U.S. Debt: Are we maxed out?

-
The answer is no per Nobel Prize winner Paul Krugman. 

This is what the Democrats better be ready to talk about when they start asking for an increase in spending as part of a stimulus package.

Click Image To Enlarge
In 1933 the total debt-to-GDP ratio peaked at 300% and started to decline. In the 3rd quarter of 2009 the ratio was 370%. The question is can we raise it any higher without destroying the economy before the stimulus has a chance to stimulate. I don't have the answer; however, it would be interesting to hear from Paul Krugman and Robert Reich on the subject. (Please read Paul Krugman's response to worries about our debt.)

This is what happened to the consumer before the housing bubble burst. He maxed out his borrowing power as his net worth decreased because of the drop in value of his home and then his income dropped. He had no place to turn. Is that where the country is today?

Addendum August 6, 2011

Paul Krugman makes a good argument in the New York Times that in the short and medium term we do not need to over react to our high level of debt.
Books On Topic
Parties, Rules, and the Evolution of Congressional Budgeting   The Conscience of a Liberal  The Accidental Theorist and Other Dispatches from the Dismal Science

Comments

  1. AnonymousAugust 4, 2011 at 4:35 PM

    This is a chart of total debt - household, government, corporate. Government debt alone is less than 1/3 of the total.

    Households are trying to delever, so is the corporate sector, and it is mathematically impossible for all three sectors to delever simultaneously absent 1) inflation in the form of the govt printing money and giving it to people or 2) a massive increase in exports.

    ReplyDelete
  2. AnonymousAugust 5, 2011 at 12:42 PM

    This graph is VERY misleading. Keep in mind that households owe money to businesses, businesses owe money to each other, and the government owes money to many people and businesses within the US. Here is simplification of what this blog is saying:

    If Jane owes Joe $1,000 and Joe owes Bill $1,000 the total debt in this three person economy is $1,000; not $2,000 as this blog would suggest!!!!!

    ReplyDelete

Post a Comment

Popular posts from this blog

Keep Freedom on The Internet!

-
Image
Net neutrality under attack:   Don't let Verizon and Google dictate the future of the Internet. Contact the FCC! This post reflects a comment received from Common Cause. It is time to stand up with them and keep the internet free . As the Federal Communications Commission (FCC) considers how to write the rules to protect freedom and openness on the Internet,   who should they turn to: consumers like you and me, or the oligopolistic telecommunications companies?   Verizon and Google announced this week that they have it all figured out when it comes to net neutrality.* They unveiled a policy framework that would give telecom companies the right to speed up or slow down certain kinds of content, and to block outright  applications or content on wireless networks.
Read More

What Can Free Market Conservatives Do?

-
I am a free market conservative. I voted republican in every presidential election since 1968, except one. It is obvious that our government must live within its means and do so in a manner as not to interfere with a functioning free market economy. If we desire to take control of government, we must demand government carry out one of its primary functions; protecting free markets from tyranny, both public and private. We are vocal about defending it from public tyranny, but silent when it comes to tyranny in the private sector. “Experience should teach us to be most on guard to protect liberty when the government’s purposes are beneficial. Men born to freedom are naturally alert to repel invasion of liberty by evil-minded rulers. The greater dangers to liberty lurk in insidious encroachment by men of zeal, well-meaning but without understanding.” Justice Louis Brandeis 1928 Today our focus seems to be only on the tyranny of government when it comes to free markets. We need t
Read More

China And The Five Baits

-
Image
If you are under the age of 50 you should be concerned about China from an economic and global power standpoint. Some believe China is seeking peace with the rest of the world. Based on their long history, I am not convinced. For China long term is hundreds of years and for the United States it is the next election cycle. China's focus is always on the long term. Much of this post is drawn from a book,  On China , written by Henry Kissinger, the Secretary of State under President Nixon and a research paper of the National Intelligence Council titled  Global Trends 2030: Alternative Worlds . Whether the future will prove China's desire for peaceful co-existence depends on whether its middle class will sufficiently benefit from economic growth and not allow their leadership to throw it away by creating enemies with trading partners.  This requires the country becoming more democratic and less inclined to be a threat to the remainder of the world.  The jury is still looking
Read More