The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Picking Poison

02/29/2016

Have you been to http://www.usdebtclock.org lately?  This website is complex but fascinating.  Most people focus on the total debt of the U.S. government, which is now over $19 trillion.  While that has continued to increase during the recession, the more important ratio of that debt to GDP has been decreasing . . . until now.  Please find that number of the website, near the middle but closer to the top.  That number is now 106% and has started to increase.  It fell during the recession, as stimulus spending pushed it up and GDP decreased.  During sequestration, the ratio actually decreased modestly, as GDP kept increasing.

Several respected economic studies have argued that 100% is the “point-of-no-return” — once crossed, the world becomes a slippery slope and hope is lost.

Look at the average federal taxes paid or revenue per citizen, which is about $10,320.  Compare that with the amount of interest paid on the national debt per citizen, which is about $7,450.  That leaves less than $3,000 per citizen to pay for Social Security, Medicare, Medicaid, Federal pensions, and, not insignificantly, to pay for the military.  Now imagine what happens when interest rates rise . . .

Only Libertarians argue that it would be good for the nation to increase interest rates.  On the other hand, it is bad for the nation over the long-run to have such artificially low rates.  Choose your poison carefully and decide whether you would decrease Social Security, Medicare, Medicaid, Federal pensions or the military.  The latter is clearly being crowded-out by rising debt expense and entitlements.

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