an accumulation of those deficits.
(And I would point out that I can't emphasize this point enough: If we do nothing to Social Security, it will be able to pay exactly as it has until 2035, and if no fixes have been made until then, 80% of what it has been paying until the earth plunges into the sun. This 80% will go further than the 100% being paid now due to the productivity gains between now and then, unless our response to the underutilized economy of this demand crisis is to make cuts that further underutilize the economy.)
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edit: that's what I get for not RTFA before commenting. I gave S&P a benefit of the doubt that it didn't deserve, and most of this was actually said by the treasury except for the "weak dollar is good and SS is fine" stuff. Well, a weakened dollar is good and SS is fine:)
> if you're not investing in US treasuries, what are you going to invest in?
You could fund my mortgage. I pay 7% floating in a currency with a pretty good record of late. My property could halve in value and you would still get your money back, and I can fund the the loan from my current income.
I also can't just decide to not pay you without you being able to foreclose.
There's no solution that doesn't involve cuts, and lots of them. That's not a political statement, at least to me it isn't... it's a math statement. We have obligations in excess of what we could possibly pay down even if we hypothesize a 100% tax that somehow magically draws from a perfectly healthy economy while its happening. The only questions are who gets them, how we do them, and when we do them. Failure to do them at all means we choose the default choice of economic collapse, at which point obligations will still not be paid. There's no solution where we simply honor all of our current "obligations".
(And I would point out that I can't emphasize this point enough. If we do nothing, the default answer is still that we default on everything when the economy collapses. If you value Medicare, Social Security, and everything else, truly value it and not just valuing it the way politicians do as a vote-buying mechanism, you ought to be leading the charge to turn them into something managable, because the worst case scenario doesn't come from Evil Repulicans, it comes from economic collapse. The "evil Republicans" are the only ones taking actions that may mean that Social Security still exists for anyone in 2050.)
Well, there is, technically, which is that some amazing breakthrough in technology suddenly makes us all a lot wealthier very quickly, which is such a long shot it's hardly worth talking about. (And still not worth planning for; should we become radically wealthier we can work out ways to use it when we have it.)