BECKLEY— I’ve been very busy (to say the least) lately preparing budgets for 2010 and 2011 not unlike Obama just on a different scale. But I’ve gotten aggravated and I want to vent.
I’m tired of hearing these crazy comparisons of U.S. National Debt Interest Expense-to-GDP. This is such a silly comparison. GDP accounts for the total market value of U.S. production. Comparing national debt-to-market-value of production is silly. First, it assumes that the U.S. owns the entire economy and could effectively set the tax rate at 100%. While this is possible (i.e. USSR) it is not a very good assumption. Do we want to ASSUME communism is the solution to paying off our debt?
Second, whenever anybody uses the GDP-to-interest ratio they always compare the U.S. to other countries, and boast how the U.S. is not the worst off. This ratio is used as a justification for more federal spending because it can be easily compared to nations like Japan and Zimbabwe! COME ON! I don’t want to settle for mediocrity and I don’t want to bequeath mediocrity to my kids particularly when countries like Russia and China are leading us. Why people try to make average seem like some grand accomplishment is beyond me. It’s like saying a broken clock is right twice a day so why fix it!
The other economic cop out that drives me nuts is debt-to-GDP. It has the same assumptions as interest-to-GDP yet in both cases they ALWAYS leave out Medicare, Medicaid and Social Securities. These are UNFUNDED liabilities (i.e. long-term DEBT) on which we will HAVE to pay HIGHER interest! We need to be getting our financial house in order right now, today, to manage the HIGHER interest debt we will HAVE TO take out in the future.
There are much better statistics to use – like interest-to-income. After all, the real world uses various income-to-expense ratios to do budgeting. Even Mr. Obama had to create a budget that contained an income (Net Receipts) category of $2.3 trillion with an interest expense category of $163 billion. Now there is a real world number with a non-imaginary ratio of 7%! Therefore, 7% of our taxes go to interest. This seems like a large number to me and much clearer the a GDP comparison. In order to justify this type of interest expense a typical real world entity like a company would have to have a VERY affective return on assets. Government doesn’t have this history and in fact is only going to continue to get larger…
TennesseePaul
Stephen VanNuys
Brooklyn Daniel
The Freedom Thinker
FT,
I share your sentiments here. The real question folks should be asking is:
“How much sovereignty will we have to give up in order to pay our long-term debt?”
The answer to this question is for more troubling than any financial ratio.
Nice rant.
7% ratio. Where does this compare to other nations?
I think that is why people don’t use an interest to income comparison. A lot of countries may not report their total tax receipts. It also takes a bit of research to find, because it’s not a stat governments just hand out (meaning: it’s probably important).
Just out of curiosity I researched China and Japan for their ratios it as follows:
China is 6.1 Trillion Yuan with a Debt Servicing Expenses of 127 Billion Yuan which is about 2%. Russia and other low debt countries are probably much better. Japan on the other hand with 37 Trillion in Yen in tax receipts with 20 Trillion in Yen for debt servicing is probably one of the worst with 54%. I’d imagine countries like Zimbabwe are similar. But again why do we want to be content with mediocre?!?!? We should have the strongest income statement and balance sheet on the globe. Period.
Also, something that I found interesting using the website TradingEconomics.com is that when one looks at countries by budget deficit. We’re one of the worst nations worse then Turkey, China, Japan, Greece, France, etc. and etc. we’re going in the hole much quicker then anybody it won’t be long before we’re leading countries like Japan. Especially as the bills for Medicare/Medicaid and Social Security come due. We can borrow CHEAP today with today’s interest rates but that isn’t going to last long. Then our interest expense on the debt we have to roll over and roll over and roll over and roll over is going to balloon.
Perhaps you should define “Mediocre”…
Is it mediocre to be second in a race by a millisecond? I have no trouble with striving to be the best, but if all the rankings are in and the US is in the top 5%, I wouldn’t call that mediocrity.
I don’t know where we fall? Whether in top 5% or top 20% or top 50%. I don’t think countries like Zimbabwe are good comparisons though. So we should only compare ourselves to industrialized nations. I doubt we fall in the top 5%. I’d be surprised if we were in the top 20% in terms of interest expense to income. Jack Welch originally said that GE was going to be only the 1st or 2nd place in all their markets. He was eventually challenged on this by an army general who said that this wasn’t fair because you could classify markets as so small and niche to always make yourself the top 1 or 2 in that market. However, for me the top 5% isn’t good enough. My father always said, “Greatness is not made in a single great act but by small steps each day.” In the game of world domination and national pride 1% can be the difference between peace and war, freedom and slavery. How much better training can we give soldiers for 163 billion. What benefit would an extra 163 billion be to our space program. That 163 billion is going to other nations as interest income to which they can use to purchase even more interest income from us when our rates go up….
In my life personally how I live, professionally how I manage my company, and financially how I invest I’m very opposed to debt. This is because I saw the burden of debt on my family personally growing up and from Biblical scripture:
So for me this is an important (i.e. The Freedom Thinker doesn’t like being a servant) category or ratio in terms of leadership from a financial stand point.
So, to answer your question I’d define mediocre as anything less then 1st or 2nd place. Because we’re looking to be great and the game of world domination is fraught with many dangers. I hate to see the Pax Amercana fade into the sunset on my watch.
The assumption that the government owns the entire U.S. economy appears to me to be exactly the rational behind the actions of the Obama administration – and yes, that well could lead to a 100% tax rate. After all, Obama has not shown aversion toward adaptation of many Marxist theories and practices. Indeed, he has attempted to place at least one avowed Communist in a high position in his administration and some of his other picks have expressed admiration for dictatorial followers of Marx.
Certainly, the assault of his administration upon the free market principles should give clear indication of his intent. Implementing destruction of the U.S. economy is necessary before the administrative state can arise from the ashes to “save us” and restructure America to fit the dictates of the commune.
“Give up” sovereignty? Hell, they are preparing to steal it out from under us.
[...] 1, 2010 by The Freedom Thinker BECKLEY— As I’ve written in the past Debt-to-GDP ratios are pretty pointless: I’m tired of hearing these crazy comparisons of U.S. National Debt Interest Expense-to-GDP. [...]