Mercury Rising 鳯女

Politics, life, and other things that matter

Debt burden continues to decline under profligate Democrats

Posted by Charles II on November 29, 2012

First, household debt:

(Image from Quartz, via Barry Ritholtz)

Now, that’s pretty easy. If the bank forecloses on your house, your debt is extinguished. This is not really the kind of debt decline we’d like to see. But actually the federal deficit has been falling since the end of the recession.

(image from FRED)

So, yes, at 8.6% of GDP as of 2011, the deficit is too high. As more people go back to work, the payroll tax holiday goes away, and the wealthy are cajoled into paying a little more in taxes, the deficit should drop swiftly… it’s already down from the 10.1% of GDP achieved by Dubya Bush in fiscal year 2009 (ending in October 2009, and therefore preceding almost all of the stimulus spending, contrary to what James “Dow 36000″ Glassman thinks, only 22%–$33B– had been spent, most in the form of a special payment to Social Security recipients).

The magic number is about 3% of GDP. As long as the deficit remains under that limit, the debt burden will not rise, since it will be within population + productivity growth. Notice which presidents achieved that level of deficit or better.

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5 Responses to “Debt burden continues to decline under profligate Democrats”

  1. KevinM said

    Title is ass backward. Government debt, which politicians control, continues to mount. Private debt is declining. It would be nice that the annual government deficits are getting smaller if the change were significant, but as your second chart shows it is not significant.
    Also I would not pin the big fail on either party. They appear to be complicit in their efforts to destroy the present financial system (in order to rescue it).

    • Charles II said

      Kevin, the rate of decline (slope) is essentially the same as that observed under Clinton.

      The budget is a very big ocean liner. It does not turn on a dime.

      And, as I said, “As more people go back to work, the payroll tax holiday goes away, and the wealthy are cajoled into paying a little more in taxes, the deficit should drop swiftly.”

      Added: Dean Baker makes this point even more forcefully here

  2. KevinM said

    A better metric for judging debt danger might be interest payments as a percent of revenue collection. Ultimately that is what could bring the status quo down.

    • Charles II said

      A complete red herring. See Summary Fig I, Deficits.

      Tax policy is the major issue driving the deficits.

      A substantial amount of debt service payments go into the Social Security trust fund and therefore help to maintain its solvency. All interest payments are $360B as of 2012. Yes, it’s a lot of money. No, it is not breaking the bank, at least, not yet.

      • Of course, if we actually a) taxed corporations and rich people at the same rates as we did in the 1940s, and b) made them pay taxes, there would be no such thing as a Federal deficit. We would all also be a lot better off.

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