Wednesday, December 1, 2010

A Mountain or Mole Hill

 I often visit the OMB website as part of my job, as there are loads of good budget data on the federal government.  After reading this quote by the Dear Leader, I couldn’t resist.  The President says to invest in our people without leaving them a “mountain” of debt.

Um, Mr. President, either your definition of “mountain of debt” differs from 99.9% of the population or your budget director is withholding information from you.
The chart below illustrates the CBO and WH estimates on the coming annual budget deficits.  These look like mountains to me.


Either way, if the situation weren’t so grim, it would be funny.


  1. Dont be equating the affects of govt debt with private debt.

    Private debt is what we want to avoid saddling our children with. This requires some of their income to go to debt servicing and not current consumption.

    Govt debt is actually a private sector ASSET.

  2. Government debt is a claim against future taxes. It just shifts the burden by the maturity debt. Are you saying that Treasury debt provides an asset for people to invest in? If so, then this is tautologically true and I will not disagree with that. However, one must consider the effects of government debt crowding out or leading to the mispricing of private debt.

    There is a further important difference and that is that one family's debt is voluntary, but government debt involves a non-voluntary imposition.

  3. Govt debt is not a claim against future taxes. It is a source of work free income. We will never have to raise taxes to pay govt debt. Its simply untrue. Raise our taxes to pay ourselves?? Govt debt is OWNED by the private sector not OWED. It is more accurate to think of govt debt as private savings.

    Whether private debt is voluntary or not is not the point. Private debt becomes unsustainable when it can no longer be serviced out of income.

    Our serious economic problem is private not govt debt.

  4. Okay, Greg. You claim government debt never needs to be paid back. Why are Greece, Ireland and probably a few more before Europe is done in such trouble with regard to their debt? Why would anyone hold debt that they thought would never have to be paid back? You are going to have to back up your claims on this one - it cannot simply be asserted.

  5. See, here you are equating Greece and Ireland to the USA. Simply not true.

    Greece and Ireland also do not control the issuance of the Euro so they must acquire it first (at a cost) and then spend it. They are at the mercy of others, WE are not.

    Govt debt in the US is not "paid back" it is "paid out". The stock of US govt bonds is paying out interest to the bondholder for up to 30 yrs. After 30 yrs the debt just disappears as interest is no longer paid out and the initial face value of the bond is returned to the holder and they now have interest free money to do something with. They can buy another bond (which if they still want to save they likely will) or buy a stock or buy a million widgets. It costs us nothing. Think of it this way,that bond holder has said "OK I'll take a million of mine out of circulation now, and all I want is an income of 50,000 a year for the next thirty years (this would be at 5% now its closer to 2.5% I think)" At the end of thirty years he has his million and can start over if he wishes. So unless you can show that that 50,000 income is going to be inflationary there is no problem.

    The issue is, I think, you are still viewing money as a zero sum game. You are acting as if this is a poker game with a fixed number of chips and at some point the only way a new player can get chips is to borrow from someone else. You dont see that there is a house that can issue chips if necessary if the other players are making it too difficult for new players to sit at the table ( In the US anyway, not Euro zone). This is the main flaw in Austrian/monetarist thinking as I see it. This is why gold standards dont work eventually.

  6. In addition Irelands debt level became unsustainable when the govts took on the private debts of banks. It was the private debt that broke their backs, not payments to elderly and unemployed. It is unconscionable that Irish workers are being asked to take pay cuts or laid off so private foreign investors dont have to take losses on their investments. Privatized gains, socialized losses for the plutocrats..... BS.

  7. Greg,

    We're in agreement regarding the point in your last post.

    As for your previous point, regarding the nature of money, I think that deserves a separate blog post to get some details worked in. Will get that up soon.