Tuesday, January 05, 2010
On the one hand, the United States will still have a lower national debt than Japan, as a percentage of GDP, for many years in to the future.
On the other hand, Japan ordinarily runs big trade surpluses (as opposed to deficits) and has a higher household savings rate than the United States, so it is in a better position to repay its debt. At least until its population dies of old age.
On the third hand, Japan is having a very tough recession. Its GDP has fallen all the way back to its level of 1991, which, bad as it is, would be really terrible if its population had grown significantly in that time. By comparison, in 2009 (through October) the GDP of the United States had fallen to roughly 2007 levels.
As worried as some of us are about our own prospects as a nation, it almost seems that the Japanese are giving up.
And I thought my credit card debt was high. At least mine will be paid off in a couple years.
Hm. Interesting thought. In a year or two when the banks have recovered and are as stable as they ever are, do you think they might have some resentment at being treated in this fashion? I can see it now. "We at Well-Fargo-Chase will be happy to loan the Government the money to get you out of this situation, but first you will need to put on this chicken suit and read a little poem we wrote..."
Be careful about these figures.
Ask yourself if they include the state and local government debts.
Do they include underfunded public pensions?
And ask if they include individual debt. Those in other countries tend to save, the American has tended to borrow.
Ultimately the taxpayer and the nation must be concerned about the total of public debt plus personal debt. That is what must be paid.
Interesting conversation from this morning's Squawk Box, between a former Fd Governor Mark Olson, the hosts and Orin Kramer, chair of the New Jersey Investment Council (governs NJ pension money), in which Kramer said the the fifty states are $2 Trillion underfunded by corporate standards, according to independent research his group recently commisioned. Here's the video.
This does not include underfunded medical plan costs for retirees, I would venture to guess, since those annual costs must be paid in full each year from operating funds. It would be interested to analyze the present value of costs of health plan promises for future retirees, because I would bet those would significantly add to the underfunding of state and local plans.
These sorts of plans have become a convenient way for state legislatures and governors to side-step constituional limits on debt and on balance-budget requirements, since underfunding promises to state workers does not show up in either category. Obviously, we have a big problem since Democrats feel free to make big promises to their primary constituents, unionized public employees, and Republicans don't have the balls to undo those promises. And, nobody has the gumption to actually try to pay for those promises.
According to the CBO, Federal Debt HELD BY THE PUBLIC was $5.1T, or 36.5% of US GDP in 2007, but the graphic you linked shows a 2007 figure well above 60%.
The difference in Debt Held by the Public and total National (Federal) Debt is the Social Security Trust Fund - but following the 1985 reforms the Trust Fund generated just under $2.2T in accumulated surpluses, or another 16.1% of 2007 GDP.
Together that gets me to 52.6% of GDP, and I'm not sure we should use the SS Trust Fund for determining national indebtedness - after all, SS future obligations will be paid out of future revenues, not out of debts held in any lock box.
On an accounting basis the accumulated surpluses will be debited to pay for SS benefits, but in actual cash it will be current year receipts paying for benefits.
While percentage makes us feel better, remember that the U.S. economy is about 3.5x as large as Japan's, and more than the next three countries combined (Japan plus China plus Germany)
So when our debt level reaches 100% of GDP, it will be larger than the entire economies of several top tier nations combined (assuming everyone grows at the same relative rate and even if you give China a few extra percentages a year).
So is there enough wealth in the world to us loan this amount of money? Plus support the debts of all the other nations who carry deficits? Plus the other sovereign debt in the world?
Absolute numbers do matter.
(will cross-post comment on my blog)