November 15, 2004
Federal Debt Limit
The federal government is at its debt limit of $7.384 trillion dollars. That is, the government can no longer take on anymore new debt according to federal law. Is this something to worry about?
If the worry is that the government wont be able to issue new debt and meet its obligations no need to worry. In the last 64 years Congress has voted 80 times to increase the debt limit. No politician is going to risk not being able to bring home the bacon due to a debt limit.
Is there any reason to be worried about the debt from an economic perspective? That is a harder question to answer. Government debt means that at some future point taxes will have to be raised to pay for it (unless economic growth and hence growth of government tax receipts manages to outstrip the growth in spending). However, from a historic perspective the debt level isn't that out of line. In looking at other countries it is again fairly typical if not on the low side (France has a little less public debt and Germany a little more).
Overall it is hard to tell what the debt limit and the current levels of debt mean for the economy. The debt is below the levels seen in the late 1980's and early 1990's, but it is higher than in the late 1990's, but only slightly so. So it isn't clear we need to be worried about this like some on the Left.
Posted by Steve at November 15, 2004 11:06 AMWhy can't these idiots realize that we are far UNDER that debt limit, in inflation-adjusted dollars, and that is the ONLY legitimate way to count large sums like this?
Steve, where is your outrage here?
Posted by: sofla on November 15, 2004 11:21 AMHe's back!
Posted by: Ron on November 15, 2004 11:25 AMThe debt limit is set in nominal dollar terms Sofla. Sheesh.
Posted by: Steve on November 15, 2004 11:54 AMYes, Steve, that is true. Rather like the way nominal figures are often used to decide when records are made or broken.
Posted by: sofla on November 15, 2004 01:32 PMNope, wrong yet again Sofla. Not at all like the way nominal figures are used for records. The former is a legal monetary amount for which an unambiguous albeit arbitrary standard is required, the other are misleading comparisons.
Posted by: Robin Roberts on November 15, 2004 07:11 PMOddly, since it is specified in nominal terms, depending on how long it takes until it is reached, it can be a range of 'real' values, yet it is agreed that the nominal value will be the deciding factor, regardless of its real value.
Perhaps that's the factoid to take away from this exercise. It doesn't matter what the real value of the total debt is, because this artificial 'constraint' on spending is, of course, nothing of the sort, as it is routinely extended once approached.
Indeed, should it not get done on time, the Treasury just plays games with the internal trust fund accounts, in breach of the very idea of a debt limit.
Currently the Debt is 60% of GDP (constant dollars numbers all from the treasury department) Not exactly the high water mark (since 1960), but it is almost twice the debt to GDP ratio (33%) that Reagan ran on in the 1980 campaign against Carter. The high water mark for debt to GDP ratio was 1995 right after the Republicans took congress and the economy started to sizzle. The downward trend continued until 2002 and has been going up since then and currently stands at a smig over 60%. Unless there is some real significant revenue increases and GDP gets over the 5% growth mark the debt to GDP ratio will not retreat in 2005.
So I guess all it will take to get it back down is a long, unprecedented bubble economy. But there is no need to worry Bush's fical sanity has won the day and I'm sure it will get figured out soon.
Posted by: Rick DeMent on November 17, 2004 04:33 AMThe answer to whether it is a concern is obviously, yes, given the trajectory of the baseline to add another 4.2 trillion in debt in the next 10 years, just in time for the beginning of the doubling of the 40 million beneficiaries of SS to 80 million and the need for additional tax revenues dedicated there.
$400 billion annual deficits as far as the eye can see, and a push for further tax cuts, likely to pass our one-party government, is a recipe for fiscal ruin.
Posted by: sofla on November 17, 2004 11:49 PMOf interest, the debt limit was reached in October. Rather than reveal that prior to the election, Sec. Treasury Snow juggled the books to de facto violate the prior debt ceiling law.
Posted by: sofla on November 17, 2004 11:53 PM