what is more important: reducing debt or stimulating the economy

So often these days I hear people say that we can't cut spending because it'll hurt the economy, or that we need to spend more to help the economy. What worries me is that our debt is increasing far faster than receipts, and as we accumulate more debt we pay out more in interest each year. We're now spending roughly 450billion/yr on debt financing.

 

There are two different kinds of debts being incurred right now. The recessionary debt, and long term debt tied with population dynamics. The recessionary debt is not a problem; instead, it's a one time expenditure instead of a reoccurring one. The debt tied with population dynamics becomes a problem as baby boomers head towards retirement. So it's a problem that can become big in the long term.

So we don't have an immediate debt problem; instead, we have a long term debt problem due to population dynamics.

We do however have the immediate problem that our economy isn't running at potential GDP.

Most people seem to be making noise over the recessionary debt, and the noise is nothing more than political grandstanding.

 

If you look at southern Europe "reducing the debt" cuts only generated more debts .
In a working economy where money don't vanish in black holes debt is an investment .

 

Reduce big government, and the economy will be stimulated. The money could be spent on the economy instead of overpaid underworked back water b'crats.

 

The point being that once you already get that far down the hole you're basically f***ed. Note that Greece has the second worst debt to gdp ratio in the entire world, which is why it was f***ed either way. It doesn't have the economic vitality that Japan (the only country with more debt) has.

On the other hand, stateside, in the 1990s the ten states that cut taxes the most created twice as many news jobs and had 27% more income growth than the ten states that raised taxes the most. And they weren't Greece, in the 99th percentile for debt to gdp ratio.

In principal, recessionary debt isn't necessarily a bad thing. We could use the deficit spending to retrain unemployed workers, repair roads, develop new infrastructure, but in practice it's been wasteful. Roughly one out of eight dollars were spent towards those ends.

But regardless, the debt remains, and it's risen in a five year period from 60% of gdp to over 100% of gdp. We're now spending about 450billion/year financing the debt we have, and that's going to continue to increase as our debt increases. How much was the first stimulus, 787billion? And we'll spend more than that every two years just paying off the interest on our debt. And it'll grow. If our debt grows at the same rate as it has over the last 5 years, then in less than a decade we'll be - as a percent of gdp - in as bad a situation as Greece was before it's austerity cuts.

 

that's what they tried in Southern Europe and it has only resulted in increased debt and less business activity in the private sector and increased unemployment. Unemployed people do not spend money.

 

We typed about this the other day. When your economy is cooking along, you should raise taxes and retire the debt. As the world's reserve economy we can print up as much money as we need as long as interest rates don't get you in trouble. The number most economic analysts is 12 % GDP at which point your economy is unsustainable. We current spend roughly 2% GDP servicing the debt, down from the 4% GDP we spent during the Reagan / Clinton years, (a.k.a. Bush Tax Cuts.)

So, what the guys who get paid to worry about this stuff say is you should borrow now at historically low interest rates, get you economy humming along at around 3.5% GDP growth with unemployment down around 5% and a 2-3% inflation rate, then raise taxes to end deficit spending and start retiring the debt.

You have plenty of time to do this stuff but need someone to set you down the Golden Path instead of squandering any opportunity with tax cuts.

 

The empiracal recoed of the past 30-40 years shows that the exact opposite of that is true.

 

We need to stimulate the economy. The austerity we did has kept our unemployment rate higher than it should have been, which means reduced tax revenues and increased spending on safety net programs.

Boost the economy now, pay down debt when we are doing better.

http://www.huffingtonpost.com/2013/05/06/austerity-jobs_n_3224762.html

 

Everybody's got a good plan on paper. But I suspect the reason this isn't being dealt with at the upper levels is that nobody knows what to do. That's because the consequences of whatever choice is made are going to be bitter.

It's plain to me as a person with adult children that we tighten our belts and reduce the debt.

 

It's imperative you watch the Documentary " Park Avenue " on Netflix

 

I usually don't like comparing nominal terms but when the difference is so significant that it shows just how little we are paying in interest now, I have to show it. And even though interest is not a big deal at all especially when talking about stimulating the economy, your $450 billion figure is very misleading. That is gross interest. Including over $200 billion in intragovernmental debt that is nothing more than the government paying themselves and a credit back in to the general fund making it a wash to the economy. We are actually paying less in interest now than we did 20 years ago, lol.

We should be stimulating the heck out of this economy. Trillions of more dollars being poured in to jobs, infrastructure, education, science, etc. Unfortunately this fiscal expansion will never happen unless Republicans bring us to WWIII. For some reasons Republicans are willing to spend whatever amount necessary on the military but complain about spending on anything else.

 

It's imperative that you make your own point or consider it null.

 

No source? Come come, I know it's from American Thinker, a conservative think tank, but you can't even display the page?

Now it's odd that you really think you can discount federal government interest. Rather than take out a loan by issuing new publicly held bonds, the government drew from funds already assigned. So what you're saying is that if the federal government robs all the funds set aside for social security or any other program it's fine, because the interest will be paid back to the government. That's a joke. It's an additional cost that we are incurring now because a previous Congress didn't want to make a hard decision. No, you would just have us spend spend spend. To you, it doesn't matter whether interest on our debt is 1% of the budget, or 4%, or 6%, or 10%, or 25%, or 50%, or 75% - it doesn't matter to you. And that's what's sad.

As far as the military, you've said, "Republicans are willing to spend whatever amount necessary on the military but complain about spending on anything else." Necessary, Aki, necessary. And yeah, you're quite right, but I don't think you quite understand the meaning of necessary.

 

Ever heard of the Connie Mach Penny Plan? We can have a balanced budget in 6 years by cutting 1 penny out of each dollar. In 6 years we get to a balance budget. Saving the US tax payer trillions over the long haul. Does Congress ever consider it. No because they want to spend like drunken sailors.

http://www.conniemack.com/issues/mac-penny-plan/

 

The Federal Reserve creates all of this "money" out of thin air, though.

 

Feel free to check the numbers. They are real. No, what I'm saying is the "funds set aside" are government created assets and liabilities. No, interest matters on the debt, I just know how the system works and understand that they have control of interest rates and would never make them to the point that matters.

You have an amateur knowledge of our system yet you think you understand it all. It's how conservatives work. You probably have the same thoughts as Sarah Palin. I would suggest you reconsider your thought process and start listening to smart people.

 

You have no idea what you're talking about! Our debt isn't "funds and liabilities No! The debt is DEBT! It's money owed. Liabilities? Really, I can't stop laughing. Our current unfunded liabilities are some 84 trillion.

Now really, I don't care to go on anymore with your childish antics. The most sophisticated thing you've said so far, in it's base laconic meaning, has been "nut uh!"

 

Conservatives are so ignorant about economics and history they can't even wrap their skulls around the fact that we paid off the debt from WW II by GROWING THE ECONOMY THROUGH SPENDING. We put the returning soldiers through college and gave them home loans. We built the national highway system. And we spent a fortune on NASA. The end result was a THRIVING middle class and the greatest economy the world has ever known. But they just can't understand that because it disproves everything they believe in. Instead they keep cutting and cutting and they just can't understand why things keep getting WORSE.

 

Except he provided graphs that you CANT prove are wrong............ nor do you understand. WHAHAHAHAHAHAHAHAA

I love the comedy from debating and watching conservatives talk. They claim you said "nut uh", but yet you provided a graph that proves them wrong. This just goes to show that no matter how much evidence you show faith based people..............they are just not ever going to be able to understand it. And they wonder why we question their intelligence?

 

Since the financial crisis we've borrowed money at record rates. Why don't we have 3.5% GDP growth now? I mean, how much more debt would it take to get the GDP growth up to that point?

 

Yeah. I and others have posted graphs and charts too, what of it? I don't need to prove his data wrong because I've already shown that it doesn't mean what he thinks it means. The datas valid as far as I can tell. Only an idiot thinks that you have to disprove the underlying facts in order to discount an erroneous analysis. My hats off to you.

 

Whatever bolsters the economic well-being of middle class Americans, will benefit the American economy the most.

Some will not admit to this, nor will they commit to it.

Eventually, it will be realized and pursued. Then things will improve and solidly so.

 

To your first sentence, why is that?

 

Lol, conservatives are so embarrassing. I know exactly what I'm talking about. There is a reason they call it "net" interest. I suggest you start asking me questions rather than make comments because you are really embarrassing yourself.