January 31, 2010
Federal Debt: The Time Series
Here is a graph of Federal debt held by the public, as a share of GDP, 1990-09.
Figure 1: Federal debt held by the public as a share of GDP. NBER defined recessions shaded gray; assumes last recession ended 09Q2. Sources: Series FYGFDPUN from St. Louis Fed FREDII, with 09Q4 data from CBO, and BEA, 2009Q4 advance release, NBER, and author's calculations.
Update 4pm 2/1/10: Since there is some confusion regarding the dates in the graph above, I've replotted the graph with dashed lines in Q4, and solid lines at Q1.
Alternate Figure 1: Federal debt held by the public as a share of GDP. NBER defined recessions shaded gray; assumes last recession ended 09Q2. Sources: Series FYGFDPUN from St. Louis Fed FREDII, with 09Q4 data from CBO, and BEA, 2009Q4 advance release, NBER, and author's calculations.
Update 7pm Pacific 2/1 Here are high frequency plots of the debt series.
Figure 2: Federal debt held by the public as a share of GDP, from FREDII (red square), from Treasury (blue line). NBER defined recessions shaded gray; assumes last recession ended 09M06. Solid line at 2009M01. Sources: Series FYGFDPUN from St. Louis Fed FREDII, from December 2009 Treasury Bulletin, and Macroeconomic Advisers (Jan. 15 2010 release), NBER, and author's calculations.
Detail of Figure 2: Federal debt held by the public as a share of GDP, 2008M10-2009M02, from FREDII (red square), from Treasury (blue line). Sources: Series FYGFDPUN from St. Louis Fed FREDII, from December 2009 Treasury Bulletin, and Macroeconomic Advisers (Jan. 15 2010 release), NBER, and author's calculations.
Update 8:20am Pacific 2/2. In response to Eric Swanson's remark about using potential GDP, here is the relevant graph.
Figure 3: Federal debt held by the public as a share of potential GDP (as measured CBO estimate of potential, interpolated from quarterly to monthly by quadratic match average), from FREDII (red square), from Treasury (blue line). NBER defined recessions shaded gray; assumes last recession ended 09M06. Solid line at 2009M01. Sources: Series FYGFDPUN from St. Louis Fed FREDII, from December 2009 Treasury Bulletin, and CBO (Jan. 26 2010 release), NBER, and author's calculations.
Posted by Menzie Chinn at January 31, 2010 09:35 PMdigg this | reddit
I hope you know that you should have written into your figure both the president and the party that controlled Congress.
Posted by: E. Barandiaran at February 1, 2010 02:28 AM
Nice idea. Why not go all the way and show the 200-year history? CBO reports typically have it.
Posted by: Dave Backus at February 1, 2010 06:29 AM
In the interest of equal time with economists who like to just quote what the "debt held by the public" is, here's the Real Time Debt Clock. The figures are quite different because they use total debt, which includes "intergovernmental borrowing". That's mostly from the Social Security Trust Fund and Federal Pensions. It does NOT include anything about unfunded future liabilities. The CBO and that little law about the debt ceiling say you have to include this borrowing because we haven't written these programs off yet. Party poopers.
So here it is:
We are at $12.3 Trillion at the moment, 86% debt to GDP, $113,000 per taxpayer, but we are supposed to be able to stick our grandchildren with that, so nothing to worry about there.
The debt ceiling was just increased to $14.3 Trillion and that will take us thru the end of 2010. Then we need to vote it up again.
Makes a great screen saver. I think all economists should have one.
Posted by: Cedric Regula at February 1, 2010 06:42 AM
Dave Backus: Didn't know CBO had the 200 year historical series on debt held by the public; I think the Millennial Statistics has the series, but I don't have access. Do you? As a partial compromise, I have graphed 80 years' worth of debt held by the public as a share of GDP, here.
Posted by: Menzie Chinn at February 1, 2010 07:16 AM
I looked up the underlying data and came up with different numbers. According to http://www.treasurydirect.gov/NP/NPGateway public debt on 2008/12/31 was $6.369 trillion. The St. Louis Fed value for public debt on 2008/12/31 is $6.373 trillion. The BEA states that 4Q2008 GDP was $14.347
Dividing the public debt by 4Q2008 GDP gives a ratio of 0.4442. Your chart appears to show a ratio of around 0.48 for the end of 2008. Given the scale of the chart, this is a material difference.
Posted by: Peter Schaeffer at February 1, 2010 07:34 AM
I have a related suggestion. Take a look at the public debt to GDP ration for the Hoover and Roosevelt administrations. If I remember correctly, the ratio rose rapidly under Hoover and was flat under FDR (until WWII). By contrast, the ratio has soared under Obama. Quite a contrast.
A crucial difference is that the economy recovered quickly under FDR and hasn't (so far) under Obama. FDR's deficits were also much smaller.
Posted by: Peter Schaeffer at February 1, 2010 07:39 AM
Separating out "intergovernmental borrowing" from the "debt held by the public" is a bit artificial, and tends to give the misleading impression that "intergovernmental borrowing" in some way nets out or is otherwise less problematic than "debt held by the public".
Most intergovernmental borrowing is debt the Treasury owes indirectly to the public through the intermediation of a federal pension agency. All intergovernmental borrowing has to be repaid, either from revenues or fresh borrowing.
As Obama ups his estimate for the FY2010 deficit to nearly $1.6 trillion (not including debt service), it's more than obvious that his "freeze" was only a fig leaf, and not even big enough of a fig leaf to cover what it was supposed to cover. Even ARRA critics acknowledge that it served a purpose in its first few quarters in countering the recession-shocked private sector's unwillingness to spend and invest. There is no such argument for further fiscal expansion. The private sector's problem now is not the aftershock of recession; it's problem is the looming inevitable withdrawal of unsustainably loose fiscal and monetary policy, combined with uncertainty about when and how they will be withdrawn. On one hand Obama is trying to assure that he understands that the deficit must be tackled. On the other hand he is trying to assure that there won't be any immediate pain because he's going to increase the deficit a bit more for a bit longer. What a disappointment.
Posted by: Tom at February 1, 2010 07:52 AM
There seems to be an error with the George W. Bush line. At the end of 2008Q4, the debt-to-GDP ratio should be 44.4 percent ($6.37T debt / $14.3T GDP). But in the figure you have graphed it as 48.2 percent, which is the end-of-2009Q1 number.
Posted by: Eric Swanson at February 1, 2010 11:04 AM
Don't worry, under Obama this will look like a mole hill the the Mt Everest of debt Obama has planned.
Whose in power makes no difference.
Posted by: Renter at February 1, 2010 12:19 PM
all that matters is that before 1981 every
president since WWII left a debt/gdp ratio
that was lower than the one he inherited.
Since 1981 every president with the exception
of Clinton left a debt/gdp ratio that was higher
than the one he inherited. It remains to be seen
how Obama will do although I'm afraid we're
past the tipping point and all actions are simply
band-aids to forestall the inevitable.
And since 1981 we've seen median income stagnate,
destruction of manufacturing, "service" economy,
Gini coefficient through the roof, "emerging"
"markets" (a.k.a. cheap manufacturing platforms),
longer and deeper unemployment, DJIA and S&P
indices based on vapor, etc., etc.
No wonder average Joe and Jane are drinking the
tea-aid these days. Where it will lead, it's
Posted by: 19.5yo at February 1, 2010 12:26 PM
Eric Swanson: The graph is correct; you're misreading the horizontal axes. The vertical lines are drawn at 2009Q1, 2001Q1, and 1993Q1.
Posted by: Menzie Chinn at February 1, 2010 02:21 PM
19.5YO, I think many forget some critical information that I think effected great changes in the way we have been compensated, 401K programs. Below is a brief history of their implementation.
The Employee Retirement Income Security Act of 1974 (ERISA) barred the issuance of Treasury regulations prior to 1977 that would impact plans in place on June 27, 1974, thereby freezing a regulation proposed by the IRS in December 1972 that would have severely restricted the tax-deferred status of such plans. This action inhibited the creation of some new plans. After Congress extended the moratorium deadline twice, the IRS withdrew the proposed regulation in 1978. ERISA also mandated a study of salary reduction plans that influenced 1978 legislation creating 401(k) plans.
1978⎯The Revenue Act of 1978 included a provision that became Internal Revenue Code (IRC) Sec. 401(k) (for which the plans are named), under which employees are not taxed on the portion of income they elect to receive as deferred compensation rather than as direct cash payments. The Revenue Act of 1978 added permanent provisions
to the IRC, sanctioning the use of salary reductions as a source of plan contributions. The law went into effect on Jan. 1, 1980. Regulations were issued in November of 1981.
1978⎯In December, the outside law firm for Hughes Aircraft Company recommends that the company begin the process of amending its savings plan to adopt the new 401(k) feature.
1979⎯Johnson & Johnson begins the process to adopt a 401(k) plan.
1979-1982⎯Several companies, Johnson & Johnson, FMC, PepsiCo, JC Penney, Honeywell, Savannah Foods & Industries, Hughes Aircraft Company, and Coates, Herfurth, & England (a San Francisco-based consulting firm) develop 401(k) plan proposals, many of which officially began operation in January 1982.
1981⎯The IRS issued proposed regulations on 401(k) plans that sanctioned the use of employee salary reductions as a source of retirement plan contributions. Many employers replaced older, after-tax thrift plans with 401(k)s and
added 401(k) options to profit-sharing and stock bonus plans. Within two years, surveys showed that nearly half of all large firms were either already offering a 401(k) plan or considering one. Dow Jones Industrial Average at year end:
1984⎯The Tax Reform Act of 1984 (TRA '84) modified the rules for 401(k) plans by, among other things, requiring “nondiscrimination” testing to ensure that contributions under tax-qualified plans do not discriminate in
favor of highly compensated employees by more than an allowable amount.
Taken from here: www.ebri.org/pdf/publications/facts/0205fact.a.pdf
Posted by: CoRev at February 1, 2010 02:26 PM
Very interesting graph. Yet more evidence that we had two recessions, the first starting in Dec '07 and being incredibly mild, the second starting in Sept '08, and being incredibly severe ("The Great Recession").
Posted by: Buzzcut at February 1, 2010 02:47 PM
I'd like to see that graph with something else added --------the maximum marginal federal income tax rate.
Posted by: Texas Reader at February 1, 2010 03:15 PM
Menzie: George W. Bush left office on 1/20/09. The data in your graph are end-of-quarter numbers. You are drawing the end of W's term as 3/31/09. (The debt-to-GDP ratio was 44.4 percent on 12/31/08, and 48.2 percent on 3/31/09.)
If you want to use monthly numbers, Treasury reports the deficit in January 2009 was $63.5B, which would put the debt-to-GDP ratio at 44.8 percent as of 1/31/09, substantially smaller than the 48.2 percent number your figure suggests.
The figure seems designed to be misleading.
Posted by: Eric Swanson at February 1, 2010 03:26 PM
According to http://www.treasurydirect.gov/NP/NPGateway the public debt of the United States was $6.307 trillion on the day Obama took office. By 2009/03/31 it had grown to $6.834 trillion. That's a pretty big jump in a little over 2 months. Of course, the growth in public debt from Inauguration Day to the end of 1Q2009 was largely a consequence of policies already in place. However, the same point could be made today or even a year from now. Like it or not, a President has to take responsibility for what happens on his watch, even if it is an outgrowth of circumstances and policies that predate him.
Stated differently, using 1Q2009 as the endpoint of the Bush administration just isn't accurate. 2009/01/21 would be correct. If that isn't feasible, 4Q2009 would be more appropriate.
Posted by: Peter Schaeffer at February 1, 2010 03:48 PM
The debt was higher in WW II but Americans owed Americans not foreign debt holders. During WW II, the USA confronted two heavily industrialized countries with massive, well-equipped armed forces. Strikes me as a good investment.
Fiscal priorities in the early 21st century have been driven by armed conflict that started with an attack by a few dozens individual enemies carrying box cutters and operating on a budget of less than $1 million. The seeds of these 9-11 attacks were planted in the Oslo peace accords that failed to put limits on Israeli settlement expansion. The more recent colonial conflicts in the Mid-East would likely fail ordinary cost-benefit tests.
Posted by: GNP at February 1, 2010 03:58 PM
Eric Swanson: Well, I didn't mean to be misleading, so I have put up an alternate graph. To me, it does not change the overall pattern. Does it change the bottom line you obtain? If so, then we must agree to disagree.
By the way, if we think about whether the debt at end of 2009Q1 should be at all attributable to Obama's policies, well I'd agree with you. But I don't (how much of ARRA was expended by end-09Q1?).
Posted by: Menzie Chinn at February 1, 2010 04:16 PM
Eric Swanson: I cannot replicate your calculations. I take end-2008Q4 FYGFDPUN at $6372651 million, add to that your $63.5 billion figure for January borrowing to obtain $6436151 million. I divide this by the January 2009 nominal GDP figure reported by Macroeconomic Advisers (Jan 15 2010 release) at $14137.576 billion SAAR, to obtain 0.455 for end-January 2009 debt/GDP ratio.
Posted by: Menzie Chinn at February 1, 2010 04:37 PM
Very interesting. I decided to follow up on this and compare the above chart to what happens to federal debt when different parties control congress (at the URL in my name).
It might be more interesting to use a similar analysis but see how each group changed the path of future debt relative to the expectations when they came to power. Among other things, this will catch Bush II's prescription drug spending. On the other hand, it would display parties in bad light when they had the misfortune to be in power during an unexpected downturn.
Posted by: Jeff Lonsdale at February 1, 2010 06:11 PM
Eric Swanson: the graph is very misleading because it relates the debt to presidencies where any high school student knows that taxation and spending are mainly the responsibility of Congress. And anyone able to read newspapers knows that during each of the presidencies in the graph the control of Congress has changed. You can relate the debt to the average temperature of each period and the relation would be as relevant as the one indicated in the graph.
Posted by: E. Barandiaran at February 1, 2010 06:31 PM
And the point is....?
I personally regard Clinton as the best Republican president since Coolidge: he balanced the budget, reformed welfare, and liberalized trade. A pretty solid legacy overall.
Bush was not the fiscal conservatives' favorite. Not by a long shot. But his deficit record is nothing exceptional. Debt at 36% of GDP is no big deal.
True, he ran up the deficit as the economy was crumbling. Obama has continued, and indeed, re-doubled the effort. I don't think there's too much controversy about using deficit spending to try to counter the effects of the recession.
Or are you taking an anti-Keynsian point of view? What's the takeaway?
Posted by: Steve Kopits at February 1, 2010 07:57 PM
Steve Kopits: Debt in December '08, using monthly data, was approximately 45%, not 36% (not sure where that number came from).
Posted by: Menzie Chinn at February 1, 2010 08:14 PM
"Separating out "intergovernmental borrowing" from the "debt held by the public" is a bit artificial"
More than a bit. The Social Security surplus is reducing the reported deficit, looking at it that way. We should add "debt held by the Fed" too as another category, but we will probably have to wait until economists think it's important. If you count wrong, there is always the printing press, remember.
A freeze is not a fig leaf. It's a promise to remain naked.
There is talk of a CRE bailout coming too. So much for budgets and Fed balance sheets. But we will have banking bonuses out of the way by then, so those people will be ok.
Posted by: Cedric Regula at February 1, 2010 08:26 PM
The root of the problems during Bush s terms is not recorded in the past public debt/ GDP ratio, but in the accrued losses not realized at his time and realized during Obama presidency.
To name few GM,Chrysler, banks and investment banks,private individuals,corporate. As often mentioned, the leverages of an economy is not a one day matter but losses are quite speedy.
Posted by: ppcm at February 1, 2010 09:59 PM
Menzie: I find these new high-frequency graphs very puzzling. Isn't the point of debt-to-GDP ratios to approximate a nation's ability to service and pay off its debt? High-frequency monthly fluctuations in GDP aren't very indicative of the U.S.'s overall ability to service its debt. Instead, you should use a lower-frequency measure in the denominator, like annual GDP or even potential GDP.
The CBO estimates potential GDP was $14.8T in 2008Q4, $15.0T in 2009Q1, and $15.4T in 2009Q4. That would put the debt-to-potential-GDP ratio at about 42.9 percent on 12/31/08, 45.5 percent on 3/31/09, and 51.7 percent on 12/31/09. Obviously, the numbers are projected to rise very quickly after that.
Clearly, Obama inherited a severe recession and the 2009 deficits are partly reflective of that. Nevertheless, much of the spending (e.g., $787B stimulus, now estimated by CBO to cost $862B) was enthusiastically enacted in 2009 with little regard as to how well-spent and "stimulatory" each item really would be.
In fact, $247B of Bush's deficit in 2008Q4 was for TARP injections of equity into banks, AIG, and the first $25B of aid to GM and Chrylser. The banks paid back at least $188B (plus a few $B extra to repurchase Treasury's warrants) of that to the Obama administration in 2009. That money is being counted as Bush "spending" and Obama "revenue" in all of the official numbers above. Just think how big the Obama deficits would be without that extra $188B boost to revenue.
Posted by: Eric Swanson at February 1, 2010 10:10 PM
Interesting that the Bush debt/gdp ratio takes off like a rocket at about the time the Dems take control of Congress.
Next, Menzie will be telling us that all spending legislation is passed by the President.
Posted by: Blowback at February 1, 2010 10:13 PM
Then there is the small matter of Uncle Sam's SIV.
True, the portfolio is not a complete loss (yet), Maybe our 3% down, 570 credit score, tax credit funded new FHA buyers will absorb some of the underlying assets, at a sizeable discount of course, but the corporate shares should be written down to nothing.
from Zero Hedge:
Obama's Budget Has One Small, Missing Piece.... For $6.3 Trillion DollarsSubmitted by Tyler Durden on 02/01/2010 21:32 -0500
Today, to much fanfare, the administration released its ridiculous $3+ trillion budget (we say + because at that size the one thing certain is that the budget will certainly never hit the target and while we wish it would be lower, we are certain it will end up materially higher), which consists of a "short" 192-page summary section and a 1420 page appendix. We are confident that not one politician will read the whole thing from cover to cover. We won't either. Not because we don't care about what's in it, but because we are much more concerned with what is not included, namely $2.8 Trillion and $1.9 Trillion of MBS guaranteed portfolios at Fannie and Freddie, and an additional $782 billion and $809 billion in company debt outstanding for the two GSEs, respectively. This amounts to a total of $6.3 trillion in liabilities which should be counted toward the budget. And yet, oddly, the error-checker somehow made this rather justifiable omission: after all if we were to look at a number which written out looks as follows $6,264,000,000,000.00, we would also probably just avoid it - it is somewhat difficult to hide a number that big even in the 1,420 pages of the budget's appendix. That's ok, we are here to remind them about the omission, and also to remind Mr. Orszag, who himself, in that long ago 2008, espoused that these companies should be put on the Federal Budget. Isn't it strange what one and a half years worth of realizations just how broken beyond repair the system is, will do to one's convictions?
Posted by: Cedric Regula at February 2, 2010 04:22 AM
I hope that people who see this graph will click on the ST. Louis FED link. The compressed nature of this graph give a much different inpression from the expanded graph at the FED.
Posted by: RicardoZ at February 2, 2010 05:22 AM
A simple ratio of Federal debt to GDP can be very misleading.
GDP = C + Inv + G + (eX-iM)
If GDP is significantly composed of C the ratio will be measuring a totally different thing than if GDP is significantly composed of G.
We know that 3rd QTR 2009 was composed of about 90% stimulus spending. Compare 2009 4th QTR where Personal Consumption plus Domestic Investment was 84% with Government Expenditure at 21% to 1995 where Personal Consumption and Domestic investment were 83% while Government Expenditures were 18.4%.
Posted by: RicardoZ at February 2, 2010 05:58 AM
Oops. Try again.
Conponents of GDP
2009 4th qtr
Personal plus Investment 83%
1995 4th qtr
Personal plus Investment 82%
The problem with aggregate accounting is that it misses the essentials such as the increase in Government expenditures in GDP.
Posted by: RicardoZ at February 2, 2010 06:04 AM
It would be interesting to also see a line for intergovernmental debt. I'm curious to the extant to which the SS trust fund may have maked the cost of debt service. To some extant the debt service on "held by SS trust fund" and "held by the public" are both a drag on current taxpayers, even if they don't affect the bond market's appetite for Treasury's the same way.
Posted by: Jim A. at February 2, 2010 08:28 AM
Eric Swanson: I presented the monthly data because I wanted to highlight the fact that using end-2009Q1 vs. end-2008Q4 data, or end-2009M01 vs. end-2008M12 data, did not matter. The updated data on potential released with the January 2010 Budget and Economic Outlook indicates 2008Q4 nominal GDP at $14991.1 billion, not the $14.8 trillion you report. I have presented the normalized series using the latest CBO estimates of potential in Figure 3. Once again, I do not see how the contours change, although the recent levels of ratios do.
Posted by: Menzie Chinn at February 2, 2010 08:52 AM
"It would be interesting to also see a line for intergovernmental debt. I'm curious to the extant to which the SS trust fund may have masked the cost of debt service"
Me too. Last I heard, the surplus goes to zero in 2016. I think back in 98-99 it was large enough that it made the much celebrated Clinton surplus really a deficit again, if backed out, and here we have another case of mass numerical induced delusion.
Even worked on Greenspan, and he went to Congress (once Bush was safely sworn in) and warned them of the terrible danger of running out of treasury bonds to trade. The rest is history.
But the good news for taxpayers is current interest paid on the "non-marketable treasuries" held in the trust fund is fixed, and always has been, at 2%.
The bad news for the long term health of the fund (besides demographics, but we "fixed" that in 1983, with Greenspan chairing the working committee) is that it is COLA adjusted to the inflation rate which has been usually quite a bit higher than 2%. So we are inflating out of our retirement program. But this is often considered a good thing by economists.
Maybe Menzie can explain, because I still don't get that one.
But at least old people can do free drugs.
Posted by: Cedric Regula at February 2, 2010 09:29 AM
I meant that the spending under Bush accelerates after the start of the recession. Assuming you're starting the recession in Dec. 07 (ie, the gray-shaded region), the spending acceleration occurs sometime during in the middle of '08, ie, it was recession-related. There were certainly no new big spending programs at the time. No new war, no new drug bill. There was the surge in Iraq sometime around then, but that wouldn't big enough to be the explanation.
The deficit, prior to the recession, went up modestly under Bush. OK, I would have been happier had it gone down. So, good ahead and criticize Bush, but unless you're arguing against the counter-cyclical spending in '08, I don't see what the whole issue is.
Yes, chickens may have come home to roost under Bush. Some of these were old chickens, like the auto makers. Alfred Sloan warned of the power of unions more than half a century ago. We knew in the 1970s that the Big Three were ticking time bombs. So Bush is no more or less culpable than his predecessors.
Bernanke should have shut down the housing market is late '06 or early '07. Bush should have supported him. Neither pulled through. Nor was AIG properly regulated, nor Freddie or Fannie. Some of these issues related to the Clinton administration; some were not corrected by Bush.
So, yes, blame Bush. But is the issue the deficit, or the underlying source of the borrowing? Given that AIG was going down, are you suggesting that it shouldn't have been bailed out? You can argue that case (if you have an appetite for risk), but it's one full step removed from the deficit.
Posted by: Steve Kopits at February 2, 2010 01:50 PM
Is everyone aware that Social Security receipts will be $28 billion less than expenditures? The government has been playlng a game with Social Security for years using the surplus to fund deficit spending. That scam is now over. The Social Security surplus no longer exists. Our government has finally spent to the point where we have nothing left to cover their foolishness.
The Obama deficit is not a game. It is serious and deadly.
Posted by: RicardoZ at February 2, 2010 03:28 PM
Pre-crisis I heard the surplus would keep going until 2016. Lately I heard receipts are less due to unemployment of course, and also early retirees taken the 62 option.
But I didn't know it went negative already. Where can we find the numbers?
Posted by: Cedric Regula at February 2, 2010 04:18 PM
"The Obama deficit is not a game. It is serious and deadly."
Posted by: Babinich at February 2, 2010 06:56 PM
Social Security could be next to need a bailout
By Allan Sloan
Tuesday, February 2, 2010
Don't look now. But even as the bank bailout is winding down, another huge bailout is starting, this time for the Social Security system.
A report from the Congressional Budget Office shows that for the first time in 25 years, Social Security is taking in less in taxes than it is spending on benefits.
Instead of helping to finance the rest of the government, as it has done for decades, our nation's biggest social program needs help from the Treasury to keep benefit checks from bouncing -- in other words, a taxpayer bailout.
No one has officially announced that Social Security will be cash-negative this year. But you can figure it out for yourself, as I did, by comparing two numbers in the recent federal budget update that the nonpartisan CBO issued last week.
The first number is $120 billion, the interest that Social Security will earn on its trust fund in fiscal 2010 (see page 74 of the CBO report). The second is $92 billion, the overall Social Security surplus for fiscal 2010 (see page 116).
This means that without the interest income, Social Security will be $28 billion in the hole this fiscal year, which ends Sept. 30.
Posted by: RicardoZ at February 3, 2010 06:46 AM
Menzie said: "But I don't (how much of ARRA was expended by end-09Q1?)." And that is another of those truly brilliant political decisions by this administration. Why did they let unemployment get as high as it has without reacting? Why did they extend and deepen the pain of unemployment caused by their ill suited, ill conceived, and worse implemented stimulus? Why are we forestalling stimulus to election years instead of front loading to move the economy?
I hope y'all realize how transparently political this budget bill, ARRA (and several others) are to the average voter.
Posted by: CoRev at February 3, 2010 07:35 AM
Thanks for the link to the 80 year chart. I am sure we can all agree the worst economic times over the last century were the 1930s, 1970s and 2000s. All those periods saw a dip in the debt to gdp ratio below 40%. If govt debt is such a bad thing, then why is it the economy performs poorly when the ratio is low?
My next question is: we came off the gold standard in 1971, how much longer will it take mainstream economist to learn and start teaching a fiat money system with floating exchange rates?
Posted by: markg at February 3, 2010 03:15 PM
Obviously the best way to reduce the per capita debt is to encourage young people to have more babies!
Posted by: SG Hammer at February 4, 2010 06:11 AM
menzie's usual slanted statistics. Direct from the govt http://www.treasurydirect.gov/NP/NPGateway. Shows during Bush years total debt went from 5.6T to 10.6T. Since Obama, 10.6T to 12.3T with a current year increase to 14.3T.
Menzie (Keynes) believes the cure is the disease, spend our way out of too much spending. Watch when sovereign rating goes to AA and unemployment still 10%. Menzie will say that was Bush's fault just like Obama. Look at Bush tax cuts; raised revenues. Problem was too much spending. We are repeating without the revenues.
Posted by: tim kemper at February 4, 2010 06:03 PM
tim kemper: The statistics are the statistics. Could you please elaborate on how they are "slanted". Are you taking issue with the St. Louis Fed series, the Treasury Bulletin series, the BEA or Macroeconomic Adviser series, the CBO series, or my normalizing by GDP?
Posted by: Menzie Chinn at February 4, 2010 06:32 PM
Just using debt held by public is inaccurate with respect to fed borrowing. Also, it sounds like Congress is now proposing payroll tax credits for hiring as I proposed earlier for reducing unemployment as govt spending is not more than a 1.0 multiplier that will increase employment. I believe you said that even CBO showed more than a 1.0 multiplier. Than why is unemployment getting worse with all the supposedly stimulative govt spending? Is it that "compare to baseline" you like to propose? I think you need to remediate your Keynsian ways. Wait until tomorrow with the release of employment data. Will you admit you are wrong if we have continued to shed jobs?
Posted by: tim kemper at February 4, 2010 07:44 PM
Obviously, running budget deficits year after year is not sustainable. But a larger debt to GDP ratio, if the budgetary deficits addiction is ever conquered, isn't necessarily crippling. For one, there is something to be said about the US being opportunistic in financing current expenditures with 30-year bonds that pay out 4.5% fixed interest. A nice kick up in inflation to 6% levels and a fall in value of the dollar will shrink the debt fairly quickly, no?
Posted by: Mark D. at February 4, 2010 08:06 PM
tim kemper: You criticize a data choice for a given variable but offer no alternative.
Posted by: GNP at February 5, 2010 08:15 AM
I'll give a shot in theory, but I don't get paid for doing this, so I'll leave the data accumulation to someone else.
First, we need to define the purpose of the data. There are two choices as I see it.
1) Provide data fodder so we can practice our Excel spreadsheet skills.
2) Provide data that tracks some accepted financial notion.
(1) Is nicely met by this data series, so I'll focus on (2). Let's say we want something that resembles a corporate income statement and balance sheet. Lets also assume its one that Sarbanes might like.
Then, at a minimum, we would need to add in "intergovernmental debt", which even the CBO says we have to do, at least until we cancel social security, not to mention congress and military pension funds.
Next comes the sticky part. The government has become an investor lately, and I'll call that part of the balance sheet Uncle SIV. (Sam's Investment Variable) Here we have the Fed balance sheet (see..they have one) and the Fannie, Freddie and FHA subsidiaries of the Treasury (implicit holding company guarantee).
Since these are not all spending yet, they have some value as an asset, but they also have unrealized losses (the corporate bonds), and also maybe mark-to-market accounting should apply to place a current value on the assets. (on a good day the market may give us an estimate of future foreclosures)
So that would be a big step in coming up with a balance sheet.
I guess we use GDP as the income statement. Maybe have a GNP alternate presentation.
Then we can divide the two and make Excel charts. One problem is mark-to-market will constantly change the data series and our view of government stability, but hey, no one said this has to be simple.
Posted by: Cedric Regula at February 5, 2010 09:31 AM
"Interesting that the Bush debt/gdp ratio takes off like a rocket at about the time the Dems take control of Congress."
Mostly because of a fall in tax revenue when unemployment started to rise. Corporate tax revenue down 55% and individual tax revenue is down 22%.
Posted by: Jerry at February 14, 2010 03:56 AM
The government doesn't tax too little, it spends too much.
Posted by: Gary at February 24, 2010 07:59 PM