Is the USA endanger of going broke? The answer is yes, although liberals don’t want to admit it. Elwood from the Arkansas Times Blog objected, take a look below:
How many paid attention to Cager Griffin on AETN debates using the familiar FEAR TACTIC of “AMERICA IS BROKE” in danger of becoming another “GREECE?”
…Fayetteville Freethinkers takes the whole myth apart:
“The U.S. government is not broke,” said Marc Chandler, global head of currency strategy for Brown Brothers Harriman & Co. in New York. “There’s no evidence that the market is treating the U.S. government like it’s broke.”
The U.S. today is able to borrow at historically low interest rates, paying 0.68 percent on a two-year note that it had to offer at 5.1 percent before the financial crisis began in 2007. Financial products that pay off if Uncle Sam defaults aren’t attracting unusual investor demand. And tax revenue as a percentage of the economy is at a 60-year low, meaning if the government needs to raise cash and can summon the political will, it could do so…
A person, company or nation would be defined as “broke” if it couldn’t pay its bills, and that is not the case with the U.S. Despite an annual budget deficit expected to reach $1.6 trillion this year, the government continues to meet its financial obligations, and investors say there is little concern that will change.
The cost of insuring for five years a notional $10 million in U.S. government debt is $45,830, less than half the cost in February 2009, at the height of the financial crisis, according to data provider CMA data. That makes U.S. government debt the fifth safest of 156 countries rated and less likely to suffer default than any major economy, including every member of the G20.
The simple fact is that the USA will owe up to 100 trillion in the future if entitlement reform is not put in. A Greece type collapse will result if nothing is done. How can Elwood just dismiss this size of unfunded liability?
September 6, 2012 by Dan Mitchell
Everyone has a cross to bear in life, some sort of burden or obligation, often self-imposed.
For some inexplicable reason, I’ve decided that one of my responsibilities is to educate a backwards and primitive people who seem impervious to common sense, simple logic, and strong principles.
As you’ve probably guessed already, I’m talking about Republicans.
I’ve already identified them at the Stupid Party, but they seem especially ill-informed and clueless on the topic of government borrowing.
I even created a “Bob Dole Award” in hopes of getting this point across. Simply stated, fixating on debt opens the door for higher taxes.
And does anyone think our economy would be stronger, or our fiscal position would be better, if we replaced some debt-financed spending with some spending financed by class-warfare taxes?
Especially since the higher taxes almost certainly would trigger more spending, so government borrowing would stay the same and the only thing that would change is that we’d be saddled with even more waste.
Notwithstanding all my educational efforts, Republicans couldn’t resist jumping up and down and making loud noises earlier this week when the national debt hit the $16 trillion mark earlier this week (a google search for “$16 trillion debt” returned more than 24 million hits).
So let’s walk through (again) why this is misguided.
First, let’s clear up some numbers that cause confusion. Republicans are complaining about something called the “gross federal debt.” This number is largely meaningless (see table 7.1 of the OMB Historical Tables if you want to look at the details).
It is the combination of a somewhat meaningful number of more than $11 trillion known as “debt held by the public,” which is a measure of how much the federal government has borrowed over time from the private sector, and a totally irrelevant number of about $4.5 trillion known as “debt held by federal government accounts.”
The latter number is simply a total of the IOUs that the government issues to itself, most notably the ones at the Social Security Trust Fund. But the “assets” in the Trust Fund at the Social Security Administration are offset by the “liabilities” at the Treasury Department. This is an empty bookkeeping gimmick, just as if you took a dollar out of your right pocket, put it in your left pocket, and left an IOU in exchange.
That being said, it is important to recognize that politicians have imposed poorly designed entitlement programs, and future spending on these programs will skyrocket far beyond current revenues. That growing gap, which is explained in this short video, is sometimes known as “unfunded liabilities.”
This number depends on a whole range of assumptions and can be measured in current dollars, constant dollars, and present value. I prefer the middle approach, which adjusts for inflation, and it’s worth noting that “unfunded liabilities” for Social Security and Medicare are more than $100 trillion.
That’s a number we should worry about, not the make-believe $4.5 trillion of IOUs that comprise part of the “gross national debt.”
Now let’s get to the most important issue. The reason we should worry about that $100 trillion number is that it is an estimate of how much the burden of spending will climb in the future. That additional spending will weaken the economy whether it is financed by borrowing or taxes.
Sort of helps to explain why entitlement reform is completely necessary if we want to keep America from a Greek-style fiscal collapse at some point in the future.
Here’s my video on the topic. In an ideal world, Republicans would not be allowed to talk about fiscal policy until they were first strapped in chairs, given a bunch of ADD medicine, and forced to watch this on automatic replay about 50 times.
Deficits are Bad, but the Real Problem is Spending
Uploaded by afq2007 on Dec 15, 2009
Huge deficits and skyrocketing debt levels are creating considerable worry. This Center for Freedom and Prosperity Foundation video explains that that government borrowing is excessive – and will get worse in coming decades. But this mini-documentary explains that deficits and debt are merely the symptoms, and a rising burden of government spending is the real problem.
Now for the all-important caveats. Yes, a nation can reach a point where debt becomes a problem. All you have to do is look at the mess in Europe to understand that point.
And I’ve shared numbers from both the Bank for International Settlements and the Organization for Economic Cooperation and Development to indicate that almost all nations – including the U.S. – are going to face similar problems if government policy is left on autopilot.
What I want people to realize, though, is that governments only get into that kind of mess because there’s too much spending.
Government spending is the disease. The various ways of financing that spending – taxes, borrowing, and printing money – are symptoms of the underlying disease.