$50 billion here, $50 billion there, and before you know it

#2
The Army has to start replacing and or refurbishing equipment that has been used in Iraq. The Army figures we need to spend over $1.5 billion just to replace helicopters that have been lost. To replace/refurbish tanks and IFV would cost billions more.
 
#3
In a shocking development, the Treasury Department website is openly stating that as of January 24th 2006 our national debt stood at $8,185.3 billion.

http://www.publicdebt.treas.gov/opd/opdpenny.htm

Yet the US national debt 'ceiling' stands at $8,184 billion - a full billion less. Although called upon by John Snow, congress has not passed an expansion of the debt ceiling and so the US government is now operating in technical default.


"US in Technical Default" 28 January 2006
by Dr. C. H Martenson
http://www.safehaven.com/article-4511.htm
 
#6
Future payment obligations pursuant to federal "entitlement" programs are not included in the federal debt because the money has not yet been appropriated, borrowed, or spent.

These obligations include medicaid and social security.

These obligations are so large as to call into question the relevance of debt owed the public as a metric of the state of federal finances.
 
#8
It has been estimated that when we compared the capitalized value (i.e., future accruals reduced to present value by arithmetical discounting) of future federal entitlements obligations to the capitalized value of future federal revenues, there emerges a "fiscal gap" of between forty trillion and seventy-two trillion dollars.

"Speeches ignore impending U.S. debt disaster
"No mention of fiscal gap estimated as high as $72 trillion" by Carolyn Lockhead. 12 September 2004
http://72.14.203.104/search?q=cache...ng+US+debt+disaster"&hl=en&gl=us&ct=clnk&cd=1

I don't see how this can end any way but badly.
 
#10
I think the point that NWD is trying to make, is that the deficit now exceedes the mandated level. It may well be lower than the EU average, or Japan's; it may well be relatively small per capita; the point is, the 'executive' has exceeded the 'legislative's' authorisation. It's not a financial problem, it's a political problem.
 
#12
I struggle with the concept of a nation owing so much money to the rest of the world!

Arnie buys the latest stereo from Japan and pays in dollars. China converts some of that sum to yen to pay the immediate bills, but now has dollars left over. China uses that money to buy Treasury Bills (T-bills in the jargon). Because China and others are buying T-bills, the price increases, the effective interest rate falls, the dollar climbs, long-term interest rates fall, the Government then issues more T-bills, Arnie remortgages his house and buys a bigger stereo from China. China now has even more dollars, which it uses to buy gold, oil, copper, coal, steel etc.

The rising cost of those commodities feeds back into America, interest rates climb, T-bills fall, the currency falls, China sells T-bills, the currency falls further, and Arnie is sacked so that he can sit at home listening to his wonderful stereo!

Except the last bit hasn't yet happened. For some reason, China and the Far East still love T-bills and the dollar; even when America is massively in debt to the rest of the world. But Mr Greenspan says it is all OK and he has been Chairman of the Fed for the last few years. He retires in the next few days - so it will be interesting to see what happens!

Litotes
 
#13
AndyPipkin said:
The real problem is the trade deficit.
I wonder how much the problem really is the trade deficit. I'm no expert and I am using some slightly old figure but as of april last year the US 12-month current account deficit was $665.9 billion, or 5.7% of GDP. Negative balances in the current account must be made up for by positive balances in the capital account ie foreign money. Spending has been fed by low domestic interest rates and government spending (government deficit was around 3% of GDP last year). So basically this shortfall is being funded by foreigners buying up US treasuries (about half of all publically owned treasury bonds are foreign held). This has largely been Far east central banks and I recon more and more OPEC countries (wonder where the windfall from high oil prices will go with small domestic economies). Normally this could be corrected by allowing the dollar to depreciate but foreign central banks won't let that happen as they will loose competitivness and hence why they have been funding this whole deficit (and then dumping them into treasuries). This is why america can simply keep borrowing more and more and the far east is funding it all. 70% of all foreign reserves are now in dollars.

How sustainable is this? Foreign central banks have to keep down inflation that comes with keeping your own currencies artficially low... Hence why they are selling bonds on the domestic market to excess money supply. This has to be expensive - the interest rates on US treasuries are incredibly low right now and foreign CBs are losing money issuing thier higher interest bonds. World Bank estimates this costs $250m a year/$10b they hold. S. Korea reached its limit a while ago and China has been maintaining it by putting treasuries into state owned banks at artifically low rates. This cannot go on much longer.

As said I'm no expert and I know i'm paraphrasing a lot of what has already been written...but it seems to me that there is no political will in either the US or the far east to break this cycle. With a still shakey US economy and export oriented far eastern markets this can't continue indefinately. With a $9trillion economy of course it is currently sustainable... the point is, the whole mechanism that is making this debt possible simply isn't.
 
#14
This massive trade deficit is a problem particularly considering that China has just announced a $100US billion trade surplus. The US were already p*ssed off at the imbalance of Chinas trade and the fact that the Chinese will not float there currency which is killing the US export trade.
 
#15
And I think T6 needs to learn the difference between a decimal point and a comma before trying to discuss macroeconomic policy, defense spending or anything else that involves big numbers:

NWD said:
In a shocking development, the Treasury Department website is openly stating that as of January 24th 2006 our national debt stood at $8,185.3 billion.
Coming back to the original subject of the thread for a moment, for a quick run down on how fcuked up the US defense budget process is, click on the following:

http://www.cdi.org/program/document.cfm?DocumentID=3268&from_page=../index.cfm

http://www.cdi.org/program/document.cfm?DocumentID=3270&from_page=../index.cfm

And that's just the appropriations phase of the PPBS. 8O
 
#16
Birdie_Numnums said:
This massive trade deficit is a problem particularly considering that China has just announced a $100US billion trade surplus. The US were already p*ssed off at the imbalance of Chinas trade and the fact that the Chinese will not float there currency which is killing the US export trade.
That is protectionist rubbish. The trade deficit is due to US economic policy not the Chinese exchange rate.

For starters... its not so obvious that the yuan is significantly undervalued. Ok yes they have been buying up lots of dollar demoninated assets. A lot of this is currency speculation on expectaitons of a yuan revaluation. These are short term capital inflows. If the yuan was given a free float, what would happen? Chinese firms and households would most likely diversify into foreign assets and actually see the yuan drop.

Second... the US trade deficit is NOT due to the chinese currency. China only accounts for 10% of US trade. So imagine - a 10% revaluation in currency would lead to a 1% reduction in the dollar. Yes, a dollar depreciation would help the trade deficit but 1% is nowhere near enough. 'Blame China' is just a convenient piece of populism being spouted from capitol hill.

The problem is simply that the US needs to borrow less and households need to save more and spend less. Its largely in Chinese interests to move to a flexible currency regime so it can control inflation (not an option with a peg as its forced to adopt US or now the basket interest rates). The Chinese will adopt a flexible exhange rate just in their own time and the more Chinese bashing that goes on from the US the slower they will be to do it. (that is why they moved from peg to basket first). With a flexible exchange rate the chinese will reduce purchases of US bonds which will lead to their yields rising. This will help the deficit slightly but it will also be much much more expensive for the US to maintain its debt.

They should be careful what they wish for. Its nothing to do with the chinese currency and everything to do with US government and consumer spending.
 
#17
And I remember when I could buy a pack of smokes out of the vending machines in Washington, DC for only $1.75. :(

[Edit] Come to think of it, last time I saw a soda machine advertising cans for $0.35, it was at the bottom of a flooded quarry on a dive trip... :(


countdokku said:
I must be getting old. I can remember when 50 Billion waas considered to be a lot of money.
 
#18
tomahawk6 said:
The Army has to start replacing and or refurbishing equipment that has been used in Iraq. The Army figures we need to spend over $1.5 billion just to replace helicopters that have been lost. To replace/refurbish tanks and IFV would cost billions more.
This won't increase the debt that much if you recon that most of that will be recovered through taxes (corporate, income and sales tax on the company and its employees).

Y = C+I+G
You can keep a balanced budget as long as Δg=Δt=t(y)Δy => Δy/Δg=1/t(y) so a change in g is 1/t(y)
The expenditure multiplier is Δy/Δg = 1/(s(y)+c(y)t(y)) which is of course smaller than 1/t(y) so raising govt expenditure raises tax revenue - the increase in savings.

Sorry couldn't resist...
 
#19
machina said:
tomahawk6 said:
The Army has to start replacing and or refurbishing equipment that has been used in Iraq. The Army figures we need to spend over $1.5 billion just to replace helicopters that have been lost. To replace/refurbish tanks and IFV would cost billions more.
This won't increase the debt that much if you recon that most of that will be recovered through taxes (corporate, income and sales tax on the company and its employees).

Y = C+I+G
You can keep a balanced budget as long as Δg=Δt=t(y)Δy => Δy/Δg=1/t(y) so a change in g is 1/t(y)
The expenditure multiplier is Δy/Δg = 1/(s(y)+c(y)t(y)) which is of course smaller than 1/t(y) so raising govt expenditure raises tax revenue - the increase in savings.

Sorry couldn't resist...
So, aggregate income (Y) equals consumption (C) + investment (I) + government spending (G).

That's wonderful news!

As a matter of simple arithmetic, the government could raise income to any amount, or take it to inifinity, just by increasing the numerical value of G.

There's no reason, in scientific principle, why the government can't make us all wealthy, without toil, just by mailing out big checks.

It would be terrific if this line of reasoning were embraced by the government. Come to think of it, it has been.
 
#20
Of course raising G increases aggregate demand.

Trouble is that it has a negative effect of I
g↑ -> y↑ -> (M/P)^d ↑ -> r↑ -> I↓

Second as stated a balanced budget requires Δg = Δt
This gives the multiplier effect 1/t(y) as shown before
Also shown was the expenditure multiplier Δy/Δg = 1/(s(y)+c(y)t(y))
This is smaller that 1/t(y) so tax revenue at the new equilibrium level of output will be less than the increase in government spending.
This is what causes the budget deficit and why it can't be maintained indefinately (well it actually can as long as r > growth of real GDP, but thats another story)

Of course Y = C+I+G is overly simplistic and why when responding to t6 I made to sure to caveat it with the fact that tax revenue is less than the increase in government spending.
 

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