The National Debt
Content
The National Debt:
Debt
http://www.usdebtclock.org/
Who owns
https://www.nationalpriorities.org/campaigns/us-federal-debtwho/?gclid=CjwKEAjwoMKiBRDHwoaQ0dzn0UwSJAAUk5JiVSOKkEl5x6SyVOVA3lo49ozihJuR0ilUTmTXRnr4uRoCNn7w_w
cB
Sovereign debt
http://www.voxeu.org/article/advanced-economies-sovereign-debt-100-years-data
http://www.usgovernmentspending.com/
Historical Debt to RGDP
http://en.wikipedia.org/wiki/File:US_Federal_Debt_as_Percent_of_GDP_by_President.jpg
Others
http://www.tradingeconomics.com/country-list/government-debt-to-gdp
http://www.economicshelp.org/blog/774/economics/list-of-national-debt-by-country/
The National Debt:
In 1995 The BBA passed the house, not the senate by one vote
1. Initial Questions:
1. Is debt good or bad? “with money…”
2. What do you think about the severity of the national debt
3. Should we pay off the debt as soon as possible?
4. Should we pass the BBA?
2. Stats about the debt:
17.8 trillion dollars: http://www.usdebtclock.org/
Deficit is going down so the debt is rising more slowly.
3. What is the debt instrument:
Treasury bills: notes and bonds
4. Why did the country go into so much debt?
war
recession: discretionary fiscal policy and automatic stabilizers
low taxes and high spending—political resolve.
5. Are these good reasons for a debt? Could we have avoided such a debt:
can’t help recessions.
can avoid wars that we start, (T. Jefferson). But not so easily those that we do not.
can raise taxes and can cut spending
6. Who owns the national debt: as percent of GDP:
https://www.nationalpriorities.org/campaigns/us-federal-debtwho/?gclid=CjwKEAjwoMKiBRDHwoaQ0dzn0UwSJAAUk5JiVSOKkEl5x6SyVOVA3lo49ozihJuR0ilUTmTXRnr4uRoCNn7w_w
cB
The Fed and Federal Government
State and Local US governments
Foreign held debt
US owned funds, companies
41%
04%
33%
21%
China owns about
Japan owns about
OPEC
1300 billion
1200 billion
300 billion
http://www.voxeu.org/article/advanced-economies-sovereign-debt-100-years-data
7. historical debt: see graphs for debt and debt/RGDP ratio
ability to repay
debt has been higher in RGDP terms: http://www.usgovernmentspending.com/
8. Three myths:
a. never been higher:
National Debt
17 T
Year
1791
2013
http://en.wikipedia.org/wiki/File:US_Federal_Debt_as_Percent_of_GDP_by_President.jpg
Debt/ RGDP ratio
b: the burden on our grandchildren of higher taxes to pay off the debt
why do they need to repay the debt
also recipients of the interest.
no burden for us when our grandfathers went into debt—why them?
In what country would you rather be born: debt, or without the things that the debt has provided: security, largest
economy in the world, one of the richest, education, etc.
c: our country will follow others and be forced to default: bankruptcy
why have to default:
tax, print, continue to borrow (rollover) (lifespan)
did other countries default? why? other currency
9. The fundamental mistake? Comparing HH with Government
governments have unlimited life span
governments can tax, print, and borrow
growing RGDP eliminates the debt burden: higher T, and lower G and inflation: automatic stabilizers!
10. Other countries debt/GDP ratio in comparison.
http://www.tradingeconomics.com/country-list/government-debt-to-gdp
http://www.economicshelp.org/blog/774/economics/list-of-national-debt-by-country/
11. Costs of the debt.
monetizing the debt—inflation
foreign held debt—does not stay here
crowding out
distribution of income
12: The yearly balanced budget amendment
The Balanced Budget Amendment:
“The premise of the balanced budget amendment is simple. By law, the federal government would be required not to spend more than
it receives in revenues. The requirement could be waived, however, by a three-fifths vote of Congress. Current versions of the
amendment also require a three-fifths majority to raise taxes.”
Easily passed the House of the 104th Congress, but failed to pass on March 4, 1997, 66-34, by one vote(Torricelli of NJ) in the senate:
needed a 2/3rd majority to amend the constitution. It could be overridden by a 3/5ths vote of Congress. Let’s say that the year is 2014
and the economy starts out at full employment equilibrium (Y1,P1)—shown below. And let’s assume that in 2014 the budget is
balanced; a balanced budget for this year! (and yes that’s not likely)! This graph is not shown.
YFE
Price
AS
AD
Now assume that the economy goes into a recession.
a recession at Y2—shown below.
RGDP
Y1
This means that the AD curve has shifted to the left and now the economy is in
YFE
Price
AS
AD
RGDP
Y2
Y1
But now, because the economy is in a recession government spending goes up and tax revenues go down so the budget goes into
deficit. BUT, with the balanced budget amendment, the government must correct a deficit and balance the budget. So, in order to
balance the budget either taxes must go up or government spending must go down—BUT EITHER OF THOSE MEASURES WILL
SHIFT THE AD CURVE FURTHER TO THE LEFT—making the recession even worse. And this now sends the economy further
into a recession—lowering tax revenues even further and causing even more government spending and thus creating another deficit.
So, in order to balance the budget, …………..!!!
Eventually of course, the balanced budget amendment will have to be rescinded and allow the government to go into deficit until the
economy is back to full employment.
(pretty much everyone believes that a fever is a problem: But everyone also knows that a fever is the body’s response to illness. And
if we could prevent the body from developing a fever we would be preventing the body from curing itself. In other words, the FEVER
is not the illness, it’s the cure. The same can be said about SOME debt (that part that came about as a result of the economy going into
a recession) war? Political will?
13: Solutions
If it ain’t broke don’t fix it
Raise taxes
Cut spending
Economic Growth—reduces the burden of the debt as well as the real debt
The full employment balanced budget amendment
DEFAULT!
THE FULL-EMPLOYMENT BALANCED BUDGET
…….and that requires a graph.
The Business Cycle Model:
surplus
Actual, real equilibrium income
RGDP
YFE
deficit
YEAR
1
2
3
The Full Employment Balanced Budget (FEBB) says that you set government spending and taxes so that the budget is balanced when
the economy is at full employment—say Y2. So that when the economy is in inflation, the budget would be in surplus, (the years
between Y1 and Y2). And then when it’s in a recession it will be in deficit (the years between Y2 and Y3). But when it’s at full
employment the budget will be balanced. So, you run a deficit while the economy is in a recession and then you pay back the deficit
when the economy is in inflation running a surplus. We don’t do that now. When there is a surplus—if there ever is, we spend that
money rather than using it to repay the deficit from when the economy was in a recession.
With the FEBB, the budget condition for any year will depend on the level of income. If the economy is in a recession what will be
the state of the budget for those years? And when the economy is at full employment what will be the state of the budget for those
years? And when the economy is in inflation?
14.
What is the debt limit?
Why all the hoopla?
The debt ceiling?
Standard and Poor’s credit rating drop
Debt
http://www.usdebtclock.org/
Who owns
https://www.nationalpriorities.org/campaigns/us-federal-debtwho/?gclid=CjwKEAjwoMKiBRDHwoaQ0dzn0UwSJAAUk5JiVSOKkEl5x6SyVOVA3lo49ozihJuR0ilUTmTXRnr4uRoCNn7w_w
cB
Sovereign debt
http://www.voxeu.org/article/advanced-economies-sovereign-debt-100-years-data
http://www.usgovernmentspending.com/
Historical Debt to RGDP
http://en.wikipedia.org/wiki/File:US_Federal_Debt_as_Percent_of_GDP_by_President.jpg
Others
http://www.tradingeconomics.com/country-list/government-debt-to-gdp
http://www.economicshelp.org/blog/774/economics/list-of-national-debt-by-country/
The National Debt:
In 1995 The BBA passed the house, not the senate by one vote
1. Initial Questions:
1. Is debt good or bad? “with money…”
2. What do you think about the severity of the national debt
3. Should we pay off the debt as soon as possible?
4. Should we pass the BBA?
2. Stats about the debt:
17.8 trillion dollars: http://www.usdebtclock.org/
Deficit is going down so the debt is rising more slowly.
3. What is the debt instrument:
Treasury bills: notes and bonds
4. Why did the country go into so much debt?
war
recession: discretionary fiscal policy and automatic stabilizers
low taxes and high spending—political resolve.
5. Are these good reasons for a debt? Could we have avoided such a debt:
can’t help recessions.
can avoid wars that we start, (T. Jefferson). But not so easily those that we do not.
can raise taxes and can cut spending
6. Who owns the national debt: as percent of GDP:
https://www.nationalpriorities.org/campaigns/us-federal-debtwho/?gclid=CjwKEAjwoMKiBRDHwoaQ0dzn0UwSJAAUk5JiVSOKkEl5x6SyVOVA3lo49ozihJuR0ilUTmTXRnr4uRoCNn7w_w
cB
The Fed and Federal Government
State and Local US governments
Foreign held debt
US owned funds, companies
41%
04%
33%
21%
China owns about
Japan owns about
OPEC
1300 billion
1200 billion
300 billion
http://www.voxeu.org/article/advanced-economies-sovereign-debt-100-years-data
7. historical debt: see graphs for debt and debt/RGDP ratio
ability to repay
debt has been higher in RGDP terms: http://www.usgovernmentspending.com/
8. Three myths:
a. never been higher:
National Debt
17 T
Year
1791
2013
http://en.wikipedia.org/wiki/File:US_Federal_Debt_as_Percent_of_GDP_by_President.jpg
Debt/ RGDP ratio
b: the burden on our grandchildren of higher taxes to pay off the debt
why do they need to repay the debt
also recipients of the interest.
no burden for us when our grandfathers went into debt—why them?
In what country would you rather be born: debt, or without the things that the debt has provided: security, largest
economy in the world, one of the richest, education, etc.
c: our country will follow others and be forced to default: bankruptcy
why have to default:
tax, print, continue to borrow (rollover) (lifespan)
did other countries default? why? other currency
9. The fundamental mistake? Comparing HH with Government
governments have unlimited life span
governments can tax, print, and borrow
growing RGDP eliminates the debt burden: higher T, and lower G and inflation: automatic stabilizers!
10. Other countries debt/GDP ratio in comparison.
http://www.tradingeconomics.com/country-list/government-debt-to-gdp
http://www.economicshelp.org/blog/774/economics/list-of-national-debt-by-country/
11. Costs of the debt.
monetizing the debt—inflation
foreign held debt—does not stay here
crowding out
distribution of income
12: The yearly balanced budget amendment
The Balanced Budget Amendment:
“The premise of the balanced budget amendment is simple. By law, the federal government would be required not to spend more than
it receives in revenues. The requirement could be waived, however, by a three-fifths vote of Congress. Current versions of the
amendment also require a three-fifths majority to raise taxes.”
Easily passed the House of the 104th Congress, but failed to pass on March 4, 1997, 66-34, by one vote(Torricelli of NJ) in the senate:
needed a 2/3rd majority to amend the constitution. It could be overridden by a 3/5ths vote of Congress. Let’s say that the year is 2014
and the economy starts out at full employment equilibrium (Y1,P1)—shown below. And let’s assume that in 2014 the budget is
balanced; a balanced budget for this year! (and yes that’s not likely)! This graph is not shown.
YFE
Price
AS
AD
Now assume that the economy goes into a recession.
a recession at Y2—shown below.
RGDP
Y1
This means that the AD curve has shifted to the left and now the economy is in
YFE
Price
AS
AD
RGDP
Y2
Y1
But now, because the economy is in a recession government spending goes up and tax revenues go down so the budget goes into
deficit. BUT, with the balanced budget amendment, the government must correct a deficit and balance the budget. So, in order to
balance the budget either taxes must go up or government spending must go down—BUT EITHER OF THOSE MEASURES WILL
SHIFT THE AD CURVE FURTHER TO THE LEFT—making the recession even worse. And this now sends the economy further
into a recession—lowering tax revenues even further and causing even more government spending and thus creating another deficit.
So, in order to balance the budget, …………..!!!
Eventually of course, the balanced budget amendment will have to be rescinded and allow the government to go into deficit until the
economy is back to full employment.
(pretty much everyone believes that a fever is a problem: But everyone also knows that a fever is the body’s response to illness. And
if we could prevent the body from developing a fever we would be preventing the body from curing itself. In other words, the FEVER
is not the illness, it’s the cure. The same can be said about SOME debt (that part that came about as a result of the economy going into
a recession) war? Political will?
13: Solutions
If it ain’t broke don’t fix it
Raise taxes
Cut spending
Economic Growth—reduces the burden of the debt as well as the real debt
The full employment balanced budget amendment
DEFAULT!
THE FULL-EMPLOYMENT BALANCED BUDGET
…….and that requires a graph.
The Business Cycle Model:
surplus
Actual, real equilibrium income
RGDP
YFE
deficit
YEAR
1
2
3
The Full Employment Balanced Budget (FEBB) says that you set government spending and taxes so that the budget is balanced when
the economy is at full employment—say Y2. So that when the economy is in inflation, the budget would be in surplus, (the years
between Y1 and Y2). And then when it’s in a recession it will be in deficit (the years between Y2 and Y3). But when it’s at full
employment the budget will be balanced. So, you run a deficit while the economy is in a recession and then you pay back the deficit
when the economy is in inflation running a surplus. We don’t do that now. When there is a surplus—if there ever is, we spend that
money rather than using it to repay the deficit from when the economy was in a recession.
With the FEBB, the budget condition for any year will depend on the level of income. If the economy is in a recession what will be
the state of the budget for those years? And when the economy is at full employment what will be the state of the budget for those
years? And when the economy is in inflation?
14.
What is the debt limit?
Why all the hoopla?
The debt ceiling?
Standard and Poor’s credit rating drop
