Bush's deficits and the coming crunch.

[DanS]

Originally posted by KrazyHorse
Attached excel spreadsheet shows an economy starting at debt 40% of GDP, running at 3.5% growth rate in economy, deficits of 3.5%, debt service rate of 2.7%, running for 50 years

Furthest right column shows the size of the deficit above and beyond debt service charges as a percent of GDP. This number is asymptotically approaching the difference between the growth rate of the economy and the debt service rate, i.e. 0.8%

FYI, you should be showing the nominal growth rate, which is long-term about 5 - 5.5%. This year in the US, it's more like 6.5%.

[KrazyHorse]

True dat. Slipped my mind.

[KrazyHorse]

Though I didn't say that the spreadsheet was about the US, did I?



It's just some country where all the numbers are about the same.

[DanS]

I think your demonstration was instructive. My modification just shows that a country can run even larger deficits without debt being an ever-increasing burden for their children.

That said, my inclination is to fight for roughly balanced budgets. I think it's easier for governments to run balanced budgets than they let on.

[KrazyHorse]

The only problem there is that while it is true that a long-term deficit rate above the steady state level (in the case of the US this is ~0.4*0.055 = 0.022 = 2.2%) is compatible with a sustainable debt level, it must be noted that deficit outside debt service does go down over time. It doesn't approach zero, but it does decrease. That means that to maintain a steady deficit the government is constrained more in its revenue/expenditure decisions as time goes on. Also, as indebtedness increases as a percent of GDP the debt service cost will possibly also increase, as creditors have less appetite for US gov't paper.

[The Mad Viking]

Thanks for the spreadsheet, KH, it makes it much easier to see what you are saying.

What bothers me are the assumptions.

I would argue that the 2.7% debt service is a bogus number; how do you arrive at it.

Using the Treasury Departments figures, interest expense of $353B on $8.03T debt gives you 4.4%.

Grwoth of government revenues are not directly tied to GDP, are they? How much revenue is earned on government expenditures? Do you earn the same % revenue on investment as you do on consumption expenditures? Don't you earn more revenue on imports (which are not part of GDP) than on exports?

DanS, what is the difference between the 3.5% that a poll of 31 econmists suggested, the 5 to 5.5% figures that are a more-or-less historical over the past 3+ years, and your nominal number?

[Barnabas]

whats the problem?

you americans have the machine of making dollars?

you have debts, then, make dollars to pay the debt.

You could probably do that and it wouldnt couse inflation, and if the dollars gets cheaper in comparison to the euro, it is good anyway.

[Colonâ„¢]

[Kontiki]

Originally posted by Brachy-Pride
whats the problem?

you americans have the machine of making dollars?

you have debts, then, make dollars to pay the debt.

You could probably do that and it wouldnt couse inflation, and if the dollars gets cheaper in comparison to the euro, it is good anyway.

???

You can't tamper with the money supply and not effect inflation.

[KrazyHorse]

Originally posted by The Mad Viking DanS, what is the difference between the 3.5% that a poll of 31 econmists suggested, the 5 to 5.5% figures that are a more-or-less historical over the past 3+ years, and your nominal number?

C'mon dude.

Real = accounting for inflation (i.e. "in 2005 constant dollars")

Nominal = not accounting for inflation.

Real growth rate + inflation = Nominal growth rate (to first order, at least)

[Ted Striker]

Re: Re: In Other News

Originally posted by DinoDoc
You're too old for her. Maybe you could send a 13 year old her way.

Damn.

Maybe I can play dressup.

Lose weight, get baggy jeans, etc.

[KrazyHorse]

Originally posted by Brachy-Pride
whats the problem?

you americans have the machine of making dollars?

you have debts, then, make dollars to pay the debt.

You could probably do that and it wouldnt couse inflation, and if the dollars gets cheaper in comparison to the euro, it is good anyway.

Are you an Argie by any chance?

[The Mad Viking]

Originally posted by KrazyHorse

C'mon dude.

Real = accounting for inflation (i.e. "in 2005 constant dollars")

Nominal = not accounting for inflation.

Real growth rate + inflation = Nominal growth rate (to first order, at least)

Not familiar with the term nominal; I assumed that is what DanS meant, but if this is the case the numbers quoted are wrong.

Last 10 years, real GDP growth at 3.24%, last 5 only 2.43%.

GDP was 5.24% over 10, 4.66% over 5.

(My data from Finanical Forecast Center.)

What drugs do you take to get a US GDP growth of 6.5%? Are they legalizing and taxing crack?

Realistically, we should be using 3.25% real, or perhaps as high as 5.25% unadjusted.

Given that your debt is costing you 4.4%, and your deficit is running 3.5%, what does the model look like?

[KrazyHorse]

You plug in the numbers, you lazy sod. All the formulas are already written out for you in that spreadsheet.

[KrazyHorse]

And please use the nominal figures for everything. Debt is not adjusted for inflation, so neither should anything else be.