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http://www.bbc.co.uk/news/world-13906274
Is the US in denial over its $14tn debt?
For some light reading about the US National Debt, I'll refer anyone who cares to read it to the easy-to-understand Wikipedia article:
http://en.wikipedia.org/wiki/United_States_public_debt
The big graph I want everyone to see is this one:
This graph is fun. You can see the "best case scenario" projection as the black line. This line shows what would happen if the Bush Tax Cuts were all allowed to expire, the war in Afghanistan ended today, the Alternative Minimum Tax were extended as proposed, and most importantly, tax revenues magically increase from the historical 18% to an improbably 23%, which can only happen if taxes get raised a lot. The odds of which are roughly, AHAHAHAHAHAHAHAHAHAHAHA NO.
The "actual likely scenario" is the blue dotted line, which will happen if the Bush Tax Cuts continue in perpetuity, the war in Afghanistan continues, the AMT is not extended, and taxes fail to be raised. As you can see, the US is on a course which is entirely unsustainable. Other industrialized countries have economists which tell them that after you've increased the annual public debt to the point where it is 100% of GDP, in other words, the amount of money the country owes the world is now equal to the most common estimate of the total economic output of that country that same year, you cross a line between fiscally okay and fiscally REALLY NOT OKAY.
As of 2010, the US public debt as a percentage of GDP is 96.3%. For the record, Greece's public debt as a percentage of GDP is currently approaching 120% of GDP. The country with the world's highest debt-to-GDP ratio in the world is Japan, with a staggering 225% debt-to-GDP ratio. Yes, that Japan, the one which has been in nearly-continuous economic recession for nearly two decades now.
Here's another fun graph:
This one is fun because it considers the fact that the US, like most first-world nations, is facing an aging population and a great deal of mandatory government spending because there aren't as many young people being born as there are old people retiring. The US has several government programs that it spends heavily on, these are Medicare/Medicaid (health care) and Social Security. Because of the large number of people getting old, spending is growing at an entirely unsustainable rate. Unless Congress votes to dramatically curb health care spending, or privatize Social Security, this spending is regarded as mandatory.
As you can see, from current projections, assuming things continue as they have been going, between the years 2030-2040, the amount of mandatory spending will exceed government revenues (read: collected taxes). At this point, the US government could spend NOTHING except on health care and Social Security, and still be running a perpetual deficit.
Now, you might wonder who is busy quietly buying up US Government Bonds while the US Government is busy spending itself into a financial black hole:
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt
Currently the #1 holder of US Government debt is the People's Republic of China. Now, this has been going on for a long time, China only recently surpassed the UK as the largest holder of US debt, but they are continuing to dramatically increase their holdings of US debt even as the value of the US dollar sinks and sinks. Now, you might wonder why China is so busily hard at work becoming America's biggest creditor nation. It's actually a lot simpler than one would think, and it's the entire basis of the peaceful rise doctrine. China doesn't need to develop a massive (and costly) military force like the US has, all it needs to do is ensure that it has an economic lever to force other countries to do what it wants. If China were to suddenly become disinterested in buying up US Government debt, or better yet, start dumping its holdings on the open market, it would immediately cause economic instability in the US. In a sense, what China is doing is exporting finished goods to the US and trading those goods for US debt, and has been for decades now. The underlying principle of this exchange is as simple today as it has been for generations: if you owe someone money, they can make you do what they want.
Now the question you will all ask, if you even made it this far, is how much debt is too much? In other words, when will the US National Debt achieve a critical level, resulting in economic collapse, bankruptcy, and a worldwide Great Depression (except in China)? The answer is: nobody knows, because it's different for every country on Earth. Isn't that super? What actually happens is at some point, some external event occurs which casts doubt on a nation's government's ability to pay back the debt, plus interest, that is implicitly promised when somebody buy a nation's government's bonds. In the case of the current Greek Tragedy, at some point somebody in the EU poked their head up and wondered what was really going on in Greece. People started digging around, and of course what they found was pretty strong evidence the Greeks could not ever pay back what they owed, thus nearly overnight triggering the current crisis when everyone started downgrading the value of Greek government bonds to junk status.
This, then, is the basis of the Second Dark Age. If at some point someone pokes their head up and asks if the US Government can pay back it's rapidly increasing debts, and the answer changes from Yes to No, then the collapse of the American economy, and then from that the collapse of the world economy, and a Second Dark Age becomes suddenly probable. Nobody knows if and when this will be, but the Bush and Obama administrations were and are both running the debt up without any regards to the potential long-term economic consequences for the United States. Nobody pre-supposes that the US alone of all countries on Earth can run up debt forever and everyone will just accept it as a fact of life. The amount of debt the US now owes is reaching a point where major organizations which rate US Government Bonds are stating that they will have to consider reducing it's rating (currently "AAA", the highest possible) if the US can't get spending under control. Reducing the rating of debt is what started the chain reaction that led to the Greek Tragedy. It is also what triggered the subprime mortgage lending collapse a few years which required the highly publicized bailout of many US banks and the failure of several others.
Side-story:
Currently, there is a political game being played where the Republicans do not want to allow the "debt ceiling" to be raised. The laws on the books require Congress to approve any increases to the amount of public debt the United States can carry. It is usually routine for Congress to vote to increase this debt, however under the political pressure of the Tea Party, the Republicans are demanding spending cuts to bring the debt under control. In general, it's not a smart idea to play games with the debt ceiling because if it is not raised, the US Federal Government will suddenly be unable to meet immediate financial obligations, resulting in a technical default. A default of any kind, for anybody not paying attention to the current Greek Tragedy, would be tantamount to economic suicide for the US, since the whole reason the US is able to finance deficit spending is because foreign countries (mainly China, Japan, and the UK) constantly purchase enormous quantities of US Government Bonds (i.e. debt). If US debt suddenly became questionable in stability, in other words if anybody started doubting the US Government could not pay back the bonds it is issuing, plus interest, the whole house of cards comes crashing down. The result is collapse of the global economy, since all other nations' economies across the surface of the Earth are tied in and interdependent with the US economy. That being said, someone needs to smack President Obama across the face and ask him what the fuck he thinks he's been doing running up the debt the way he has been the past few years.
Is the US in denial over its $14tn debt?
For some light reading about the US National Debt, I'll refer anyone who cares to read it to the easy-to-understand Wikipedia article:
http://en.wikipedia.org/wiki/United_States_public_debt
The big graph I want everyone to see is this one:
This graph is fun. You can see the "best case scenario" projection as the black line. This line shows what would happen if the Bush Tax Cuts were all allowed to expire, the war in Afghanistan ended today, the Alternative Minimum Tax were extended as proposed, and most importantly, tax revenues magically increase from the historical 18% to an improbably 23%, which can only happen if taxes get raised a lot. The odds of which are roughly, AHAHAHAHAHAHAHAHAHAHAHA NO.
The "actual likely scenario" is the blue dotted line, which will happen if the Bush Tax Cuts continue in perpetuity, the war in Afghanistan continues, the AMT is not extended, and taxes fail to be raised. As you can see, the US is on a course which is entirely unsustainable. Other industrialized countries have economists which tell them that after you've increased the annual public debt to the point where it is 100% of GDP, in other words, the amount of money the country owes the world is now equal to the most common estimate of the total economic output of that country that same year, you cross a line between fiscally okay and fiscally REALLY NOT OKAY.
As of 2010, the US public debt as a percentage of GDP is 96.3%. For the record, Greece's public debt as a percentage of GDP is currently approaching 120% of GDP. The country with the world's highest debt-to-GDP ratio in the world is Japan, with a staggering 225% debt-to-GDP ratio. Yes, that Japan, the one which has been in nearly-continuous economic recession for nearly two decades now.
Here's another fun graph:
This one is fun because it considers the fact that the US, like most first-world nations, is facing an aging population and a great deal of mandatory government spending because there aren't as many young people being born as there are old people retiring. The US has several government programs that it spends heavily on, these are Medicare/Medicaid (health care) and Social Security. Because of the large number of people getting old, spending is growing at an entirely unsustainable rate. Unless Congress votes to dramatically curb health care spending, or privatize Social Security, this spending is regarded as mandatory.
As you can see, from current projections, assuming things continue as they have been going, between the years 2030-2040, the amount of mandatory spending will exceed government revenues (read: collected taxes). At this point, the US government could spend NOTHING except on health care and Social Security, and still be running a perpetual deficit.
Now, you might wonder who is busy quietly buying up US Government Bonds while the US Government is busy spending itself into a financial black hole:
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt
Currently the #1 holder of US Government debt is the People's Republic of China. Now, this has been going on for a long time, China only recently surpassed the UK as the largest holder of US debt, but they are continuing to dramatically increase their holdings of US debt even as the value of the US dollar sinks and sinks. Now, you might wonder why China is so busily hard at work becoming America's biggest creditor nation. It's actually a lot simpler than one would think, and it's the entire basis of the peaceful rise doctrine. China doesn't need to develop a massive (and costly) military force like the US has, all it needs to do is ensure that it has an economic lever to force other countries to do what it wants. If China were to suddenly become disinterested in buying up US Government debt, or better yet, start dumping its holdings on the open market, it would immediately cause economic instability in the US. In a sense, what China is doing is exporting finished goods to the US and trading those goods for US debt, and has been for decades now. The underlying principle of this exchange is as simple today as it has been for generations: if you owe someone money, they can make you do what they want.
Now the question you will all ask, if you even made it this far, is how much debt is too much? In other words, when will the US National Debt achieve a critical level, resulting in economic collapse, bankruptcy, and a worldwide Great Depression (except in China)? The answer is: nobody knows, because it's different for every country on Earth. Isn't that super? What actually happens is at some point, some external event occurs which casts doubt on a nation's government's ability to pay back the debt, plus interest, that is implicitly promised when somebody buy a nation's government's bonds. In the case of the current Greek Tragedy, at some point somebody in the EU poked their head up and wondered what was really going on in Greece. People started digging around, and of course what they found was pretty strong evidence the Greeks could not ever pay back what they owed, thus nearly overnight triggering the current crisis when everyone started downgrading the value of Greek government bonds to junk status.
This, then, is the basis of the Second Dark Age. If at some point someone pokes their head up and asks if the US Government can pay back it's rapidly increasing debts, and the answer changes from Yes to No, then the collapse of the American economy, and then from that the collapse of the world economy, and a Second Dark Age becomes suddenly probable. Nobody knows if and when this will be, but the Bush and Obama administrations were and are both running the debt up without any regards to the potential long-term economic consequences for the United States. Nobody pre-supposes that the US alone of all countries on Earth can run up debt forever and everyone will just accept it as a fact of life. The amount of debt the US now owes is reaching a point where major organizations which rate US Government Bonds are stating that they will have to consider reducing it's rating (currently "AAA", the highest possible) if the US can't get spending under control. Reducing the rating of debt is what started the chain reaction that led to the Greek Tragedy. It is also what triggered the subprime mortgage lending collapse a few years which required the highly publicized bailout of many US banks and the failure of several others.
Side-story:
Currently, there is a political game being played where the Republicans do not want to allow the "debt ceiling" to be raised. The laws on the books require Congress to approve any increases to the amount of public debt the United States can carry. It is usually routine for Congress to vote to increase this debt, however under the political pressure of the Tea Party, the Republicans are demanding spending cuts to bring the debt under control. In general, it's not a smart idea to play games with the debt ceiling because if it is not raised, the US Federal Government will suddenly be unable to meet immediate financial obligations, resulting in a technical default. A default of any kind, for anybody not paying attention to the current Greek Tragedy, would be tantamount to economic suicide for the US, since the whole reason the US is able to finance deficit spending is because foreign countries (mainly China, Japan, and the UK) constantly purchase enormous quantities of US Government Bonds (i.e. debt). If US debt suddenly became questionable in stability, in other words if anybody started doubting the US Government could not pay back the bonds it is issuing, plus interest, the whole house of cards comes crashing down. The result is collapse of the global economy, since all other nations' economies across the surface of the Earth are tied in and interdependent with the US economy. That being said, someone needs to smack President Obama across the face and ask him what the fuck he thinks he's been doing running up the debt the way he has been the past few years.
