Before the "Debt Hysteria" hits: A little truth

[Go2Peace]

The promoters of disaster capitalism are starting to sound the DEBT FEAR ALARM pretty heavily. They used it to put fear into Europe, and now they are again bringing it on in the US.

But before we let another scare overwhelm us let's add a little truth and perspective:

We have had HIGHER Debt to GNP before. Yes, and we not only survived, but thrived afterwards. It happened just after the Great Depression and preceeded the most prosperous years we have ever seen.

Look at the chart below and then follow the link for a great discussion of why this is not be be feared. There are opportunity costs to debt, we have to pay interest and could be using that interest money for other things. But otherwise it is not nearly so dangerous and is not nearly our biggest problem.



Graphic is from zfacts.com and the discussion is at this link:

http://zfacts.com/p/318.html

We indeed need to get our house in order and should work to get it under control and reduced when the economy is stable. But we have been through this before and made our way through it fine. No need to send our elderly into poverty or slash programs to nothing to fix it. In fact doing so is likely to cause more problems than it solves.

[aikoaiko]

1. That graph is not reassuring.

I'm not running around like chicken little about the national debt, but the situations are very different in both the reasons why are debt increased dramatically and our prospects of economic growth in the decades ahead of taking on dramatic debt.

[Go2Peace]

3. We have problems, but historically the debt itself is not the biggest at this time

Times are different. Our entire economy has much less "material" to it and much more fiscal wizardry. But if our economy sinks it will not be the debt, it will be the lack of "taxable" prosperity that sinks it (as in the wealth in few hands). And no amount of "austerity" will change that. Did you read the article? Have you read any of Krugman's work on the subject?

And don't you wonder why, if the debt is really the problem it is, that nobody has called for a reduction in military spending? Why? Because the people who are "sounding the alarm" are not really so "concerned" as they make out to be. It is a convenient excuse to put forward an agenda.

Notice that the same groups that cry in alarm have also been the ones who have created said debt. It stinks to high heaven of tomfoolery. It's just another move to rob us all. The debt itself will not do what they say, unless they continue to gut the country and remove it's capacity to grow. *That* is the threat to the economy. Not the debt itself.

[JCMach1]

4. Yeah, but we were fighting a 'real' war we were not prepared for and countering the Great Depression

[Go2Peace]

5. Again, if you read the article,.....

the situation is not perfectly, but fairly analagous. Depression evoked a stimilous, that was followed by lagging GNP growth. That is very similar to the situation we have at this time. We were fighting a war in another country, a "fake" war, but the process is not unsimilar. We build and use elsewhere.

Granted there are other very serious factors at play, like the loss of manufacturing capacity and massive theft of our fiscal resources, but again, those were in play at that time as well.

We don't need "austerity" and this problem is nowhere near "unfixable". The Austerity "fix" that will be proposed will be bullshit, just like the globalist policies of the last 30 years that have gotten us here.

[dems_rightnow]

7. Of course it's not unfixable

However, nobody seems to give a shit about fixing it.

[Hannah Bell]

2. Thank you.

[TexasObserver]

6. Yes, the last time we were hugely deficit spending, economic prosperity followed.

The simple fact is that the so-called fiscal conservatives have not worried about the deficit one minute that a Republican president was in office. Reagan, Bush, and Bush II never once balanced a budget - or even tried to do so.

Controlling the deficit is a meme the right uses to try to limit social spending and entitlements, while keeping up the lard that goes to the military, the military contractors, Wall Street, big banks, and oil companies. If they really wanted to control the deficit, they'd stop giving private businesses hundreds of billions of dollars to cover their mistakes.

[JHB]

8. It's important to recall what was happening at each trend...

After WW2, the tax and regulatory structure favored investment in the real economy and in people: the GI Bill sent many thousands to college without saddling them with debt; infrastructure development created opportunities in places that previously had been too isolated or inhospitable (without saddling those localities with their own bond debt); high marginal tax rates limited the attractiveness simply siphoning off money from companies (above a certain level, most of it would go to Uncle Sam, so better to re-invest and build asset value), and it made more economic sense to use monetary "carrots" with employees than to rely only on "sticks"; strong regulation kept the FIRE sector wealthy but in check, and so on.

Then came Reagan and the takover of the economy by neoliberal/Chcago School theories, and it made more sense to gamble to win big than to build steadily -- especially if you could gamble with other peoples' money, and arrange to profit no matter who "won". The result has been ever-escalating bubbles, financial corruption, and dismantling of general prosperity.

[Go2Peace]

9. Too true

And if they get away with it, "Austerity measures" will be just another scam to bring more riches to a few.

[RaleighNCDUer]

11. Well put. Very succinct. nt

[customerserviceguy]

10. Both periods of high debt-to-GDP

were followed by severe recessions, the one in 1947 was particularly long, although it was not especially deep. The recession after the Reagan-Bush years were so severe that they propelled Bill Clinton into the White House.

Now we've got a high debt ratio in the midst of a recession. That's why I fear a double-dip right now.

[Statistical]

12. The difference of 2010 vs 1940 is that in 1940 the debt was from a single incident.

War spending. War started debt ramped up by 240%. War ended and country quickly (over three decades) paid down the debt.

The country accepted 30+ years of paying down the debt. Every year the "receipts" (tax revenue) were less than "outlays" (govt spending). Hell today we can't even get a balanced budget.

From 1940-1978 they were BEYOND a balance budget. RECEIPTS > OUTLAYS with the difference going to pay down the debt.

Our debt situation today seems to have no beginning or end. We spend in good years, we spend in bad years, we spend it on stuff we need, we spend it on stuff we really don't need. Even when debt is at all time high "pork" crowds out vital spending.

Another difference.... at height of great depression total debt (federal, state, local, individual, corporate) was 299% of GDP. Today it is 387% of GDP and INCREASING.

Americans are addicted to spending money that isn't theirs. Unless that changes "we" (collective we both in personal budget and Congressional budgets) won't be able to stop increasing debt much less start paying down debt.

BTW: I don't think we should tackle the debt until economy has recovered.

[Go2Peace]

13. You are basically saying the same thing as me ;)

I am not saying it is not a problem. But it is not an immediate crisis. And the answer is not the simplistic one that Disaster Capitalists want to pull on us. There is no reason to destroy the health and wellbeing of our seniors. And we have to be careful when and how we do it.

[Statistical]

18. Agreed it isn't a crisis today

however at some point we need to "get our house in order" because we are only one failed debt auction away from crisis.

The bad news is we are kinda stuck between rock & hardplace.

Deficit spending is necessary to get us out of the recession but we don't have unlimited amount of time. The economy is recovering slower than hoped and we are rapidly aproaching 100%+ Debt:GDP ratio.

[blindpig]

14. kick

Kill Capitalism

[JNelson6563]

15. Ah yes the call for austerity and privatization.

Same MO as always.

Julie

[killbotfactory]

16. The switch to fiat money under Nixon changed the dynamic, didn't it?

The same rules don't apply now as they did back then.

Though I agree this is bullshit. The financial elites screwed the economy and are making us pay for their mistakes, using their positions of power and influence to shore up their wealth and power.

[MilesColtrane]

17. Notice that debt really takes off around 1982...

...when the top marginal tax rate is cut from 70% to 50%.

Is it up to the top 1% owning over half of the wealth in this country now?

Fix the budget by ending the wars and taxing the rich.

[ProgressiveVictory]

19. Back then our debt was from the war and we still had factories here to produce good

that the world needed. While out debt was high, we were in a good position to help the rest of the world and they also owed us money that they would pay back over time.