One of the great similarities of our economic downcycle and Japan’s two decade long journey to oblivion: both are periods of economic stress caused by private sector deleveraging — in which the government mitigates the resulting pain by borrowing and spending. Japan’s government has run up terminally large debts, on a gross basis equivalent aprox to 2x its GDP. We’re on the same path.
The private sector has too much debt. The process of working the debt down — by a combination of increased savings and defaults — reduces spending, causing a long, deep recession. The government mitigates the pain by tax cuts and increased spending — generating massive deficits, which it borrows. Private debt goes down, public debt goes up. It’s like heroin — effective, but deadly if used too long.
Experts continue to proposed solutions, as they have for decades. To no avail. The public refuses to understand the problem, with no interest in any but delusional solutions.
- Look at the numbers
- The public has its eyes closed, lost in dreams
- Another sensible proposal, fated to rot away ignored like all the others
- For more information, and an afterword
(1) Look at the numbers
In Q1 of 1994 government debt was 36.3% of total credit market debt, a long-term peak.
- State/local debt was $1.15 trillion (9.2%).
- Federal debt was $3.39T (27.1%)
In Q4 of 2007 government debt was 23.1% of total credit market debt, a long-term trough.
- State/local debt was $2.19 trillion (6.9%).
- Federal debt was $5.12T (16.2%)
Now, as of Q3 2009, government debt is 28.5% and rising fast — far faster than private debt is falling.
- State/local debt was $2.30 trillion (6.7%).
- Federal debt was $7.54T (21.9%)
(2) The public has its eyes closed, lost in dreams
From the Mid-June 2009 Omnibus Survey, Pew Research Center for the People & the Press:
The only category getting even a 1/3 vote in favor of cutting expenditures: Foreign Aid. Of course, other surveys show that many Americans believe that the government spends vast amounts on foreign aid.
|
Category
|
Increase
|
Decrease
|
No Change
|
Unsure
|
|
Education
|
67
|
6
|
23
|
4
|
|
Veterans Benefits
|
63
|
2
|
29
|
6
|
|
Health care
|
61
|
10
|
24
|
6
|
|
Medicare
|
53
|
6
|
37
|
4
|
|
Combating Crime
|
45
|
10
|
39
|
6
|
|
Help Unemployed
|
44
|
15
|
36
|
6
|
|
Environmental Protection
|
43
|
16
|
34
|
6
|
|
Energy
|
41
|
15
|
35
|
9
|
|
Military Defense
|
40
|
18
|
37
|
5
|
|
Scientific Research
|
39
|
14
|
40
|
7
|
|
Agriculture
|
35
|
12
|
41
|
13
|
|
Anti-Terrorism Defense
|
35
|
17
|
41
|
7
|
|
Foreign Aid
|
26
|
34
|
33
|
7
|
|
State Department
|
9
|
28
|
50
|
12
|
This reflects most America’s ignorance about our spending on foreign aid. From “A Study of U.S. Public Attitudes Foreign Aid and World Hunger“, Program on International Policy Attitudes (PIPA), 2 February 2001):
Just based on what you know, please tell me your hunch about what percentage of the federal budget goes to foreign aid. You can answer in fractions of percentage points as well as whole percentage points.
— Average answer: 24%What do you think would be an appropriate percentage of the federal budget to go to foreign aid, if any?
— Average answer: 10.0%Now, imagine that you found out that the US spends 1% of the federal budget on foreign aid. Would you feel that this is too little, too much or about right?
- Way too little: 13%
- A bit too little: 24%
- About right: 44%
- A bit too much: 8%
Survey results were weighted to the Bureau of the Census’s Current Population Study for education level and age.
(3) Another sensible proposal, fated to rot away ignored like all the others
- “Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt“, The Peterson-Pew Commission on Budget Reform, 16 December 2009
In the this report, the author calls on policy makers to stabilize the national debt through a six-step plan. Crafted over the past year by former heads of the CBO, OMB, GAO, and the congressional budget committees, the plan reflects a bipartisan approach to avoiding the tremendous global risks of America’s expanding debt, without destabilizing the economic recovery. Red Ink Rising is the first of two major reports to be released by the Commission.
(4a) For more information from the FM site
To read other articles about these things, see the FM reference page on the right side menu bar. Of esp relevance to this topic:
- about the Financial crisis – what’s happening? how will this end? – esp section 8, about solutions
- about the End of the post-WWII geopolitical regime
- some Good News about America!
Posts on the FM site about the government’s finances:
- Forecasts – Why wait? Read tomorrow’s news … today! (part 3), 17 July 2006
- The most important story in this week’s newspapers, 22 May 2008
- Debt – the core problem of this financial crisis, which also explains how we got in this mess, 22 October 2008
- A certain casualty of the recession: the US Government’s solvency, 25 November 2008
- We have been warned. Death of the post-WWII geopolitical regime, 28 November 2008
- Beginning of the end of the Republic’s solvency. Soon come the first steps to a reformed regime – or a new regime., 14 August 2009
- Update on our government’s deteriorating solvency, 1 October 2009
- Another crack in Republic’s foundations: not the size of the debt, but when it’s due, 30 October 2009
(4b) Afterword
Please share your comments by posting below. Per the FM site’s Comment Policy, please make them brief (250 word max), civil and relevant to this post. Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).