US economy grows at 3.3% annual pace in fourth quarter, faster than expected

[Earth Wind and Fire]

I liked history in high school. If we don’t study in our nation today or mitigate it, as Victor Davis Hansen states, we will loose our unique stance on the world stage… I agree. The Weimar republic in Germany was an economic situation I want to avoid.

 

[JonC]

I liked history in high school. If we don’t study in our nation today or mitigate it, as Victor Davis Hansen states, we will loose our unique stance on the world stage… I agree. The Weimar republic in Germany was an economic situation I want to avoid.

We are actually in a much better state than most other nations (economically). Our debt to GDP is not as bad as some make it sound using hard dollar numbers as "national debt". Of our debt, only 30% is foreign.

While @KenH and I disagree on which is the best economic theory we both (I think) know how things move.

What happens to the GDP during even a slow deflation?

Then, what happens to the national debt?

 

[KenH]

Then, what happens to the national debt?

The trajectory of the national debt of the United States is unsustainable whether inflation is high or low, or zero, or whether deflation is high or low, or zero. The current total is $34.1 trillion. The previous two fiscal year increases in the national debt were $2.5 trillion and $2.2 trillion. Fiscal year 2024 is currently on pace for a $2.8 trillion amount. The United States could very well hit a national debt of $40 trillion before the end of 2026 or the first half of 2027. This is NOT sustainable.

And Donald Trump is not a solution to the issue. In just 4 years when he was president, $7.4 trillion was added to the national debt. And no one should try to use the pandemic as an excuse. If the economy was not shut down, there would have been no need to go that humongous amount into further debt. And when the initial 15 day shutdown was about to expire, Trump extended it for another 30 days. So the problem was not just on the state level.

 

[JonC]

The trajectory of the national debt of the United States is unsustainable whether inflation is high or low, or zero, or whether deflation is high or low, or zero. The current total is $34.1 trillion. The previous two fiscal year increases in the national debt were $2.5 trillion and $2.2 trillion. Fiscal year 2024 is currently on pace for a $2.8 trillion amount. The United States could very well hit a national debt of $40 trillion before the end of 2026 or the first half of 2027. This is NOT sustainable.

And Donald Trump is not a solution to the issue. In just 4 years when he was president, $7.4 trillion was added to the national debt. And no one should try to use the pandemic as an excuse. If the economy was not shut down, there would have been no need to go that humongous amount into further debt. And when the initial 15 day shutdown was about to expire, Trump extended it for another 30 days. So the problem was not just on the state level.

I agree. Inflation and deflation are results of factors.

That said, the debt is actually sustainable....just not healthy.

The reason includes the fact that 70% of the national debt is internal. Much of this internal debt is owed to government agencies (a paper debt....the government owes money to itself).

Another point is how debt is actually measured (debt/GDP). Any time somebody mentions the debt in terms of hard dollars they are not to be taken seriously.

Do you not find it odd that when dealing with the national debt of other nations we speak of debt/ GDP but when speaking of the US we want to use hard dollars? Ever wonder why? It is the same reason when selling something the benefit always includes cents while the downside doesn't (they will give you $125 but I will give you $130.00). It is aesthetics.

Don't get me wrong....we are not at a healthy level in terms of debt. But we are not near as bad as each political camp wants us to appear (so they can blame the other party).

It ain't good.....but it ain't as bad as some make out either.

At least we are not in the position of Japan or Spain (our foreign debt is 30% of our national debt, and our net debt/GDP is 99.6% with 70% being internal debt).

 

[Van]

How do we correct growth in GDP for inflation?

If my income for the year is up 4%, but the inflation rate is 3% I cannot buy 4% more domestic product.

 

[KenH]

Another point is how debt is actually measured (debt/GDP). Any time somebody mentions the debt in terms of hard dollars they are not to be taken seriously.

I totally disagree.

Peter C. Earle wrote a very good article on this subject earlier this month. The article can be found here: $34 Trillion and Climbing | AIER

Some excerpts:

"In a year where geopolitical hotspots are on the rise – Russia-Ukraine recently being joined by the Israel-Hamas war which is currently expanding across multiple fronts – of particular note is the ratio of the current US debt pile to annual economic output. At $34 trillion that ratio is 1.2, whereas the debt-to-GDP ratio at the end of World War II was 1.1 in an era of a managed gold standard with few international competitors. If a war footing were suddenly called for, only the colossal monetization of debt (if not the outright printing of money, and vastly higher taxes) would suffice."


"Perhaps a better tack to take regarding warnings about borrowing into oblivion is to ignore numerical benchmarks in lieu of expressing the following. First, the US government will never, ever, voluntarily cut spending. When at some point the issuance of Treasury bonds is no longer an option for some reason or another, some combination of the destruction of the dollar’s value and increasingly confiscatory levels of taxation will follow. For our self-preservation, American citizens will need to find a means of arresting the Beltway’s profligate instinct. Second, although only one-quarter of US government debt is currently owned by foreign creditors, the prospect of having our fates controlled by outside powers with interests that diverge vastly (and often in opposition) from ours should be menacing. At the very least, US citizens should consider what they are willing to live without or see others live without. Medicare? The US Coast Guard? Pension backstops? The Food and Drug Administration? Subsidies for just about everything?

At this point, $35 trillion in US debt is baked in. Forty trillion, too, may only be a handful of insincere political diatribes away.

Too much credibility has been squandered on the futile endeavor of predicting fiscal tipping points. Making the consequences of runaway debt clear – unprecedented levels of taxation, a browbeaten dollar, and unwelcome yet unavoidable foreign influence in domestic affairs – is likely a more effective, and more scientifically defensible, warning."

 

[JonC]

I totally disagree.

Peter C. Earle wrote a very good article on this subject earlier this month. The article can be found here: $34 Trillion and Climbing | AIER

Some excerpts:

"In a year where geopolitical hotspots are on the rise – Russia-Ukraine recently being joined by the Israel-Hamas war which is currently expanding across multiple fronts – of particular note is the ratio of the current US debt pile to annual economic output. At $34 trillion that ratio is 1.2, whereas the debt-to-GDP ratio at the end of World War II was 1.1 in an era of a managed gold standard with few international competitors. If a war footing were suddenly called for, only the colossal monetization of debt (if not the outright printing of money, and vastly higher taxes) would suffice."


"Perhaps a better tack to take regarding warnings about borrowing into oblivion is to ignore numerical benchmarks in lieu of expressing the following. First, the US government will never, ever, voluntarily cut spending. When at some point the issuance of Treasury bonds is no longer an option for some reason or another, some combination of the destruction of the dollar’s value and increasingly confiscatory levels of taxation will follow. For our self-preservation, American citizens will need to find a means of arresting the Beltway’s profligate instinct. Second, although only one-quarter of US government debt is currently owned by foreign creditors, the prospect of having our fates controlled by outside powers with interests that diverge vastly (and often in opposition) from ours should be menacing. At the very least, US citizens should consider what they are willing to live without or see others live without. Medicare? The US Coast Guard? Pension backstops? The Food and Drug Administration? Subsidies for just about everything?

At this point, $35 trillion in US debt is baked in. Forty trillion, too, may only be a handful of insincere political diatribes away.

Too much credibility has been squandered on the futile endeavor of predicting fiscal tipping points. Making the consequences of runaway debt clear – unprecedented levels of taxation, a browbeaten dollar, and unwelcome yet unavoidable foreign influence in domestic affairs – is likely a more effective, and more scientifically defensible, warning."

I agree insofar as a measurement and f debt, however insofar as to the degree that debt is unhealthy we have to consider GDP.

Japan has a national debt of 9.2 trillion dollars. This means Japan, by your method, is much healthier than the US.

BUT Japan's debt to GDP is 263%, far worse than the US

The reason debt taxes GDP is the normal measurement is it gives the health of a nation in terms of net debt.


A simple illustration (yes...flawed....but just an illustration):


Jim earns 200,000 a year. He has 50,000 in debt. 20,000 of this debt he borrowed from his retirement fund. He owes 30,000 to lenders.

Jim has a debt to income ratio of 25%. But he owes 50k.

Mike earns 50000 a year. He has 40k in debt to lenders.

Mike has a debt to income ratio of 80%, but he owes 40k (less than Jim).

But you are wrong. Mike is in a worse financial situation than Jim.

Your claim is that Mike is financially healthier than Jim because Mike owes less money.

 

[KenH]

But you are wrong. Mike is in a worse financial situation than Jim.

Yes, Mike is in worse shape.

As a way to wrap up(unless there is some different angle someone wants to address) my contribution to this discussion, I will quote from the Bible:

Proverbs 22:7 The borrower is servant to the lender.

 

[JonC]

Yes, Mike is in worse shape.

As a way to wrap up(unless there is some different angle someone wants to address) my contribution to this discussion, I will quote from the Bible:

Proverbs 22:7 The borrower is servant to the lender.

I agree there. It would be better if the only debt our nation had was internal and domestic.

But in regards to a healthy government -

We can't ignore the portion of our debt is owed to the US government (intragovernmental debt). That really shouldn't "count" (our real debt is DHBP).

The US DHBP (actual debt) is $24.5 trillion.

Then we have to consider what is domestic debt and what is foreign debt.

Our foreign debt is $7.3 trillion.


The question regarding domestic debt is - should companies and individuals be allowed to invest in the US Government?

Should investment funds (mutual and pension funds), commercial banks (depository institutions), state and local governments, insurance companies, and other corporations and individuals be allowed to continue investing in government securities?


The borrower is slave to the lender, so perhaps 70% of our debt is good.....we are the lender and the government the borrower.

 

[KenH]

We can't ignore the portion of our debt is owed to the US government (intragovernmental debt).

And how is that "intragovernmental debt" being paid as it comes due, day by day, month by month, year by year?

 

[KenH]

Frankly, @JonC, I am surprised that you treat the national debt so seemingly cavalierly. Your other posts on government policies have come across to me as being much more sensible.

 

[JonC]

Frankly, @JonC, I am surprised that you treat the national debt so seemingly cavalierly. Your other posts on government policies have come across to me as being much more sensible.

Oh....you misunderstood me. I don't treated the national debt lightly.

But I do believe we have to be honest about our debt, to whom it is owed, and how much the debt is to the GDP. That's just basic economics. Why? Because it matters.

I mean $7 trillion isn't even owed outside of government agencies owing one another.

The reason I say this is important is not to excuse debt but because too often economic issues become political pawns.

Have you ever heard a Republican leader, for example, point out that $7 trillion of our debt is intergovernmental? Ever heard one of them admit that 70% of our debt is domestic?


It is also important because the majority of our debt is held by domestic companies and citizens as investments.

I don't know how you invest, but I am not sure that a ban on public investments in the government sector is the answer.

 

[JonC]

And how is that "intragovernmental debt" being paid as it comes due, day by day, month by month, year by year?

Don't know. It is not counted in the debt by economists because it is one government agency owing another (it is a "paper debt").

 

[KenH]

I don't know how you invest, but I am not sure that a ban on public investments in the government sector is the answer.

Who is it that you are saying wants to ban public investments in government debt?

 

[KenH]

Don't know.

Okay. I will explain it as I understand it. When Social Security was paying out less in benefits than it received in revenues, that excess was invested in government securities and spent on other government programs. Now that Social Security benefit payments exceed its revenues, Social Security is cashing in those government securities to keep benefits at 100% and the federal government is borrowing money to have the cash to give to Social Security. Thus in about 9 years or so when the excess that Social Security had accumulated is gone, either benefits will have to be cut, or taxes raised specifically for Social Security, or more money borrowed specifically for Social Security, or some combination of these actions, if full benefits are to continue being paid.

 

[Earth Wind and Fire]

On a fixed income, not looking for a job, and no investments, I agree.

I am not sure where most people fit.

For me, I like some inflation because I do have investments I'd like to see grow for about 7 to 10 years.

After that, I'm with you. 0% would mean my expenses don't increase and I won't be looking for a job so the unemployment rate increase won't affect me too much.

BUT then again, I think we have to consider the population as a whole. While you and I may not be concerned about investment income or a rise in unemployment, it will affect others.

Part of the problem with our nation now is that each person seems to only care about themselves.

Remember the deflationary economy in Japan?

We have to guard against hyper inflation, but a stagnant economy (0% inflation) is more problematic and difficult to recover than slightly increased inflation. Many economists recommend a higher target than 2% (to help guard against a recession).

Are you referring to a ligitimate job? … silly boy, why would I want to work for a salary with taxes etc after 40 years of doing just that. Ridiculous suggestion… I’d rather run numbers out of my cousins barber shop, cause cutting hair isn’t what most barber shops, bars, restaurants do in order to make real money. ​

 

[Earth Wind and Fire]

Okay. I will explain it as I understand it. When Social Security was paying out less in benefits than it received in revenues, that excess was invested in government securities and spent on other government programs. Now that Social Security benefit payments exceed its revenues, Social Security is cashing in those government securities to keep benefits at 100% and the federal government is borrowing money to have the cash to give to Social Security. Thus in about 9 years or so when the excess that Social Security had accumulated is gone, either benefits will have to be cut, or taxes raised specifically for Social Security, or more money borrowed specifically for Social Security, or some combination of these actions, if full benefits are to continue being paid.

Yes and that’s a a certainty considering how this government is being run. So what’s your solution?

 

[JonC]

Who is it that you are saying wants to ban public investments in government debt?

From your post I gathered that you do not want the government to be in debt.

$24.5 trillion of the US debt is held by the public (domestic and foreign investors).

Over $17 trillion of this debt is held by domestic investors.

The rest is debt one US government agency borrowed from another US government agency.

How do you plan on getting rid of the DHBP if not by preventing the public from investing in government securities???

You can't have it both ways - you can't say the government must stop selling securities to public investors and the government should keep on selling these securities.

 

[KenH]

Yes and that’s a a certainty considering how this government is being run. So what’s your solution?

Well, if I could snap my fingers and get what I want, it would be to phase out Social Security over a period of decades. But, as I am not likely to be granted such dictatorial powers, I think it will require something along the lines of the Diamond-Orszag Plan from 2005(updated, of course, due to the passage of time in failing to have already dealt with the issue):

https://www.brookings.edu/wp-content/uploads/2016/06/200504security.pdf

 

[KenH]

From your post I gathered that you do not want the government to be in debt.

$24.5 trillion of the US debt is held by the public (domestic and foreign investors).

Over $17 trillion of this debt is held by domestic investors.

The rest is debt one US government agency borrowed from another US government agency.

How do you plan on getting rid of the DHBP if not by preventing the public from investing in government securities???

You can't have it both ways - you can't say the government must stop selling securities to public investors and the government should keep on selling these securities.

Oh, I have no expectations of the federal government eliminating its debt. I just want the federal budget balanced and the national debt to stop being increased.