by Outcast_Searcher » Thu 28 Jan 2016, 21:15:35
$this->bbcode_second_pass_quote('C8', 'D')uring this election year we have heard little about the US debt. Obama and Congress just agreed to raise the borrowing limit once again. There seems to be no end to this (although there must be).
In theory, I can see nothing wrong with it- after all, we could just vote for austerity and pay it down or off. But there is a part of me that, in my gut, feels this will never happen. Politically, this thing just seems like a one-way missile that has way to much velocity to change direction. The demand for more entitlements seems baked into democracy like a cancer engulfing cells. I can see no citizen based push to be responsible.
I have some questions that I am hoping folks here will help me with. I appreciate any responses.
1. If we continue at this course- how long before default?
....
Thanks
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First you ask great questions.
I've thought about the first question a bit. Part of the problem in answering such a question, is there are lots of assumptions involved in the moving parts of any complex economy. AFAIK many of those assumptions are basically unknowable, given how inexact economics clearly is.
As far as what is an "unpayable" debt level, that amount has lots of contention. A common metric for individuals is 42%. (You can Google "debt to income ratio 42" and get a number of hits discussing this.
For one thing, when I try to look up "unpayable US debt" or "us debt is unpayable", I tend to get a lot of blog sites, high on hyperventilation and alarm and short on meaningful citations/links or math. So opinions by laymen. Not so great a source to rely on.
IMO, it's too difficult to try to predict specifics for this. We MIGHT learn something by looking at other cases, getting an approximation of the limits. (Might and approximation being very important limitations, here).
Some examples:
Puerto Rico recently had their debt situation become untenable, with a roughly $100 billion GDP, and total national debt of roughly $72 billion. The crisis hit when the Puerto Rican governor declared that the debt couldn't all be repaid.
Note that at that point the 70%ish debt to GDP ratio was much lower than much of the EU, the US, and especially Japan. Clearly a government's perceived credibility has a lot to do with how much debt it can extend before it provokes a crisis. Interest rates and the state of the economy (Puerto Rico's has been in an obvious decline, with many residents leaving the island, for years) -- making its situation worse than a more stable economy, such as that in the US) obviously are factors in that credibility.
Argentina, which is a serial defaulter may serve as an example:
https://en.wikipedia.org/wiki/1998%E2%8 ... depression$this->bbcode_second_pass_quote('', '
')There is no unambiguous threshold at which public debt becomes unsustainable, and Argentina’s public debt/GDP ratio of 65% in 2001 was still lower than that observed in some European countries. However, given the history of defaults and macroeconomic instability in emerging markets like Argentina, their threshold sustainable public debt may be much lower than in advanced economies.
Meanwhile, looking at countries with lots of public debt compared to current GDP (as of June 2015), there are lots of countries above or near 100%, including supposedly credible countries such as the US.
Obviously, low interest rates in the US make its debt service relatively manageable in the short term.
In the past decade, US payments on its notes and bonds has hovered around $400 billion (real money to most of us
) even as its debt has continued to balloon, thanks to low interest rates.
How long that can continue is anyone's guess. However, with public debt outstanding more than doubling in the last ten years, and the CBO forecasting large deficits as far as the eye can see -- the signs aren't encouraging, IMO.
(If you could trust them, they show the deficits "only" averaging roughly $300 billion for a decade or so, for what that's worth).
Since it's all "projections", given the track record of economists in general (even before Capitol Hill passes new laws) -- frankly, it's all guesswork, IMO.
Wiki seems consistent with the CBO in talking about public debt and kindly also discusses "intragovernmental holdings" in the same place, to give a total recent debt figure:
')On January 26, 2016, debt held by the public was $13.62 trillion or about 75% of the previous 12 months of GDP.[10][6][7][8] Intragovernmental holdings stood at $5.34 trillion, giving a combined total gross national debt of $18.96 trillion or about 104% of the previous 12 months of GDP.
) even as its debt has continued to balloon, thanks to low interest rates. 
