Economists: this is no stimulus at all

[ari1013]

Bill Clinton increased spending and yet thanks to economic growth, we wound up sporting a nice surplus that was pissed away.

The best way to reduce debt is for the economy to grow. At that point, these shortterm stimulus projects will be done and spending can go back to normal.

Ideally, our spending should be around $2.5T and it should increase with population and inflation growth.

Bush went quite a bit over that year after year. Obama's doing it now, but I have faith that the stimulus isn't going to need to be repeated again.

However, when necessary in the future, we need to be ready to spend a bit extra to stabilize the economy just like we're doing now.

[behindmydesk]

Bill Clinton increased spending and yet thanks to economic growth, we wound up sporting a nice surplus that was pissed away.

The best way to reduce debt is for the economy to grow. At that point, these shortterm stimulus projects will be done and spending can go back to normal.

Ideally, our spending should be around $2.5T and it should increase with population and inflation growth.

Bush went quite a bit over that year after year. Obama's doing it now, but I have faith that the stimulus isn't going to need to be repeated again.

However, when necessary in the future, we need to be ready to spend a bit extra to stabilize the economy just like we're doing now.

I agree, but the problem is, we have severly limited ourselves as a nation to spend more going forward when needed. Our debt to GDP is redonkulous (BMD is so hood).

Not to mention with the coming Social Security crisis that's do to hit us in what 5 years. It's a dangerous game of chicken we are playing.

[cabernetluver]

I agree, but the problem is, we have severly limited ourselves as a nation to spend more going forward when needed. Our debt to GDP is redonkulous (BMD is so hood).

Not to mention with the coming Social Security crisis that's do to hit us in what 5 years. It's a dangerous game of chicken we are playing.

There are two elements to a crisis. The first is a problem, second immediacy. Absent immediacy, it is only a problem. There is nothing that happens to Social Security in five years. You are alluding to the retirement of the Boomers, which has already begun (early retirement) and will continue in 3-5 percent increments for the next 25 to 30 years. Now the fund will not be fully funded if nothing else changes in the year 2043, however even then, it will be 70 percent funded with a rebound going forward.

I agree with your premise that it is a problem, but it is chicken little kind of stuff to call it a crisis and say that a crisis will begin in 5 years. That said, it has in fact been addressed by the current administration that it is something that needs to be addressed now so that it will not become a crisis. The interesting thing is that there are in fact many ways of addressing it.

In 1935, when FDR helped usher in Social Security Insurance (that is what it is by the way, it is not a savings plan, and was never intended to be one) life expectancy was 60. This means that at birth, half the population lives to 60, half does not. With this in mind, If at the time it had been created, ones retirement age for SSI was life expectancy at birth plus 5 years there would be no problem now. I am not suggesting that increasing the age of retirement is the only answer, only that it might be part of the answer.

The greater problem is in fact Medicare. The reserve fund for Medicare is going to be unable to fully fund its obligations somewhere between 2011 and 2014.

Now this is a crisis.

Both are on the Obama administrations plate as problems to tackle, and both are best served if there is a healthy growing economy.

In fact, the economy in and of itself will not cure the problems, but if the economy is not growing, both will be so onerous, they will make all the other problems we have in the world look miniscule compared to them.

[behindmydesk]

There are two elements to a crisis. The first is a problem, second immediacy. Absent immediacy, it is only a problem. There is nothing that happens to Social Security in five years. You are alluding to the retirement of the Boomers, which has already begun (early retirement) and will continue in 3-5 percent increments for the next 25 to 30 years. Now the fund will not be fully funded if nothing else changes in the year 2043, however even then, it will be 70 percent funded with a rebound going forward.

I agree with your premise that it is a problem, but it is chicken little kind of stuff to call it a crisis and say that a crisis will begin in 5 years. That said, it has in fact been addressed by the current administration that it is something that needs to be addressed now so that it will not become a crisis. The interesting thing is that there are in fact many ways of addressing it.

In 1935, when FDR helped usher in Social Security Insurance (that is what it is by the way, it is not a savings plan, and was never intended to be one) life expectancy was 60. This means that at birth, half the population lives to 60, half does not. With this in mind, If at the time it had been created, ones retirement age for SSI was life expectancy at birth plus 5 years there would be no problem now. I am not suggesting that increasing the age of retirement is the only answer, only that it might be part of the answer.

The greater problem is in fact Medicare. The reserve fund for Medicare is going to be unable to fully fund its obligations somewhere between 2011 and 2014.

Now this is a crisis.

Both are on the Obama administrations plate as problems to tackle, and both are best served if there is a healthy growing economy.

In fact, the economy in and of itself will not cure the problems, but if the economy is not growing, both will be so onerous, they will make all the other problems we have in the world look miniscule compared to them.

Yea I meant to put medicade in there. And to me it is an impending crisis, that we need to work on now. What i'm getting at it, is we are playing a scary game of chicken, because of how in debt we already are in. It limits things we truly can do.

[ari1013]

I agree, but the problem is, we have severly limited ourselves as a nation to spend more going forward when needed. Our debt to GDP is redonkulous (BMD is so hood).

Not to mention with the coming Social Security crisis that's do to hit us in what 5 years. It's a dangerous game of chicken we are playing.

Not really. Our debt to GDP is actually fairly good compared to most developed nations. Look at Japan's numbers. Or anyone in Europe other than Germany and Ireland.

[behindmydesk]

But with the GDP falling what 1.5-2% this year, and the Debt increasing it will get worse. In your estimate Ari, how much debt can we have and not be considered f'd in the A.

[ari1013]

But with the GDP falling what 1.5-2% this year, and the Debt increasing it will get worse. In your estimate Ari, how much debt can we have and not be considered f'd in the A.

80% is the trouble line.

[PHX-SOXFAN]

It's good to see the GOP so motivated to provide oversight:

http://news.yahoo.com/s/ap/20090219/...mulus_politics

Where was this energy to provide oversight of Iraq spending (billions unaccounted for), Hurrican Katrina (millions), first phase of TARP, etc Their credibility on "oversight" of govt spending is such a joke after the documented cases of spending abuses in Iraq and Louisiana alone.

[behindmydesk]

80% is the trouble line.

That's what I thought. Aren't we at 75 or 77%?

[Cubsrule]

That's what I thought. Aren't we at 75 or 77%?

74.6 last I checked.

[ari1013]

No you're both wrong. We've never actually even hit 70% in the post-WWII period.

Bush jacked it up to post-war record levels of just under 68%. Here's a good graph of the debt that someone put together:

http://www.cedarcomm.com/~stevelm1/usdebt.htm

Figure 3 on there shows the spending/revenue relationship among the last 45 years of Presidents.

Finally, Figure 4 give us what we need. Now, granted GDP will fall by about 1.5% this year from $14.3T down to about $14.1T. And considering we were looking at a $500B deficit before the stimulus, after factoring in some early increased tax revenue generated by the stimulus, we can expect about a $1T deficit this year; and likely an $800B deficit next year (since some of the spending is in 2010). Thus our debt will grow to $11.5T

And by next year even if the stimulus adds nothing to the economy, we can expect GDP to begin trickling back up (likely 0.5% growth) to $14.2T.

Thus we hit 81% at the end of 2010. Of course if the stimulus works at even a dollar for dollar fashion (using the most conservative estimates), GDP will actually bounce to $15T. That puts the debt at 76.7%.

Worrisome, yes. But it can be handled. We're going to have to end the war in Iraq for financial reasons. It won't be sustainable after 2010. We're going to have to roll back some of the tax cuts in order to raise revenues (see that Presidential chart).

And as we grow economically and our deficits shrink back down, the debt ratio should fall back to its "standard" 60%.

[behindmydesk]

No you're both wrong. We've never actually even hit 70% in the post-WWII period.

Bush jacked it up to post-war record levels of just under 68%. Here's a good graph of the debt that someone put together:

http://www.cedarcomm.com/~stevelm1/usdebt.htm

Figure 3 on there shows the spending/revenue relationship among the last 45 years of Presidents.

Finally, Figure 4 give us what we need. Now, granted GDP will fall by about 1.5% this year from $14.3T down to about $14.1T. And considering we were looking at a $500B deficit before the stimulus, after factoring in some early increased tax revenue generated by the stimulus, we can expect about a $1T deficit this year; and likely an $800B deficit next year (since some of the spending is in 2010). Thus our debt will grow to $11.5T

And by next year even if the stimulus adds nothing to the economy, we can expect GDP to begin trickling back up (likely 0.5% growth) to $14.2T.

Thus we hit 81% at the end of 2010. Of course if the stimulus works at even a dollar for dollar fashion (using the most conservative estimates), GDP will actually bounce to $15T. That puts the debt at 76.7%.

Worrisome, yes. But it can be handled. We're going to have to end the war in Iraq for financial reasons. It won't be sustainable after 2010. We're going to have to roll back some of the tax cuts in order to raise revenues (see that Presidential chart).

And as we grow economically and our deficits shrink back down, the debt ratio should fall back to its "standard" 60%.

Thanks ari. I was going by a convo we had earlier, and I thought it was mid 70's. Thanks

[ari1013]

Thanks ari. I was going by a convo we had earlier, and I thought it was mid 70's. Thanks

Must have been talking about the projection that's going to put it in the mid-70s.

[Cubsrule]

No you're both wrong. We've never actually even hit 70% in the post-WWII period.

Bush jacked it up to post-war record levels of just under 68%. Here's a good graph of the debt that someone put together:

http://www.cedarcomm.com/~stevelm1/usdebt.htm

Figure 3 on there shows the spending/revenue relationship among the last 45 years of Presidents.

Finally, Figure 4 give us what we need. Now, granted GDP will fall by about 1.5% this year from $14.3T down to about $14.1T. And considering we were looking at a $500B deficit before the stimulus, after factoring in some early increased tax revenue generated by the stimulus, we can expect about a $1T deficit this year; and likely an $800B deficit next year (since some of the spending is in 2010). Thus our debt will grow to $11.5T

And by next year even if the stimulus adds nothing to the economy, we can expect GDP to begin trickling back up (likely 0.5% growth) to $14.2T.

Thus we hit 81% at the end of 2010. Of course if the stimulus works at even a dollar for dollar fashion (using the most conservative estimates), GDP will actually bounce to $15T. That puts the debt at 76.7%.

Worrisome, yes. But it can be handled. We're going to have to end the war in Iraq for financial reasons. It won't be sustainable after 2010. We're going to have to roll back some of the tax cuts in order to raise revenues (see that Presidential chart).

And as we grow economically and our deficits shrink back down, the debt ratio should fall back to its "standard" 60%.

That was 2008's estimate, the year before it was 65.5.

[ari1013]

Something like that. The Debt:GDP continued to rise over the last few years (see the graph).