CRS Recommendation: The National Debt
A Stitch in Haste recommends the following report from the Congressional Research Service:
Its Size and Economic Significance
An excerpt:
In the short run, growth in the public debt affects the composition of economic output. Federal government borrowing adds to total credit demand and tends to push up interest rates. Higher interest rates increase the cost of financing new investment in plant and equipment and thus may tend to reduce the stock of productive capital below what it might otherwise have been.In the long run, the relationship between the growth rate of the federal debt and the overall rate of economic growth is critical to financial stability. As long as the debt grows more rapidly than output, the ratio of debt to gross domestic product (GDP) will rise. Perpetual debt growth in excess of economic growth is an inherently unstable situation. Whether or not the debt-to-GDP ratio is on such a path depends on the budget deficit, the rate of interest, and the rate of growth in GDP.
The debt-to-GDP ratio is currently rising — and this “inherently unstable situation” is occurring in a “Goldilocks economy” where inflation and unemployment are relatively low and general economic conditions are optimal. If the economy slows down, let alone goes into recession, the debt-to-GDP ratio will almost certainly skyrocket and then things will really become “inherently unstable.”
Also, the report explains the difference between “total federal debt” and “public holdings of federal debt.” The different is, for the most part, the fraudulent Social Security “trust fund.” That “trust fund” — the “debt not held by the public” — will most likely simply metastasize into “debt held by the public” starting around 2017 when Social Security ceases to run a surplus and goes into deficit. The government will simply issue public debt to “pay off” the non-public debt owed to Social Security (either that, or the government must drastically raise taxes or drastically cut promised benefits — neither of which are likely). So it’s actually disingenuous not to treat the “total federal debt” as the “true debt,” for it will indisputably become the “true debt” soon enough.
The 15-page report discusses this fact and provides other interesting information, such who exactly among “the public” holds all that “federal debt held by the public,” including a breakdown of foreign holdings of our national debt. A good primer.
Previous CRS Recommendations:
Restricting Video Game Sales to Minors
Warrantless Wiretapping
Foreign Holdings of Public Debt
China’s Internet Censorship
Summary of Rumsfeld v. FAIR
Similar Posts:
- CRS Recommendation: Foreign Holdings of Public Debt
- Defining “Balanced Budget” Down
- Brother, Can You Spare $350,000?
- Social Security: Doomsday Comes a Year Earlier
- Another Year, Another Raise of the Debt Ceiling
Filed under: Uncategorized
"If the economy slows down, let alone goes into recession, the debt-to-GDP ratio will almost certainly skyrocket and then things will really become "inherently unstable."
Good. Then maybe real estate will be reasonably priced here in NYC.
"So it's actually disingenuous not to treat the 'total federal debt' as the 'true debt,' for it will indisputably become the 'true debt' soon enough."
It's not indisputable…just (as you admitted one sentence before) very likely. It remains within the legal authority of Congress to repudiate the "trust fund", and thereby indirectly repudiate that debt through the same accounting fiction that created the trust fund in the first place. As individual human observers of the political situation, we know this is not going to happen. But institutionally, it would be irresponsible for CRS to write its reports based on the assumption that it _can't_ happen, because it _can_…even though it _won't_.
It's politically certain that "trust fund" debt will eventually be either paid off with higher taxes or exchanged for the ordinary kind of debt which can't be repudiated (even indirectly) by Congress without first amending the Constitution. But it's not yet a _fact_…merely a _prediction_ in which any competent observer of politics can and will have an extraordinary degree of confidence.
Is the U.S. Economy in Trouble?
The growing debt/GDP ratio is not a good sign. (for more, see Kip Esquire)