Posts Tagged ‘national debt’

Real World Graduation: Question 53: Rising Debt

RealWorldGraduation_Question_53_Rising_Debt   <– PDF

A certain man has a steady job and earns a good income. However, he likes to spend more than he makes.  In fact, he has no savings or assets, and he spends about 10% more than he earns every year.  At first he financed his excesses by running up large balances on his credit cards.  Then, when they were at their maximum, he opened up new accounts, paid off the old accounts, and continued to run up debt on the new accounts.  He eventually had to stop paying on the principal he owes, and is now only paying the current monthly interest due (although the principal keeps rising due to his continued spending).  Over time, he earns more income, but continues to spend about 10% more than he earns, year in and year out.  What is his long-term financial outlook?

a) Gradually, the effect of inflation, in which each new dollar has less buying power, will serve to reduce the true debt and he will then be able to pay it off.

b) In the long run, his real income after inflation will continue to rise, and he will be able to grow his way out of debt.

c) He has purchased a number of things with the debt, and can sell them when he needs to in order to pay off the debt.

d) He will be able to borrow indefinitely, since the creditors realize that they may lose what he already owes them if they force him into bankruptcy.

e) Some combination of two or more of the above.

(The answer is on p. 2 of the PDF.)

Tags: ,
Posted in critical thinking, Economics, national debt, Real World Graduation | No Comments »

Real World Graduation: Question 26

RealWorldGraduation_Question_26  <– PDF

Some political operatives stated during 2008 that there was a $5 trillion surplus at the end of the Clinton administration (20 Jan 2001).  The total national debt as of 30 Sep 2008 is $10.024 trillion, per the official U. S. treasury records [1].  The table below shows the budget deficits for each year of the G. W. Bush administration.  Keep in mind that a trillion is 1000 billion.  The total of all the deficits during the G. W. Bush administration is 4.35 trillion as shown at the bottom of the table.  A surplus of $5 trillion when Bush came into office, and a total debt of $ 10.024 as of 30 Sep 08 represents an increase in the debt of 15.024 trillion.  Where did all the money go?

a) George W. Bush, Richard V. Cheney, and all their crooked friends on Wall Street stole it.

b) It was spent on the war in Iraq.

c) It was spent on the war in Afghanistan

d) The rich people got tax cuts

e) Some combination of b), c), and d); and the jury is out on the possibility of answer a).

Year Ending       Deficit ($ Trillion)

30 Sep 2001          0.133

30 Sep 2002         0.421

30 Sep 2003         0.555

30 Sep 2004         0.596

30 Sep 2005         0.553

30 Sep 2006         0.574

30 Sep 2007         0.501

30 Sep 2008        1.017

Total deficits during G. W. Bush’s time in office = $4.45 Trillion

[1]        www.treasurydirect.gov/NP/BPDlogin?application=np

(The answer is shown on p. 2 of the PDF.)

Tags: , ,
Posted in critical thinking, Economics, federal budget, national debt, Real World Graduation | No Comments »

Barack H. Obama’s Legacy, Part 5

ObamaLegacyPart5 <– PDF

In closing out Mr. Obama’s domestic agenda, we come to the state of the national debt. The national debt had been growing for many years, but it reached and surpassed a critical point during Mr. Obama’s tenure.  It is true that President’s are not directly responsible for the nation’s debt (because only Congress can authorize a budget), but Presidents can use their influence to restrain the worst instincts of Congress.  Mr. Obama did nothing but encourage Congress’ reckless spending.  Figure 1 shows the nation’s GDP, total national debt, and ratio of GDP to debt for the years 1929 to 2016 in current-year dollars.  The ratio of GDP to debt is an important indicator of the nation’s liabilities compared to its total economic activity; higher is better.  These figures are not exactly in alignment, since the debt figures are for fiscal years, and the GDP values are for calendar years.  The general trend is accurate.

Figure 1: GDP, National Debt, and GDP-to-Debt Ratio, 1929 – 2016

Figure 2 shows the ratio of debt to GDP for the same interval. When Hoover entered office in 1929, the nation’s finances were in excellent shape, as the GDP-to-debt ratio was over six.  Then came the Great Depression, which nitwit Hoover made worse with his bad policies.  The GDP-to-debt declined drastically in the early 1930’s.  It was left to the even bigger nitwit Roosevelt to extend the depression to 1940 with his even worse policies, although the GDP-to-debt remained fairly static around 2.5 from 1934 to 1940.    It was not until Hitler rescued Roosevelt by starting World War II that the American economy came back to life.  The downside in financial terms is that the expansion of production was paid for by adding it onto the debt.. The GDP to debt ratio reached its all-time low in 1946 (0.82), just after the enormous debts accumulated during World War II.  From the Truman to Nixon administrations, the debt increased, but GDP increased faster, and the GDP to debt ratio steadily improved, reaching 3.16 in 1974.  It remained fairly steady until the halfway through Reagan’s first term; it then began a long slow protracted decline until halfway through the Clinton administration.  It improved a bit from there until about 2007, the second-last year of Bush Jr. administration, and then resumed its steady decline until sinking below 1.0 in 2014.  It is interesting to observe that one can draw a straight line from 1994 to 2011 and end up in the same place. It has continued a slight decline since 2014.

Many economists consider a GDP-to-debt ratio to be an accurate indicator of high risk. It is comparable to a household with debt equal to an entire year’s income.  In the long run, it is unsustainable.

So the U. S. financial condition is now about where it was in 1947.  But there is a big difference between the federal government obligations in 1947, wherein it began a long period of improvement, and now.  In 1947, there was no Medicare, no Medicaid, no Obamacare with its subsidies, no extensive social spending, no pervasive meddling bureaucracy to be paid, and Social Security was only a small item in the budget.  Mr. Obama was content to let the financial condition deteriorate without making some sort of attempt to get back on a sound financial footing.  We can only hope that Mr. Trump will not make the same mistake.

Figure 2: GDP-to-Debt Ratio, 1929-2016

Tags: , ,
Posted in Economics, federal budget, national debt, Uncategorized | No Comments »

The Financial Status of Social Security, Part 1

FinancialStatusOfSocialSecurity_Part1  <– PDF version

Dear readers:

This is the first in a series about the true financial status of the Social Security Trust Fund.   There are several useful charts showing the historical state of the Trust Fund since 1937; for that reason it is available only in PDF format.

Thanks for reading,

EDD

Tags: ,
Posted in Congress, Economics, federal budget, national debt, off-budget spending | No Comments »