EnMasse

thwap · Posted: Wed Feb 04, 2009 8:26 pm Post subject: A fifty billion dollar deficit

Help me with my math folks.

With an annual GDP of around one-trillion dollars, a fifty-billion dollar deficit is equal to five percent of GDP, which is the equivalent of someone making 40,000 dollars a year borrowing 2,000 dollars.

Is that right?
_________________
Man! I hate them fancy-lads!

Senor Magoo · He's got a big one Joined: 11 Apr 2006 Posts: 8700

The numbers are right, but I don't know if it's accurate to compare GDP with income. A better analogue to person income might be gross tax revenues, since it's that, and not GDP, that a government has at their disposal to spend.
_________________
ø¤°`°¤ø,¸_¸,ø¤°`°¤ø,¸_¸,ø¤°°¤ø,¸_¸,ø¤°°¤ø,

thwap · Posted: Wed Feb 04, 2009 9:41 pm Post subject:

They always refer to a "debt-to-gdp ratio." Not a "debt-to-government revenues ratio."

In 2004, Canada's government collected about 200 billion in revenues.

But it's generally thought of as "Can WE afford this" not "Can the government afford this?"
_________________
Man! I hate them fancy-lads!

Senor Magoo · He's got a big one Joined: 11 Apr 2006 Posts: 8700

TS. · Posted: Wed Feb 04, 2009 10:38 pm Post subject:

I think GDP is an appropriate analogue. Where I think the analogy is problematic is to look only to government debt. Debt-to-GDP is a problematic ratio to use because it ignores the indebtedness of other members of society to contribute who GDP. A much better measure would be per-capita debt (both per capita share of public debt and average personal debt) to GDP-per-capita at purchasing power parity. Such a measure gives a much better idea of the indebtedness of a state. It still isn't perfect, because it ignores the debts of corporations, but it is still better. Including corporate debt would also be difficult, because a lot of it is trade credit, and is rapidly accumulated and wiped out.
_________________
"Question with boldness even the existence of a God; because, if there be one, he must more approve of the homage of reason, than that of blind-folded fear." - Thomas Jefferson

thwap · Posted: Thu Feb 05, 2009 12:52 am Post subject:

Maestro · Posted: Thu Feb 05, 2009 7:16 am Post subject:

Don't forget that borrowing also increases GDP, so the percentage figure is a bit fluid. How do you think the US has maintained an ever growing economy (GDP) while at the same time manufacturing has moved offshore? They've borrowed huge amounts of money, and as long as the lenders let them get away with it, their GDP will look very good.

However, eventually the crunch comes (as in, today) and the chickens come home to roost.With not much but borrowings to hold up the GDP, it's bound to take a significant fall over the next while. Will reality return to the US financial picture? Probably not. We still here daily calls for the US consumer to 'bail out the world'. What a joke! The rest of the world must sell ever cheaper manufactured goods to the the US consumer, or the world financial system fails. This is capitalism at its finest.
_________________
On the wilds of the Drive

thwap · Posted: Thu Feb 05, 2009 12:18 pm Post subject:

I've always been torn on that subject. I'll see if I can copy a chart to this window:

That's 2004. Note the position of the USA in proportion to say West Germany, Japan or Italy.

I think their problem is the absolute size of their needs and the need for some spare 20 trillion from the rest of the world to cover their banks' bad loans.
_________________
Man! I hate them fancy-lads!

Rufus Polson · Posted: Thu Feb 05, 2009 7:20 pm Post subject:

One thing it seems to me makes it hard to put government debt (not so much deficits) in perspective is that nobody ever talks about government assets.
I mean, if I've got $100,000 in debt but my home is valued at $300,000 and I've maybe got some investments, a pension fund, or stuff it's kind of a different situation from if I've got $100,000 in debt and I'm renting and have nothing.

And really, the total value of government assets including government buildings, government-built infrastructure and so on has to be way more than a year's GDP. Start getting into provincial stuff (hospitals, roads, universities, schools, much of it coming partly from federal funds) and it's even truer.

As to that chart, it doesn't seem to agree with figures I've heard lately. Of course since 2004 Bush has increased the debt A LOT; the 2005 projection there was probably unduly conservative. But I'd agree that the problem with the US isn't the debt . . . it's the debt along with everything else. It's the fact that they were running up debt during what was supposedly economic good times--given which, when were they supposed to repay it? If debt goes up during bad times and down in good that's one thing; if it goes up even faster in good that's not confidence building. It's the massive persistent trade deficits--given which, how were they supposed to earn what they needed to repay it? Stuff like that.

Raos · Posted: Thu Feb 05, 2009 7:23 pm Post subject:

[slight thread drift]

Rufus Polson · Posted: Thu Feb 05, 2009 7:28 pm Post subject:

thwap · Posted: Thu Feb 05, 2009 8:11 pm Post subject:

Governments ARE treated differently when it comes to calculating debt. Corporate assets are counted againt their debts whereas government assets are not.

I envision the "Running Government Like a Business Act" wherein the federal government deficits is magically reduced by factoring in all its assets.
_________________
Man! I hate them fancy-lads!

TS. · Posted: Thu Feb 05, 2009 8:28 pm Post subject:

thwap · Posted: Thu Feb 05, 2009 9:03 pm Post subject:

We should stick with it. It's more realistic.
_________________
Man! I hate them fancy-lads!

TS. · Posted: Thu Feb 05, 2009 9:29 pm Post subject:

Maestro · Posted: Fri Feb 06, 2009 3:30 am Post subject:

The problem isn't what you owe (if you're a government), because you can always print money to pay debt. All you owe is the cost of the printing.

Of course, you have to find someone willing to accept that money at your valuation, but so far the US has been able to do that. If no one accepts your money, you end up like Zimbabwe, with unreal inflation.

Realistically, governments, no matter how much property they own, have zero assets in that you can't 'sell the country'...well, maybe we could.

We could sell the country and then lease it back at a low monthly payment. Of course, if we failed to make the lease payment someone might come looking to repossess the country. That's when we barricade the doors, and prevent the bailiff from getting in.

That's when we find out that the country is no more or less than the military power it wields. Of course if we did that, we'd be the USA...
_________________
On the wilds of the Drive

thwap · Posted: Fri Feb 06, 2009 11:48 am Post subject:

I agree with you TS. But since that's the way every other sector calculates its debt, why should the government be held to a different account?

But, the main point is that our debt level is quite sustainable. This panic about multi-billion dollar stimulus packages is the result of people's fear of large numbers and their ignorance as to our overall wealth.
_________________
Man! I hate them fancy-lads!

A_J · Fulltime enMasse Member Joined: 20 Feb 2008 Posts: 362

thwap · Posted: Fri Feb 06, 2009 4:19 pm Post subject:

On the other hand, as Linda McQuaig argued, when anyone else borrows money and buys something (especially a wealth producing asset) they're not presented as if they just borrowed the money and burned it.

Flaherty's sell-offs were part and parcel with the whole "privatization" mantra. Just like his disastrous days with the Harris regime.
_________________
Man! I hate them fancy-lads!

Rufus Polson · Posted: Fri Feb 06, 2009 6:15 pm Post subject:

Maestro · Posted: Sat Feb 07, 2009 5:57 am Post subject: