America Isn't Broke

[Dardedar]

Since this the current favorite republican canard, I am reposting this here, with an update below.

***
A bit more on this "America is broke" theme I am regularly knocking down.

America isn't broke because America's assets vastly out weigh its debt. If America is broke, than I am broke and many people doing very well are broke because they have hundreds of thousands of dollars of debt (usually mortgage). But I'm not broke. Like America, my assets exceed my debt. And even if they didn't, that is future debt, a debt that will be paid off in the future with earnings as they come in (however, unlike America, I am not on an unsustainable debt to earnings trajectory).

This claim about America "being broke" needs some further context. I thought it would be interesting to look up per capita debt among our peer nations and see how we are doing. I was quite pleasantly surprised.

First, here is the list of nations sorted by public debt as a percentage of GDP. The US comes in 36th. Not sure how important that category is compared with external debt. It seems to me external debt may be a more important picture. But apparently it isn't all that important because most of our very successful peers, have much more external debt as a percentage of GDP and are doing quite well. Here is the top ten:

1) Luxembourg (debt is) 4636% of GDP (also the wealthiest country per capita. Apparently they borrowed most of it)
2) Ireland... 1224%
3) Norway... 861%
4) Liberia... 606%
5) United Kingdom... 410%
6) Switzerland... 364%
7) Sao Tome and Principe... 349%
8) Netherlands... 344%
9) Belgium... 322%
10) Denmark... 274%

Where other peer countries rank (skipping lots):

Sweden... 241%
Hong Kong... 233%
France... 188%
Greece... 165%
Germany... 159%
Spain... 157%
Australia... 131%
Italy... 124%
Eurozone... 120%

38) USA... 97%

40) World... 95%

50) Canada... 75%

76) Japan... 51%

China... 4%

List of countries by external debt

More from a CNBC analysis (which doesn't include many smaller countries):



LINK

MORE. Excerpts from an article in Bloomberg:

“The U.S. government is not broke,” said Marc Chandler, global head of currency strategy for Brown Brothers Harriman & Co. in New York. “There’s no evidence that the market is treating the U.S. government like it’s broke.”

The U.S. today is able to borrow at historically low interest rates, paying 0.68 percent on a two-year note that it had to offer at 5.1 percent before the financial crisis began in 2007. Financial products that pay off if Uncle Sam defaults aren’t attracting unusual investor demand. And tax revenue as a percentage of the economy is at a 60-year low, meaning if the government needs to raise cash and can summon the political will, it could do so...

A person, company or nation would be defined as “broke” if it couldn’t pay its bills, and that is not the case with the U.S. Despite an annual budget deficit expected to reach $1.6 trillion this year, the government continues to meet its financial obligations, and investors say there is little concern that will change.

The cost of insuring for five years a notional $10 million in U.S. government debt is $45,830, less than half the cost in February 2009, at the height of the financial crisis, according to data provider CMA data. That makes U.S. government debt the fifth safest of 156 countries rated and less likely to suffer default than any major economy, including every member of the G20.

Creditors regard Venezuela, Greece and Argentina as the three riskiest countries. Buying credit default insurance on a notional $10 million of those nations’ debt costs $1.2 million, $950,000 and $665,000 respectively...

Less Likely to Default

CMA prices for credit insurance show that global investors consider it more likely that France, Japan, China, the United Kingdom, Australia or Germany will default than the U.S.

Pacific Investment Management Co., which operates the largest bond fund, the $239 billion Total Return Fund, sees so little risk of a U.S. default it may sell other investors insurance against the prospect. Andrew Balls, Pimco managing director, told reporters Feb. 28 in London that the chances the U.S. would not meet its obligations were “vanishingly small.”

George Magnus, senior economic adviser for UBS Investment Bank in London, says the U.S. dollar’s status as the global economy’s unit of account means the U.S. can’t go broke.

“You have the reserve currency,” Magnus said. “You can print as much as you need. So there’s no question all debts will be repaid.”

Bloomberg article

[Dardedar]

[Dardedar]

Even someone on Fox News can see it's a hoax, they quote:

The Federal Budget Crisis Hoax

"In spite of the deficit hawks' whining, history and financial markets tell us that the deficit and debt levels that we are currently seeing are not a serious problem. The current projections show that even ten years out on our current course the ratio of debt to GDP will be just over 90 percent. The ratio of debt to GDP was over 110 percent after World War II. Instead of impoverishing the children of that era, the three decades following World War II saw the most rapid increase in living standards in the country's history."

Federal Budget Crisis Hoax

[Dardedar]

Knocking down some deficit hawk wankers. Posting here:

***
Nextdoor spams his little debt bit, on schedule. Let me go on a little tear here for our resident deficit hawk greenhorns.

NextD: "5-4-2012 – Daily Update @9:05pm, EST (US National Debt now exceeds GDP!!!) National Debt........$[blah blah blah] (Trillion)>>

I remember when I was young and dumb (early 80's) and thought debt was bad. Certainly not the way to go. I was going to be smart, save up and pay cash down. My uncle (who grew up poor), was at the time a millionaire a couple times over (back in the 80's when it was a bigger deal), and he said no, there is smart debt and dumb debt, and you definitely want to leverage smart debt to build wealth faster than you could otherwise. He was right.

Nextdoor passes along this knee jerk wank about debt but he consistently leaves out a very essential bit of context. Without it, his data is nearly useless. With out it, it needlessly scares him and the kiddies (like Daos). That context is.... how much equity, net worth does the US have? What is *that* number?

Naive deficit hawks, who only see a big number but don't understand this context, really aren't saying anything useful. Sometimes naive deficit hawks like to use a home budget as an analogy. They go on about how a family with this sort of debt ratio would be bankrupt. Or even worse, they like to go on about how the US is already "broke" or "bankrupt." These people are idiots.

Lets use their analogy to a family budget. US gross debt is around yearly GDP. This is historically high, it would be good if it was lower. It probably will be. But it matters what that debt is used to finance. If it is solid infrastructure and investment in society and things that will pay back in the future (like a thriving economy decimated from a Great Recession), it's money well spent and not too high at around one year GDP. Unfortunately, in this case it's largely to finance Bush and republican warmongering stupidity and needless wars and tax cuts for the rich and for the purpose of concentration of wealth at the very top (references upon request).

I came to the US in 1987 with a high school degree and $300 in my pocket. With hard work, my own businesses and using debt smartly, I now have five homes and will buy two more this summer. Note: my debt is about *six times* my yearly income. Is that a bad thing? No. It's a very good thing and this ratio will even go more in this direction when I buy two additional properties this summer. My debt may go to 10 times my yearly income. Remember, if we use GDP as a crude measure of income, the US is at 1x right now. Not using your available debt to leverage value in the future *is dumb* (this is partly why Greenspan spoke against using surpluses to paying down debt too quickly).

The wealthiest country in the world per capita? Luxembourg. The country with the greatest debt per person? Luxembourg. This is not by accident, it's very much on purpose. Nextdoor cites the "Share of Debt Per Individual" in the US is as "$50,101." Does he know what the per capita external (national) debt is in Luxembourg?

Answer: $3,696,467. (that's 73 times greater than the US)

Is this a problem? No. http://en.wikipedia.org/wiki/List_of_co ... ernal_debt

So, how much is the US worth? What is the essential context behind this terrifying, 100% of GDP, $15 trillion debt that has Nextdoor peeing his pants every night?

"Total Assets of the U.S. Economy $188 Trillion, 13.4x GDP" Rutledge Capital

Subtracting $15T, leaves us about $173T in the plus. That's way better than my debt of 6x my yearly income.

[Dardedar]

8 Facts That Prove Our Govt. Is Not Going Broke

Alternet

"The Republicans are out to shred our social safety net -- and they're using debt as their excuse.

Pete Peterson, the billionaire former private equity mogul, is quietly funding a noisy bus tour to whip up debt hysteria across the land. The “Ten Million a Minute Tour” headed by the Peterson Foundation’s former CEO, David M. Walker (and featuring such economic soothsayers as Alan Greenspan and Ross Perot) will end this week in Washington, DC after traveling coast to coast to alert America about the myriad of alleged dangers posed by government debt and deficits.

Really, it should be called the “Million an Hour” cavalcade because that’s about how much Peterson and company made, in part, through obscene tax loopholes designed for private equity firms and hedge funds. If there really is a debt problem, then Peterson and his fellow tax-evading financial moguls have contributed mightily to it.

But America does not face a debt crisis. Nor are we likely to face one in the next 100 years. In fact, we are the last country on Earth that needs to worry about its public debt.

What’s really behind the debt histrionics is a relentless effort by these Very Important People to use a trumped-up crisis to shred the social safety net and bring forth their bleak vision of a dog-eat-dog society where government provides for no one (except the super-rich). Unfortunately, many liberals are also buying into a “debt crisis” that doesn’t exist.

It’s time to inoculate ourselves from deficit hysteria. The first step is recognizing that virtually everything we read and hear about government debt and deficits is misleading, manipulative or just plain wrong. So, here’s your handy guide to the eight biggest lies.

But first, some basic definitions and facts:

--Deficits are how much the government budget goes into the red in a given year. The red ink is covered by the sale of government bonds to investors here and abroad.

--The national debt is the total amount of what the U.S. owes on those government bonds. If we have deficits year after year, then the debt gets larger year after year.

--The projected deficit for this fiscal year is over $1 trillion.

--Our total government debt is more than $16 trillion as of Oct. 1, 2012."

1. Isn’t it extremely dangerous to have such a large government debt?

The rest here...

[Dardedar]

The Entire GOP ‘Debt Crisis’ Myth Dispelled – By A Conservative!

http://www.addictinginfo.org/2012/10/22 ... servative/

[Dardedar]

[Dardedar]

Deficit projected to shrink considerably



Madow

Knocking down more deficit noise:

Fix the Debt's Fuzzy Math

"Believers in arithmetic are in full retreat in the national budget debate, thanks in large part to Pete Peterson’s Fix the Debt gang. The range of acceptable debate goes from yelling that the sky is falling because of the deficit to the more moderate perspective shown by President Obama and Democratic congressional leaders in favor of a gradual and balanced approach to deficit reduction. But stating the simple and obvious truth—that we have a large deficit because the economy collapsed—makes one an extremely nonserious person in Washington."

The Nation

[Dardedar]

What's Driving the Deficits

"For chart nerds, the Center on Budget Policy and Policy Priorities' image on what policies drive contemporary deficits is a genuine classic. It first appeared in 2009 and, relying solely on data from the Congressional Budget Office, made an immediate splash -- those wanting to know which policies are responsible for making up the deficit had everything they needed in a handy, colorful chart.

In time, wonks even came up with a nickname of it: the "parfait" chart.

The image proved to be so popular that the CBPP published revised versions several times, reflecting up-to-date budget figures. And late last week, the Center unveiled its latest -- and is it turns out, its final -- chart showing which policies are driving the deficits between now and the end of the decade.

And as the chart hopefully makes clear, Bush-era tax breaks continue to be the biggest chunk. This matters, of course, to the extent that there's an ongoing debate over how to reduce the deficit, and policymakers are looking for solutions."



LINK

[Dardedar]

Nice debunk of several debt/deficit myths.

***
Why do people hate deficits?

"People really don’t like deficits. Polls measuring national priorities tend to find that the deficit/debt is the second most important issue to voters, after “the economy” generally and ahead of health care, guns, foreign policy and immigration.
Politicians don’t like deficits either. Both President Obama and the Republican leadership in the House pay lip service to wanting to reduce the national debt burden, and almost all their fights to date have centered on how best to do that.
But hold on a second. Why do we hate deficits? “Balancing the budget” sounds really nice, but what reason do we have to believe it’s actually valuable? There are a number of reasons to think it might be good for the debt load to be smaller rather than larger, but almost all of them are controversial among economists, and some more so than others. Here are the common reasons for balancing the budget you hear, and what the evidence says about each."

You can’t just run deficits *forever*. Surely the money has to come from somewhere.

The rest:

http://www.washingtonpost.com/blogs/won ... -deficits/