Days of Change

Day 887 – Debt or Alive | April 10, 2011

I thought I would expand on some of the statistics I’ve been throwing around here and on The Crawdad Hole. First, the terms. I am using the National Debt figures provided by the US Treasury over the course of the last 60 years. The following is a graph of the national debt by year.

The figure I’ve chosen to use this week is something I call annualized debt increase. Basically, I take the amount of debt increase over a period of time, then calculate the percentage rate over the period compounded annually that would lead to that increase. It’s not dissimilar from averaging the actual percent increase in the debt over each year of a time period. For reference, here is a graph of the increase in debt in a one-year period for each year.

I don’t use the deficit because that number is variable. Just because there’s no deficit one year doesn’t make much difference to our long-term outlook. We pay 4.5% of our GDP in debt interest alone when the debt is 100% of GDP and the deficit has no impact on that.

So it turns out that for the last 60 years, the debt has increased by an annual 7%. The debt first blew past a 10% increase in 1975. The increase in debt went to an all-time high of 20.6% in 1983. High deficit spending basically coincides with the Cold War. It didn’t fall until the Berlin Wall did in 1991.

Who’s the biggest debtor president? If you said Reagan, you might be right.  But for now, it’s Obama. In his two years, the debt has increased 35%, or about 16.5% per year. In Reagan’s 8 years, the average was 14%. How about that huge spender George W. Bush? Well his increases were a comparatively paltry 7.5% annually. Clinton fared the best of the last 30 years with 4.5%, except that it was closer to 6.5% in his first term.

Large debts are a trend, not a political fault. Democratic President Carter had a one-term annualized 10% increase in the debt. The sustained trend began in 2002 with the start of the War on Terror. At the same time, President Johnson only increased the debt an annualized 3% after starting a foreign war and a War on Poverty.

The last time the debt decreased was 1957. Since then, the debt has increased 4900% in the 53 years since. In another 53 years, it will be $666 trillion and the interest will be greater that twice the current GDP.

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13 Comments

  1. “debt has increased 4900% in the 53 years since [1957]”

    You take me from college through now. Fortunately, barring a Cosmic Dirty Trick like reincarnation, I won’t be around for the ignominy of $666 trillion .

    Comment by Mary — April 10, 2011 @ 9:44 pm

  2. “Large debts are a trend, not a political fault.”

    I think this is a very important point. Large debts, and debt ratios are a trend which all the most developed economies (the so-called Western nations + Japan) are caught up in. Where do they go from here? What will be the nature of the next monetary reality?

    The nature of money and value changes over history… it’s quite fascinating. In 1971 Nixon cut the last cords to the gold standard and we’ve been in the realm of fiat money ever since. The history of fiat money shows a strong tendency to inflation and even hyperinflation.

    Comment by Valissa — April 10, 2011 @ 10:28 pm

  3. You almost need to go off a precious metals standard because the availability of the asset itself can’t support the amount of money involved.

    I think the supply problem has to do with the Federal Reserve. It’s essentially a private bank that loans money to the government. Like any other banks, they want to lend as much as possible at interest.

    If you want to curb spending, people like Erskine Bowles has suggested that a balanced budget amendment be based on percentage of GDP. This follows a pattern called Hauser’s Law that shows whatever the government takes in, whether the top rate is 91% or 28%, usually end up being about 20% of GDP. We currently spend around 24% of GDP every year.

    Comment by 1539days — April 11, 2011 @ 5:41 am

  4. I’m resisting going off on a tangent about the Federal Reserve, The Creature from Jekyll Island and all of that.

    The problems with numbers is that the smart people can simply “play” them. In my research into economics I have pretty much ditched all economic theories (most of them are too similar to religious dogma and don’t actually explain reality), and any numbers based theories, trying to understand the nature of money itself… which is both a practical question and an existential one.

    I have looked at money trends over the course of history to see how humans “create” money and then interact with their creation. I have observed that ever since humans created money (the ancient kingdom of Lydia ~640-630 BCE) there have boom-bust cycles and debt problem cycles. Before capitalism these things existed so you can’t blame capitalism.

    I guess I’m looking at it more from the epistomogical viewpoint. My sense is the the fundamental nature of money (as a type of collective agreement about value) is going through another change at this time in history now that the world. I don’t know that there are any “right answers” to our current financial problems… and I think we will see more “financial innovation” to addess this.

    Comment by Valissa — April 11, 2011 @ 11:49 am

  5. Oops, horrid spelling and editing! I meant to say… epistemological (not epistomogical)…

    also the phrase “now that the world” should have followed by “is printing so much money”. Quantitative easing, my ass!

    Comment by Valissa — April 11, 2011 @ 11:57 am

  6. You certainly have a point. The use of “full faith and credit” instead of a gold standard goes hand in hand with a credit based economy where everything is paid for by computer.

    It makes me think of Star Trek. The Ferengi in the new series were evil capitalists who paid for everything with strips of gold-pressed Latinum. Everyone else used some sort of egalitarian socialist system where no one got paid for anything and there were no janitors or laborers to be found.

    In such an insubstantial economcy, you need asset backed currency even more.

    Comment by 1539days — April 11, 2011 @ 4:09 pm

  7. LOL on the Star Trek analogy, you are so right on about that! LOL! I love Star Trek, but I got that the whole no-money, we are so noble, we work at what we love BS was just not realistic.

    The Ferengi Rules of Acquisition was a brilliant touch from the show’s writers. So many good ones…

    47. Never trust a man wearing a better suit than you own

    48. The bigger the smile, the sharper the knife

    49. Old age and greed will always overcome youth and talent

    http://projectsanctuary.com/the_complete_ferengi_rules_of_acquisition.htm

    Back to your important point about “full faith and credit”… I found this discussion of Fiat Money at Wikipedia fascinating http://en.wikipedia.org/wiki/Fiat_money

    Since fiat money is relatively “new” (in the context of human history), and obviously operates differently than some type of commodity backed money, it will be interesting to see how actual value is tracked. Power and money are like inseparable lovers, so decisions about the monetary system are primarily determined by the Money People* with the most power. [*my simple phrase for the banksters and other money power brokers who really run the money show behind the scenes - and from what I can tell, these folks are not economists and typically don't think highly of economists and their theories either... bwahahahahaha, I love the irony of that!]

    Comment by Valissa — April 11, 2011 @ 4:51 pm

  8. I hate to say it but I’d like to see what comes out of Soro’s new Bretton Woods conference. Could be very important and scary, since I don’t trust him at all. He seems the ultimate powermonger to me.

    Comment by ralphb — April 11, 2011 @ 8:03 pm

  9. Hey Ralph… nice to see you here… I’ve been wondering about that too.

    While I did not watch any of the videos, I think the title says it all…

    Can Sovereignty and Effective International Supervision be Reconciled? The Challenge of Large Complex Financial Institutions http://ineteconomics.org/net/video/playlist/conference/bretton-woods/H

    OR to paraphrase, can gov’ts or NGO’s do anything to rein in the banksters?

    If you look at the list of presenters it’s mostly gov’t economists and academics… who typically end up wanting to solve things by making new rules (regulations) for all the players.

    Note that Simon Johnson is one of the presenters. He has a great blog called Baseline Scenario with James Kwak. He’s also the guy that wrote the famous article on how the US is an oligarchy now AND he used to be the Chief Economist for the IMF (not my fave neo-colonial institution), so he understands the money and power dynamics well. He says the bankers have won out over the regulators. I see this as the banksters basically saying FU to the academic economist types.

    This is Simon’s post from today…

    The Vickers Commission Report On Banking http://baselinescenario.com/2011/04/11/the-vickers-commission-report-on-banking/

    The fight to reform the banking system in the US and more broadly is largely over – and the bankers won. A number of sensible ideas were put forward – including on creating a resolution authority, reducing the scale and scope of big banks, and significantly increasing capital requirements. As reviewed by Peter Boone and me in this morning’s Financial Times, all of these initiatives have essentially failed.

    Do check out the great comment on Iceland :)

    Comment by Valissa — April 11, 2011 @ 8:38 pm

  10. Wow, Valissa it seems like I have to keep greenlighting your posts.

    Comment by 1539days — April 11, 2011 @ 10:14 pm

  11. btw, 15, that dOllar figure–666–wouldn’t be in any way symbolic, would it?

    -

    Comment by Mary — April 11, 2011 @ 11:20 pm

  12. It freaked me out a little.

    Comment by 1539days — April 12, 2011 @ 4:56 am

  13. It goes to the Joe Stiglitz Maxim: a government of the 1%, by the 1%, and for the 1%.

    He’s generally right. In one article some time back, he wrote that economics was a failed profession which should be re-invented from the ground up. No matter what, I like Stiglitz.

    Comment by ralphb — April 12, 2011 @ 10:33 pm


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