The Problem is Too Much Debt

For the past two years or so, my prediction for the cumulative debt of the United States government over the next ten years has been in the $15 to $20 trillion range. This would more than double the current amount of government debt outstanding.

Since the events of the past few days in Washington, D. C., my prediction for the cumulative debt of the United States government over the next ten years is still in the $15 to $20 trillion range.

The most descriptive characterization of the “debt deal” that I have heard is that Congress (and the President) has just “kicked the can down the road.”

In this, the United States government seems to be in the same league as their “kin” in the eurozone. One has to look hard to see any evidence of leadership. (Link)

As far as the Obama administration is concerned, in my mind, this “team” has observed the creation of three “camels” on its watch. The first camel was the health care bill. The second was the Dodd-Frank financial reform bill. (Link)

The third camel is, of course, the just passed “debt deal”.

The general comment about all three is that at the birth of all three, people were very unhappy with them.

Never can I remember, except maybe under President Jimmy Carter, a President that exhibited less leadership in such important areas. President Obama presented no “plan” to Congress in any of these efforts. People say that the administration was responding to the “health care plan” rebuff experienced by the Clinton administration in the 1990s and wanted to involve Congress more from the start of any legislative attempt. I believe that this was a gross mis-reading of the events surrounding the Clinton initiative.

However, this strategy of holding back and letting Congress take the lead in proposing and disposing resulted in something more like chaos or anarchy than leadership. And, this strategy has produced three camels that nobody really likes.

And then people worry about jobs and the state of the economy. How can you create smaller deficits through cuts in government spending without causing further danger to the health of the economy?

It seems like we are in some kind of situation in which everything that is proposed contradicts everything else. President Obama, after the passage of the “debt deal” stated very clearly, that the issue now becomes one about jobs. 
In fact, the President plans a bus trip in the Midwest the week of August 15 as part of his new jobs push. Whoopee!

To me, there is only one thing that ties all the different problems we are experiencing together. It is the fact that there is just too much debt outstanding today…and, this debt load extends throughout the nation (and throughout Europe). Consumers are still burdened with too much debt. So are many businesses. So are state and local governments. And, so are sovereign nations.

Consumer Pullback Slows Recovery,” we read in the Wall Street Journal. Why are consumers not spending? They are saving…they are paying back debt…to get their balance sheets in line. They are not buying homes because of the problems with bankruptcies and foreclosures (Link).

Many businesses are not borrowing because of a decline in their economic value and the increased pressure this puts on the amount of liabilities they are carrying on their balance sheets. (Link)

And, the state and local governments are also getting headlines about their budget problems. What about the city in Alabama that is declaring bankruptcy? And the municipality in Rhode Island? And, what about the problems in Harrisburg, Pennsylvania? And, California? And so on and so on?

This is the scenario called “Debt Deflation”. Debt deflation occurs after a period of time in which credit inflation has dominated the scene. Credit inflation eventually reaches a tipping point in which the continued inflation of credit can no longer be sustained. Once this tipping point is reached, people, businesses, and governments see that they can no longer continue to operate with so much debt and so they begin to reduce the financial leverage on their balance sheets.

This process is called “Debt Deflation” because it is cumulative. As these economic units begin to reduce their financial leverage, it becomes obvious to them that they must reduce this leverage even further than first imagined. Whereas “Credit Inflation” is cumulative and leads to people adding more and more debt to their balance sheets, the reverse process is also cumulative.

The only short-term way to avoid this debt deflation from taking place is to create the condition called “hyper-inflation.” This is exactly what Mr. Bernanke and the Federal Reserve System has tried to do. I say short-term because all hyper-inflations come to an end sometime.

We have had fifty years of government economic policy based on the Keynesian assumption that fiscal deficits and the consequent credit inflation that results from the deficits are good for employment and the economy. This assumption has, to me, been disproved given that the compound rate of growth of the economy has averaged only slightly more than 3 percent over the last fifty years, about what was expected in the 1960s, and the amount of under-employment in the economy has gone from less than 10 percent of the workforce in the 1960s to more than 20 percent of the workforce, currently.

Furthermore, the income/wealth distribution in the country has become more skewed than ever toward the wealthy during this time period. This is because the wealthy can protect themselves against inflation and even position themselves to take advantage of it. The less wealthy do not have similar opportunities. And, in the current situation, some, the more wealthy, are doing fine because they are not as indebted as others and so can continue to prosper during these difficult times of excessive debt burdens.

Getting back to my projections for the cumulative federal deficit over the next ten years and the “debt deal”: I really don’t see a fundamental change in the underlying economic philosophy of the Obama administration (which includes Mr. Bernanke) and/or Congress. They seem to see the current problems as a “temporary” aberration from the existing “Keynesian” credit inflation philosophy that underlies all that they do. They seem to believe that once this “period of discomfort” is passed that business will continue on as usual.

Until this attitude is changed, I see little reason to change my prediction for the cumulative federal deficit over the next ten years.

About John Mason 79 Articles

Professional history: Banking--President and CEO of two publically traded financial institutions; Executive Vice President and CFO of another. Academic--Professor at Penn State University and at the Finance Department, Wharton School, University of Pennsylvania. Government--Special Assistant to Secretary George Romney at Department of Housing and Urban Development; Senior Economist in Federal Reserve System. Entrepreneurial--work in venture capital and other private equity; work with young entrepreneurs in urban environment.

Visit: Mase: Economics and Finance

70 Comments on The Problem is Too Much Debt

  1. Letter to the Peasants of America from the Top 2%,

    You asked, Where did all the money and jobs go?

    We took the money. We can never have enough. We shipped the jobs overseas. We started international corporations where we seek out the cheapest labor and the least stringent regulations. We invested in scams which produced nothing but debt for you.

    We crashed the economy. Now Americans are just as desperate to have a low paying job as anywhere else in the world. We arranged the largest theft in history and stuck you with the bill.

    We set up offshore businesses and accounts. We deposited our money in Swiss and Cayman Island banks. We bought enough politicians and judges to write the laws. We implemented free trade, free markets, low taxes for us, and no taxes for our corporations.

    We used the military (you pay for) to take over any competition that can’t be stolen or bought. We will destroy anyone in our way.

    We bought TV networks, radio stations, newspapers, and Internet providers. We propagandized our point of view to convince enough of you to vote against your own interest.

    We will go after civil rights, education, environmental laws, unions, Healthcare, Social Security, Medicaid, Medicare …any group or law that stands in the way of us controlling the economy and government. This allows us to profit as much as possible. That’s our goal. That is all that matters.

    Forever looking down on you,
    The Top 2%

    • I love it. And, just as in every revolution or civil war in history caused by such actions, 2% of the population’s heads will either roll or go into exile when the 98% are no longer content.

  2. I’m glad you pointed out debt deflation, you discussed this in an economic prism and not a tea-party versus Obama/congress Senate foodfight. I included a link for Fisher and if you read this article and today’s news it is difficult to fathom that this was written in 1933; so there you go deja-vu all over again! However Fisher needs to be updated to calculate the costs of OIL upon the modern economy, that is to say: “that recessions and the bounce back of the economy were more pronounced under easy oil” where the ubiquitous availability of oil and relatively low cost facilitated what the Keynesian model is in fact based upon. Taking production as an abstract: computers in the 80’s internet in the 90’s, etc.. technology drivers as enumerated by Fisher (similar to radio in his day) and (rural electrification programme) again~~ ENERGY, we see that the ability to “bounce back” from debt deflation is more difficult barring a genuine ROI driven new energy that is ubiquitous. If in fact peak oil is instead the awareness of plateau of “easy oil” or oil at a cost that promotes global GDP that offsets interest rates, then yeah.. most definetly we are in debt deflation for the extended horizon and when in fact green shoots do appear in the economy oil prices should kill them quickly!

    Lower targets of growth are the new norm.

    I’m glad you stated that you understood the why the fed/treasury initiated reflating the economy, as counter intuitive that it seems and hugely unpopular it was the right thing to do though there is no quantitative facts to prove how disastorous it would have been if they had not.

    I think infrastructure in smart energy is a possible solution, but otherwise have no recommendation and see prolonged debt deflation along with increasingly milder up-ticks in global growth until more energy is available to facilitate it at a price point under par of interest rate money expansion.

  3. Btw, only the depraved wall street maniacs hate the financial reform law. Those evil bastards have destroyed the economy and must be stopped!

  4. Debt is not the problem. After WWII debt was 120% of GDP. By 1980 it was just over 30% of GDP. Growth during this period was very strong routinely over 10% annually, and over 15% occasionally. This is despite high income tax rates (70-90% top bracket).

    Starting with Reagan, this trend was reversed and national debt has soared. In May 2003, congress passed the Bush Tax Cuts on the same day they raised the debt ceiling to provide additional operating revenue for the government.

    Decades of reduced income taxes for the rich has created huge wealth that is invested not in the US but overseas, where it is tax free (actually it is a tax credit, it counts against your tax liability, the “foreign investment tax credit”).

    A tax policy economy that rewards outsourcing and foreign investment over domestic production, policies enacted on behalf of the corporations that benefit from them by politicians funded by them – that is the real problem.

    It used to be that government spending was the cure for an ailing economy, but that was back in the days when government spending was on Americans goods and services. Now it’s on foreign goods, and much of the TARP money (taxpayer money) is being invested overseas. We don’t need to create jobs in Vietnam and Malaysia, we need to create jobs in the US, jobs that will pay taxes and generate revenue.

    Debt is a problem, but failure to correct the policies that bleed revenue (foreign investment and low taxes, along with mindless spending on wars and corporate subsidies for corporations that pay no taxes) will completely destroy the US economy.

    Tax cuts create jobs in the Far East and kill them at home. Without jobs this country is finished. The time to deal with debt is not now, but after the crisis. Just like WWII.

    • Noah Way seems to suggest that debt drives growth – I quite disagree.

      Economic growth comes from consumer confidence and a stable regulatory environment – as soon as uncertainty rears its head then people and companies start to conserve cash, which slows growth or leads to recession.

      Debt is bad, simply put, and growing debt is worse. A country has to be seen to be able to pay its debts and if there is concern over their ability to do this – they are seen as a poor credit risk just as anyone else would be.

      The current administrations attitude seems to be – increase regulation, grow government, protect union workers, protect illegal immigrants and to try as many indirect ways of increasing taxes as they can get away with. Whatever the rhetoric may be this creates the specter of increasing taxes and business costs and (worse) no credible story on reducing government spending. If the debt continues to grow, which it will, then no-one is quite sure what would happen to the US dollar, interest rates or future tax rates, so – no job growth and a slow market.

  5. Why do none of the journalists, economists & politicians talk about solutions and the long-term ways to get out of this mess and stop explaining what the mess actually is in different ways? We already know what the mess is and how we got here. Lets now talk about what the logical and best possible way to resolve this slowly.

    • Well, that’s simple. To reduce and pay off a debt, one must first generate positive cash flow (a budget surplus) and then direct the surplus funds to principle payments on the balance owed.

      Since we currently bring in only 56 cents out of every dollar we spent, we will need to simultaneously cut government spending in half (to approximately balance the budget) and generate tax revenues of approximately double what they are now (to create a large surplus).

      Then we just redeem bonds, and once we pay off the debt entirely, we cut taxes to create a balanced budget.

      Any takers?

  6. John I’m a conservative, but the flak that you and others give Obama over the budget mess regarding “lack of leadership” is unjustified. Obama attempted a bi-partisan agreement with Boehner, one that included revenue increases and cuts. The Tea Party made it clear that they would allow the US to default rather then accept revenue increase, so Obama had no choice but to pass it off to Congress to figure it out.

    What was he supposed to do? Come up with his own revenue increase/cut plan for the Republican House to just reject out of hand? Present a bill that completely capitulated to Republican demands? Of course not. So he had Harry Reid do it instead.

    • Polish – I suggest you look-up leadership in Webster. Getting synergy is part of it, but the guiding, directing, planning to reach an end state is key. Obama starts something then steps away. He believes in management by committee without guidance. That allows him to step away from what he was voted into office to do. LEAD AND ACCEPT RESPONSIBILITY as well a ACCOUNTABILITY…. Bottom line the statement was Obama failed to lead….

  7. The problem isn’t too much debt. The problem is people like John Mason. They beat the drum about debt so the government cuts programs and spending that are critical in helping the economy recover. Then when things get worse, they just keep banging the same drum, and threaten to make things even worse.

  8. Really??? you predicted this? You’re like the Nostradamus of the economic world!!

    C’mon… any monkey that could add 2 plus 2 knew how high our debt was going to get. But for a lot of people, time didn’t start and none of it counted until Obama was president. I guess those 2 wars that we paid hundreds of billions out to contractors over never happened. Fppppp yeah right.

    What gets me… is that people actually believe that when rich people horde all the money into large unused bank accounts it somehow benefits the country so we should let me horde even more of it. I would laugh if it all wasn’t so sad. But… welcome to the corporatocracy. America was really founded on the backs of mega corporations instead of with blood sweat and tears of the working man…. you don’t remember that from the history books?

  9. Unemployed Americans will continue to vote themselves wealth as they more and more give up competing with China and India.

    Weak, pathetic, and taking the country down with them.

    We can no longer afford social security and million dollar healthcare for everyone.

    • You’re partially right at least. The real problem comes from the entitled few that own most of the nations wealth and do not pay their fair share of the tax burden. Major corporations dodge taxes every day in the name of profit. The very wealthy dodge taxes to keep their money. The wealthy want the middle class and the poor to pay for everything, including the llifestyles of the rich and famous.

      The only way to fix the mess this country is in, and let’s not get too far off the mark when it comes to blame here, is to work to repair the damage done by the feeding frenzy of the previous republican administration just before it got voted out of office. The only real way to do that is to force the wealthy elite of this country to shoulder a fair portion of the tax burden. The rich must pay just like everyone else. No more tax free income for the wealthy and require jobs to be brought back into this country that had been taken out by the very tax dodgers guilty of this mess.

  10. Wrong. The problem is not enough jobs growth and not enough economic growth!!! Fix that and the deficit will be taken care of. I didn’t hear all the deficit hawks and debt hawks during the go-go 2000’s when tax-code and defense spending was rampant – that BTW, put us in the hole we are currently in.

  11. Nothing to get a rise about….Obama has played this out exactly how he wants it. Entitle the welfare bums and deplete the very souls that fund this thru taxes.

  12. agree, the debt issue is just another game to be politically played to seek re-election posturing.

    America is in deep crap, and they just don’t care, as long as they get their big salary, Big-Over-The-Top benefits and that almighty powerful lobbyist dollar. Ohhhhhh, the almighty donated DOLLAR…. they are so motivated, and it is their ONLY motivation.

    To hell with America, it’s all about me, the big anti-American politician.

  13. Actually, the problems are layered:

    1) We are running unsustainable deficits
    2) This has resulted in too much debt
    3) The unsustainable deficits are the result of the Federal Government spending more than it takes in
    4) It spends more than it takes in because, although spending has remained essentially constant (as a percentage of GDP) revenue has dropped dramatically.
    5) Revenue has dropped dramatically as a result of tax cuts and the recession
    6) The tax cuts were granted on the promise that they would stimulate the economy and grow it enough to *increase* revenue even though the tax rate went down.
    7) But the tax cuts didn’t do much for the economy. In fact, the great recession came after the tax cuts were granted.
    8) Without revenue the Federal Government cannot do what it normally does to get us out of a recession, namely invest and spend
    9) With the Federal Government hamstrung, the recession is getting worse
    10) The worsening recession is further reducing Federal revenue, making the deficit worse
    11) We can’t fix the revenue problem because we can’t revoke the Bush tax cuts (which caused the revenue problem, which caused the deficit problem) because the Tea Party controls the Republicon Party which controls the House of Representatives. And the Tea Party is composed of ideologues that are opposed to *all* taxes on politically religious grounds.

    So the root problem is the Tea Party and the fact they are a bunch of nuts, and they are effectively in control of the US government.

  14. One element of this situation, is to finally force Governments and Politicians to prioritize spending. Is it wise to send $3 billion/year to an overseas country which harbored Bin Laden? Or could this be better spent on restoring infrastructure of roads, bridges in the USA? Is it wise to pay for $600 toilet seats for defense contractors? Is it wise to “look the other way” while waste and fraud occur daily in Medicare and Medicaid? Are we getting our “bang for the buck” by not funding adequate investigation and prosecution of waste, fraud, and abuse amid recipients of Federal expenditures? Why does the Federal Gov’t not do with Social Security cards what individual states already do with Driver’s Licenses: use computer software which recognizes facial features like fingerprints, and insists that photographs match names? This would avoid identity theft using fraudulent or duplicate Social Security cards. Why don’t we expand “E-Verify” to remove the jobs magnet which attracts illegal immigrants who take American jobs? All these need to be prioritized, and given a cost-benefit analysis.

  15. now these camels you allude to are the animals constructed by a committee, right? not camels upon whose backs a final straw will break them? when using allusion it might help to clarify what your camel represents.

  16. How can politicians cut taxes for decades (to get re-elected), and expect America o fight terrorism, cure diseases, police greedy multinational corporations with the resources greater than many nations, keep countries around the world supporting our goals, and maintain a military larger than all the rest of the world combined? Who are we planning on fighting? Mars?

    If you want a small government, you’ll have to also live in the small world of 1776. Where a nations greatest danger was wooden ships pulling into New York Harbor to lob iron canon balls at us.

  17. Good that the US lawmakers realize that there is a problem with too much debt. Now they need to look for viable long term solutions the problem will stand as it is! The devastating effects will be felt by the world economies besides US itself.

    • No offense, Prakash, but I’m an American. Short of the impact that the debt has on Americans – including the trickle-down effects, of course – I would not be concerned about what impact it has on the rest of the world.

  18. The problem is No productivity and Diminishing Made in America.

    The problem is the Most Favored Nation is not America but China

    The problem is that the Fat Cats are no investing in America nor are they accountable to Americans

    The Problem is we got zomby failed Tea Party members supported by the fat cats to sink the global economy

    The problem is we need COFFEE Party Soon, that is Coalition of Fair and Free Economic Enterprises to create jobs for every one, not just the few Fat Cats.

    The problem is America has become too Obese, 20 Trillions with no Productivity that matches or excels the Debt, We need to be productive at 50 Trillion to carry the debt of 20 Trilion.

    No Productivity and too much consumption (just look around, every one is obese including Boener!

    We need to work, exercise and be creative. Look at Steve the Apple Guy who has more money than the US treasury, he is so SLIIIIIIIIIIIM.

    The Solution is to MOVE- mobilize resource, Open the Market for US products, Vitalization of the work force with skill training for the new economy and Energize the global economy by making resources available.

    SMART Strategies are needed NOW, that are Specific, Measurable, Appropriate, Realistic and Time Sensitive.

  19. Hi,
    According to wikipedia, there are approx 3 million millionares in the US and 850,000 with more than 5 million in net worth. if we confiscate their networth in total we get approx 7 trillion. not enough is it? The major pension funds hold approx 12 trillion. Wait a minute, that’s 19 trillion. How’s that sound for creativity? My point is that you cannot tax the rich to solve this problem because taking all their money will not solve the problem. sorry, not enough rich people. Oh and since Obama, there are half as many millionaires in the US. go figure.

    • Nobody is saying the rich need to pick up the whole check. But shared sacrifice means they will have to forgo buying that 3rd politician. Freeloading bankers (you know who you are), pay your fair share, or be considered a traitor to this great country.

  20. The author of this website is a numb nut, the US’s debt is already close to 15 trillion and the US stacks on 1.5-2 trillion a year in debt and he still thinks we’ll be in the 15-20 trillion range in 10 years?

    Hahaha what a joke, keep dreaming…

  21. Finally, an article that gets it. TOO MUCH DEBT. And the “Debt Deal” will not, in any way, reduce the amount of debt or even come close to balancing the budget.

    It’s like a group of obese people promising to gain less weight by removing one piece of pepperoni from their triple-meat and cheese pizza – next year.

  22. Other camels have broken our straw backs. Like Federally paid for Cell Phones for Welfare recipients in Pennsylvania. Cell phones are a convenience, those of us who work do without when we don’t have the money.

    Debt for ridiculous things like this speaks, “No wonder the country is having problems”.

    We should make the whole congress undergo debt counseling. The taxpayers need their own “Line Item Veto”.
    Should we wait till China forecloses on Washington?

  23. Republicans spend trillions on two wars + billions wasted in Iraq over 10 years. Destroy the economy through lax oversight. Now blame Democrats for having no money and not paying the bills –a big enough, loud enough, and long enough lie that convinces ignorant voters. Can this marriage be saved?

    • Oh wait what about Libya, was that republicans too? Someone was just recently sending troops to Afghanistan was that Bush?… Oh wait no that was Obama.

      I will be honest in days after September 11, I was crying for a war, but now I’m just ready to get out of all of them (I think we all are). We need a LEADER, a Reagan who reinspires the US spirit, not someone who increases the divide. Stop trading blame and suggest a solution we can all get behind.

  24. The debt exists because the rich wanted wars to protect oil investments, and then the refused to repay the $3 trillion they borrowed from Social Security to pay themselves the Bush Tax Cuts for the Rich – tax cuts that just added to the deficit with near zero job growth. Indeed the rich now fund the Tea Party whose job one is to tear down America before any tax increase on the rich is permitted. Reagan tax cuts that did not stimulate (the economy came back 2 years after the passing in August 1981 of the drastic tax cuts) began this nonsense – so you and others can see the proof that supply side does not work, but you do the big lie, saying Keynesian economics does not work, rather than admit you are wrong and get behind higher taxes on the rich.

  25. Nice article. I would argue, however, that Keynesian economic theory also suggests that debts be paid off in times of prosperity, which clearly hasn’t happened in this country. So, I think you are a little off about Keynesian theory being proven wrong, simply because the theory wasn’t put into practice the way it was written up. That is, the debts incurred during previous economic downturns was hardly ever paid towards, and never paid off in full. In other words, if you drive your car for 50 yrs on the same set of tires, don’t blame the manufacturer when the wheels fall off. Through proper maintenance, which Congress has never done, we would have been fine.

    • Chris, that isn’t even a point of argument; Keynesian economic theory simply states what you are saying. There’s no ambiguity.

      The problem is that only Democrats recognize that overspending has occurred under both parties’ administrations to precisely the same extent. Republicans, when they concede that overspending occurred at all, pretend that it was a rarity.

      Cutting taxes in times of surplus is a tax cut. Cutting taxes while cutting spending to keep a balanced budget is a tax cut. But cutting taxes while keeping spending high and borrowing the difference — or raising it, as both Reagan and Bush did — is taxpayer-funded welfare that flows through the IRS rather than through the Department of Health and Human Services.

  26. I guess solving the debt problem is not so urgent after all. The Grumpy Congressional Republicans are off on vacation for a month.

  27. You talk of wealth distribution in your article, or lack thereof. That’s a big part of the problem. Aren’t the big bailouts a big part of this problem as well? Giving billions to banks to keep them afloat while the banks award multi-million dollar bonuses to their sales people. Reverse wealth distribution: Take money from taxpayers and give it to rich investment bankers.

    The argument has always been that the banks are too big to fail. There’s something much bigger that can fail, the whole damn country! It’s pretty clear after 3 years that the bank bailout strategy just hasn’t helped the nation.

    It seems to me that they kicked the bucket down the road 3 years ago and now the President just kicked it even further.

    It’s pretty clear that America is now a Plutocracy. It’s getting dangerously close to seeing another revolution.

    • I see no evidence of a looming revolution, unless its the Tea Party members grabbing their guns to go shoot some immigrants and liberals and any other “undesirables” they see on their way to try and force Barack Obama out of office. The progressives are the ones being reasonable; the country is enduring a reactionary wave right now.

  28. I am neither GOP or Dem and I think your theory is wrong. We had a budget surplus at the end of Clintons term mainly due to the tech bubble. However, the next president got us into two costly wars and started a very expensive war on terror. People were worried about the debt back then also. I was one of those. George Bush argued that these wars were vital and would be payed for by increased revenues resulting from decreased taxes. He was wrong. The job market did not come back despite the housing boom and now we are in a much graver situation. We are faced now with an almost insurmountable debt thanks to the lack of foresite by Gearge Bush. The market has spoken about the current debt situation and the current standoff and how to resolve it. The signals that I read are that the market is much more concerned with the uncerainty caused by our house of representatives and the stubborness of the fiscal conservatives rather than the debt. While it is true that our national debt is of great concern, most economists are saying that the uncertainty caused by the Republicans are greater factors in making a reovery and solving the debt issue. Think about it. The markets are trying to recover and are on the verge. Banks and companies are making profits but they are not hiring now because of the uncertainty caused by the GOP. Here’s some more to think about. The GOP has hindered almost every move by the current administration soley for political reasons. They voted against the TARP several times and it almost did not pass. They drug that one out for months. More uncertainty. That also cost me personally in the form of lost stock revenues. The GOP voted against the TALP. More uncertainty. The GOP voted against the bailout on GM and Chrysler, again more uncertainty and could have been much more job losses. They voted against the housing stimulus’s which did work in that it helped slow the freefall. More uncertainty.
    The current fiasco started at the beginning of April when the white house began talks with the house on raising the debt limit. Something that should have been done automatically and quietly became a huge political debate caused primarily by the tea party. Look at the market uncertainty that caused. That was at the beginning of the second quarter which was dismal. The wosrt effect however was that our country showed the world and the markets all are dirty laundry and also showed how we cannot govern ourselves. HUGE uncertainty. I think I can say that withoubt a doubt the GOP is more of a problem by causing all recovery efforts to stall and thereby making the debt worse. I see both sides entrenching and this failure of our congress to get worse.

    • Excellent summary. It is a great shame that no one is able to break it down so succinctly on television or the mainstream media (which frankly IS pretty “lamestream” these days in terms of drumbeat hyped coverage). We might have long since overcome our challenges if people weren’t so ignorant of economics.

      But then, we need only look at household debt to see why our national debt is so high, don’t we? How many of those “live within your means” people come to the Tea Party rallies with tens of thousands of dollars on credit cards?

    • It gets very old hearing about how Bill Clinton’s term resulted in a balanced budget and that Bush spent too heavily on two wars and ran us into debt, further indebted by Obama. Anyone approaching retirement should be well aware the ONLY way Clinton played smoke and mirrors games to look close to a balanced budget was by robbing YOUR social security. While public debt (T-Bills, savings bonds, and other borrowing tools) was brought down, intra-government holdings (your social security that’s disappearing) increased roughly a couple hundred billion annually under Clinton.

      Debt is absolutely the problem. Too much debt creates a reliance of about 30% of our tax dollars paying interest on debt we can not afford. Those dollars are not funding jobs…they’re paying those who hold the debt. Who are “those” people? China anyone?

      Obama wanted to invest in infrastructure as a means to stimulate jobs and economic growth. The money was spent, but where’s the infrastructure? No new natural gas lines to provide fuel stations for the new natural gas cars. No new power plants. Little in the way of new drilling output even if you count North Dakota. The roads are falling apart in every state in the union, the power grid struggles when the temps rise or drop by large numbers and we have localities that run low on water in a drought. So we still can’t utilize our vast oceans and the Gulf to purify water, we have no additional available energy, cars still need gasoline and oil just like before, jobs are still being lost faster than they’re being created, big oil is still subsidized, and we can’t even come to an agreement on how to reduce government spending, at least on wasteful spending.

      The problem is definitely compounded by individuals paying down debt instead of spending. Decreased consumer demand further complicates the issue because it lessens the need for more jobs, contributing to the downward spiral.

      We need infrastructure. Moving from a reliance on oil is reason enough to use government spending to spur economic growth and create jobs. It could be the next big project like the national Interstate system if investment were heavy enough. We can’t get there without spending, taxing, cutting waste, paying down debt and innovating new technologies to move us away from oil.

  29. I cannot agree more with this article. It astonds me to see washingtons continued fiscal irrepsonsibility. borrow like crazy it’s someone elses problem down the road. the Obama adminsitration is on track to add more than 5 trillion to the deficit in just 4 years. The current deal gives them the ability to add 2.4 trillion to the deficit between now and next November. but remove 2 trillion from the deficit over the next 10 years. That still leaves an increase of .4 trillion and 10 years of new laws washington spending to increase it even more. This kind of irresponsibility is absolutely insane and will ruin this country if it does not come under control. They say tax the rich more that will help. Actually it won’t even come close helping. If you took every single penny the rich have they would still need more at the current rate of spending.

  30. Debt is a huge problem but we have a much larger problem. The biggest problem is that our political system has been hijacked by the Democratic and Republican parties, both of which are more concerned with game play than in the future of this country. Both of these organizations have caused more damage to the United States than Al-Qaeda could ever have hoped to. Our political system is corrupt from top to bottom and, more importantly, from left to right. The noble experiment begun by our founders has failed.

    • David, politics has existed in raucous fashion here in the United States since before the Civil War. A big part of what is wrong with the country right now is that everyone keeps insisting that we draw a point between two lines and call it centrist.

      Today’s Republicans are far-right extremists pared and culed over years of RINO-hunting. In contrast, today’s Democrats are a very expansive group with massively divergent views (having absorbed all of the so-called RINOs). That’s why a Democratic Congress under a Democratic President could do so little, and why a comparative handful of Tea Party Republicans can call the shots in the country.

  31. The use of the Keynesian philosophy in government spending is just a crutch that enables fiscal liberals to continue the tax-and-spend strategy…or, as we’ve seen in the debt ceiling fiasco, when taxes fall through, it becomes simply the “spend strategy”.

    The “period of discomfort” is just a crutch to enable the other crutch to remain operative when fiscal conservatives start saying, “Okay, we’ve kept spending to try to push our way through this, and we’re just digging a deeper hole. We need to cut back and try something else.” Anybody seeing a pattern here?

    Meanwhile, Obama just tosses in a shovel and tells Congress, “Great, now you just do what you do.”

    • Lefty, try thinking instead of just repeating AM radio talk babble. It might hurt a little at first, but eventually you may get the hang of it.

    • It’d be nice if we could get back to tax and spend. Unfortunately, both parties prefer to borrow and spend. Republicans add further tax cuts to the mix, then point to the old tax-and-spend claims to explain why their record should be ignored and how everything would be great if only we had Republican leaders.

      After 6 years of Republican control of government, did we have a balanced budget? A smaller government? Nope and nope. Yet amazingly, people like you buy into this time and again.

  32. The economy cannot grow without debt. The wealthy are not investing in real growth in the economy… the Regan theory. So growth in the economy has to come from government and debt.

    The central bank does not increase the money supply representing increase in value of the economy until after it detects growth. How can we then grow the value in the economy without debt… idiot. Thanks for your ignorant conservative thinking.

    Try suggesting that we take back the ability to print money from the FED. Inject money into “value” adding projects in the economy. That’s how you grow the economy without debt.

    Also what the hell became wrong with exploring other ways to get revenue for government from the economy. How about a transaction tax (sales tax) on every sale of financial instruments… stock, bond, derivatives. Why not charge the people who trade these instruments to support the culture that enables them to trade. We are the most enterprise enabling culture in the world. Why not charge the people who take advantage of that for the priviledge.

  33. “As far as the Obama administration is concerned, in my mind, this “team” has observed the creation of three “camels” on its watch. The first camel was the health care bill. The second was the Dodd-Frank financial reform bill.”


    The “first camel” was the unfunded Afghanistan War.

    The “second camel” was the unfunded Iraq War.

    The “third camel” was the unfunded Prescription Drug Program.

    THE WORST “Camel” was rescuing and bailing out YOUR sorry arses on Wall Street after YOUR October 2008 debacle.

    All four of these “camels” happened and occurred under the watch of George W. Bush.

    “Never can I remember, except maybe under President Jimmy Carter, a President that exhibited less leadership in such important areas.”

    You nailed THAT one right (although wrong “Leader”).

    Quit “predicting”…

    and start reading some actual History for a change.

    • WRONG. The first camel was when the Clinton administration robbed social security to create an illusion of a balanced budget and a surplus that didn’t really exist. That shell game will hurt Americans for many years to come.

      The rest of your camels are correct, just need to re-number your list.

  34. Great article Jason. I’m really hoping this “debt deal” is not the end all be all because it does nothing to cure the deficit and if the government doesn’t do that then yes are you absolutely right, in ten years the national debt will reach beyond $20 trillion. Two trillion dollars in cuts over the course of 10 years does nothing to solve our debt problem. I prefer the Mack Penny Plan that cuts spending by 1% every year for 6 years and also ends the automatic budget increase that happens every year.

  35. Leave it to wall street to complain about things it’s created . Banks and realtors over inflating house prices, creating complicated credit default swaps, betting against the mortgages they just sold and then blaiming poor people for not paying their complicated mortgages. then having the audacity to complain about not wanting to have regulations to stopping them from doing it again. add to this creating a culture of cheap credit and telling people to have everything they want and don’t worry about it just put it on your card. then instead of dealing with the wealth disparity which will eventually lead to an oligarchy, wall street says give the rich even more tax break so they can invest in the economy even though they’ve been sitting on 2,000,000,000,000 dollars in cash. the only thing thats trickled down from Reaganomics has been the laughter of the rich towards the suckers of the poor and middle class! CEO pay has gone from tens of times the average worker 2 hundreds of times the average worker. forget all that and just blame obama for the complete trainwreck left by the pro wall street GOP along with their WARS OF CHOICE! wall street then SAYS, “don’t give us what we want will just take our ball” and go overseas where we don’t have to contribute to society at all. to me that sounds an awful lot like extortion. republicans cry that’s class warfare . theirright that it’s not class warfare, ships since at least Reagan, wall streets been promoting economic genocide!!

  36. Both parties are addicted to the same drug – overspending! They have hoodwinked the entire country and world by claiming a small group advisors, known as the Tea Party, “made them spend money, they didn’t want spend”! this administration and are “fired”, they need to be voted out at the earliest and “term limit – one term” implanted the kick the riff raff out sooner!

  37. What a partisan article, unless you can show me a similar attitude towards 8 years of out of control spending by Bush then please write something that enlightens me instead of polarize me more towards the left.

    And by the way, perhaps the average middle class family would not have so much debt if they could earn a wage that at least kept up with inflation. So what you are saying, which any hard working middle class person busting their tail just to scrape by will already know, is that the rich have reaped 100% of the productivity gains over the last several decades and the accompanying wealth it creates while the average middle class chap has had to use debt to keep their standard of living from moving backward.

    And lets refrain from the condescending view that middle class folks went and spent all their money on flat screen tvs and expensive items – college, health care, energy, food and everything else we need to survive and improve our life has SOARED in cost; all while income has stayed flat and in many cases declined after taking inflation into account.

    So instead of partisan crap slinging why dont you talk about what Congress and not the left or right individually should do to bring back the middle class and an improving standard of living. Only someone living in a bubble should expect political stability in a society that is losing its middle class. There is no shortage of examples around the world.

  38. Great article. Say what you will about Jimmy Carter, but he was the last president that didn’t kick the can down the road. Peak energy and raw materials is what is causing all of this, and he wanted to fix that. The American people didn’t like it, so they elected Regan, and he tore the solar panels off the white house, and the can kicking continued. However, back then, the top 1% owned 13% of the wealth. Today, it’s 50%. History has taught us what transpires when this happens, and government is too corrupt to do anything about it. The worst case for the citizens has usually been wide-spread suffering. The worst case for leadership is the guillotine. Either way, things are headed towards collapse.

  39. I do not remember the previous two generations of my ancestors spending more than they earned. If they did not have the resources to purchase something then they did without. Not a tough way to live if that’s all you have known. Nowadays it seems to be considered abnormal or proverty behavior.

  40. A problem well-defined is half-solved, and the country’s debt problem is easily amenable to scrutiny. It is, alas, the exact same debt problem experienced by households who overspend.

    Excessive debt burdens originate from our collective inability to distinguish between what we need and what we want (or perhaps confusing the two), and then using borrowed money rather than saved money to buy the latter.

    This is a glaring failure of common sense, and it applies equally to households and governments.

    Borrowed money should only be used for the things we absolutely need, and then as seldom as possible, and then only if a good ROCE (payback) can justify the purchase.

    Bonds are nothing more than government’s way of obtaining spending money now from taxpayers of the future. Bonds both enable and encourage government to live beyond its means.

    “But,” you may protest, “aren’t they a nice safe instrument to have in a retirement portfolio?” Yes, but there’s a price to be paid.

    Stein’s Law (from Herb Stein, the economist), states, “If something cannot go on forever, it will stop.” Like the housing bubble, the internet bubble, and the tulip bubble, borrowing from future taxpayers cannot go on forever.

    Government indebtedness for war, pandemic or natural disaster is understandable. Government debt to pay for largesse or social programs is folly, a house of cards, and it will eventually collapse. Here’s the explanation:

    Einstein is credited with saying that the Power of Compound Interest is the eighth wonder of the world.

    This is another way of saying that money is magic; and the power of compound interest is the genie in the bottle that makes it magic.

    That genie can be our master or our slave, depending on whether we owe money and have interest working against us, or save money and have it working for us.

    The difference between the two has a name in economics: opportunity cost, the cost of the foregone opportunity to do things differently.

    Just as businesses cannot cost-cut their way to profitability, government cannot tax its way out of a recession; and nobody — nobody — can borrow their way out of debt.

    Unfortunately, there will never, ever be enough tax revenue to satisfy the political appetite.

    Gen. Chesty Puller said, “Men, we’re surrounded. This greatly simplifies the problem.”

    We are surrounded by ever-increasing attempts to live beyond our means, and the BushObama blowout of the federal budget over the past ten years is a perfect example. This greatly simplifies the problem.

  41. Mr. Mason – No one is buying this schtick anymore. The revisionist history, the playground-style finger-pointing, the rocks thrown by partisan spin doctors living in glass houses.

    It’s over. You and so many others are just preaching to your choir at this point. No one not already in your choir believes any of this garbage.

    The facts are the facts. Republican presidents and administrations share as much blame, if not more blame, for the current economic crisis, dating at least back to Reagan-Era tax cuts and his failing supply side, voodoo economics. Neither Democrats not Independents get a pass either. The only hope that we have as a nation is if we, the people, take back our government. How so?

    Term Limits. We need to eliminate the occupation of “career politician.”

    Balance Budget Amendment. Require a super-majority for deficit spending. Take the discretion out of it.

    Campaign Finance/Lobbying Reforms. We need to better “watch dog” special interests so that certain classes, industries, businesses, and individuals cannot enjoy preferential treatment.

    Raise Taxes. Eliminate the Reagan-Era and Bush-Era tax breaks OVER TIME, so as to restore tax revenues without stalling economic growth.

    Simpler Tax Code. Require all businesses and individuals to pay taxes on “income” as defined by the tax code (an accession to wealth from whatever source derived). Eliminate all tax deductions, exemptions, credits, abatements, deferrals, and preferences of every kind or nature. Eliminate the capital gain tax preference and tax this income as “ordinary income.” If everyone pays their fair share, without a preference, we can all pay less taxes (and probably “flatten” the tax rates)

    Foreign Policy Reform. We cannot afford to be “nation-building” or serving as the policeman for the world. We need to fine-tune our foreign policy and dramatically reduce the amount of “military spending.”

    Invest in Education. We sustain the American Dream and our Democracy only through a well-informed, well-educated electorate. Education opens those doors and opportunities.

  42. If you’re a Republican you say there’s a debt crisis. In reality there is a jobs crisis. And no business is going to hire without there being demand in the market. People don’t have money to spend because 10% of the population owns 75% of the wealth. Consumers don’t have any money. Unregulated capitalism results in the rich soaking up the wealth of the middle-class like a giant sponge. When you need money you go to the people with money duh. We need to tax the rich and a lot of them agree.

  43. No credibility here. This is a fantasy paper, crafted for super criminals to jack off to. Rupert is not your friend. In fact, he is a super criminal himself, whose greed knows no bounds. You drew me in with this insane hokum, Rupert. I’m here to stay until you and your ilk are all in prison.

  44. While I agree with your general premise, you malign Keynes by suggesting he said that governments should run deficits. What he did say, as a result of the great depression in the thirties, was that it was ok for governments to run deficits in order to replace private consumption during periods of economic slowdown. Of course, implicit in that was that governments would pay back that debt during periods of normal growth. It is this latter policy which has been conveniently neglected.

  45. GEE – John was spot-on on this article ….I definitely know what I am going to do… I am going to be like congress and spend money I don’t have and then expect all you tax payers to bail me out!!!!! I won’t have to work a day any more…. Please fund me because I will be on recess like our Congress. See you in September (maybe)

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