Political Post-US Debt
I'm not really an economist. Far from it. I dabble in the subject in an attempt to learn more, and I like to think that I understand more than the average American out there. But let us not pretend that I am any great source of knowledge on this subject, because I'm not. What's more, this subject had been done thousands, tens of thousands of times across the internet. But I need something to post here, and this is the first one that is also very easy.
~The first part is where did this debt come from? The answer is simple. Lower revenues at some periods, and higher spending at others. At several periods, we have spent far more than our tax income was. These main periods were the 80s, early 90s, 2,000s, and now the modern 2,010s. During the 80s revenue as a percentage of GDP was initially lower than expected- not a lot, very little actually, but still a tad. Meanwhile spending was higher, due to a variety of factors such as a military build up. Large deficits over that period, and the early 90s resulted in unprecedented debt levels. Then, during the 90s as the massive internet boom happened, we experienced vastly increased revenue, at the end reaching over 20 percent of GDP, and reduced spending as a percentage of GDP. Although a surplus was generated at only a small fraction of the time, the amount of debt as a percentage of GDP declined sharply.
And then came the Bush Administration. With the bursting of the .com bubble, and the following recession, taxes as a percentage of GDP dropped. Meanwhile, spending, under various programs such as Medicare D and the military build up to counter the terrorist threat, grew. The resulting imbalance caused vastly increased deficits, which would continue over the rest of the Bush Presidency. Although taxes would begin to recover towards the end, the budget stubbornly remained in the red, both as absolute dollars and as our debate as a percentage of GDP.
And now, enter Obama. A massive financial crisis has hit the United States, and the world. Taxes dropped to a level not seen for over half a century. Spending increased to deal with the disaster. The result? Deficits over 10 percent of GDP, well over a trillion dollars. To interject a highly partisan tone into this, I personally believe such measures were warranted by the situation at hand, to try to contain the damage. The result as far as our debt goes was predictable though. Over the rest of the current Obama Administration, spending has dropped, and taxes have risen as a percentage of GDP- a natural rise, as par the recovery. Even still, the Federal deficit remains large, and it will grow again in the future once the "Baby Boomer" generation retires, with all of the costs associated with them.
http://www.ritholtz.com/blog/wp-content/uploads/2011/07/outlays-GDP.png
http://static1.businessinsider.com/image/4cfa47654bd7c86020620000-919-630/federal-tax-receipts-by-source-percent-of-gdp.png
~ Now though, is the critical thinking part. How do we solve this deficit? Obviously, either spending cuts, tax increased, or a combination of both are needed. Taxes are recovering as a share of GDP. Spending has fallen. However, bridging the gap would be hard if not impossible. Huge numbers of programs would need to be cut, taxes raised to high levels, the economy would plunge, and we would then end up again at square one. So therefor, overall it isn't truly possible to bridge the gap right now- except, we can reduce it through greater efficiency, judicious spending cuts, and some tax increases. The most obvious examples of both are for our two largest mandatory spending programs. Medicare, and Social Security. Social Security requires new revenue or decreased benefits. It is probably that at some point increased revenue will come to pay, with an increased level of caps for payroll taxes, while spending on the program may be cut via things like an increased age at some point (Up from 65 to say 67) or decreased growth in benefits. Meanwhile, Medicare will probably be increased in it's solvency through better drugs negotiations. Other programs like Medicaid may also be helped by the Affordable Care act if it works as intended. Other areas of reductions come in discretionary spending. The Military has seen a decrease in the growth of their budget over the next decade, while other programs may be cut.
In the end, it won't be possible to regain fiscal long term solvency without somehow managing to cause the economy to grow by a significant amount- and that, is somewhere where I can offer precious little input. However, something that all of this is ignores is the actual Problem of the debt itself. Specifically, the fact that as of now it isn't one. The United States operates under a Fiat system where it controls the value of it's money supply. Therefor, it is very hard to get it to default unless if political actions bring it down. If interest rates rise on this debt though (They are currently at very low levels) then there could be some rather high costs to pay indeed.
~The first part is where did this debt come from? The answer is simple. Lower revenues at some periods, and higher spending at others. At several periods, we have spent far more than our tax income was. These main periods were the 80s, early 90s, 2,000s, and now the modern 2,010s. During the 80s revenue as a percentage of GDP was initially lower than expected- not a lot, very little actually, but still a tad. Meanwhile spending was higher, due to a variety of factors such as a military build up. Large deficits over that period, and the early 90s resulted in unprecedented debt levels. Then, during the 90s as the massive internet boom happened, we experienced vastly increased revenue, at the end reaching over 20 percent of GDP, and reduced spending as a percentage of GDP. Although a surplus was generated at only a small fraction of the time, the amount of debt as a percentage of GDP declined sharply.
And then came the Bush Administration. With the bursting of the .com bubble, and the following recession, taxes as a percentage of GDP dropped. Meanwhile, spending, under various programs such as Medicare D and the military build up to counter the terrorist threat, grew. The resulting imbalance caused vastly increased deficits, which would continue over the rest of the Bush Presidency. Although taxes would begin to recover towards the end, the budget stubbornly remained in the red, both as absolute dollars and as our debate as a percentage of GDP.
And now, enter Obama. A massive financial crisis has hit the United States, and the world. Taxes dropped to a level not seen for over half a century. Spending increased to deal with the disaster. The result? Deficits over 10 percent of GDP, well over a trillion dollars. To interject a highly partisan tone into this, I personally believe such measures were warranted by the situation at hand, to try to contain the damage. The result as far as our debt goes was predictable though. Over the rest of the current Obama Administration, spending has dropped, and taxes have risen as a percentage of GDP- a natural rise, as par the recovery. Even still, the Federal deficit remains large, and it will grow again in the future once the "Baby Boomer" generation retires, with all of the costs associated with them.
http://www.ritholtz.com/blog/wp-content/uploads/2011/07/outlays-GDP.png
http://static1.businessinsider.com/image/4cfa47654bd7c86020620000-919-630/federal-tax-receipts-by-source-percent-of-gdp.png
~ Now though, is the critical thinking part. How do we solve this deficit? Obviously, either spending cuts, tax increased, or a combination of both are needed. Taxes are recovering as a share of GDP. Spending has fallen. However, bridging the gap would be hard if not impossible. Huge numbers of programs would need to be cut, taxes raised to high levels, the economy would plunge, and we would then end up again at square one. So therefor, overall it isn't truly possible to bridge the gap right now- except, we can reduce it through greater efficiency, judicious spending cuts, and some tax increases. The most obvious examples of both are for our two largest mandatory spending programs. Medicare, and Social Security. Social Security requires new revenue or decreased benefits. It is probably that at some point increased revenue will come to pay, with an increased level of caps for payroll taxes, while spending on the program may be cut via things like an increased age at some point (Up from 65 to say 67) or decreased growth in benefits. Meanwhile, Medicare will probably be increased in it's solvency through better drugs negotiations. Other programs like Medicaid may also be helped by the Affordable Care act if it works as intended. Other areas of reductions come in discretionary spending. The Military has seen a decrease in the growth of their budget over the next decade, while other programs may be cut.
In the end, it won't be possible to regain fiscal long term solvency without somehow managing to cause the economy to grow by a significant amount- and that, is somewhere where I can offer precious little input. However, something that all of this is ignores is the actual Problem of the debt itself. Specifically, the fact that as of now it isn't one. The United States operates under a Fiat system where it controls the value of it's money supply. Therefor, it is very hard to get it to default unless if political actions bring it down. If interest rates rise on this debt though (They are currently at very low levels) then there could be some rather high costs to pay indeed.
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