Re: Our national debt just exceeded 22 trillion - effect of rising interest rate

[Guest MarkS]

We just hit a new milestone of 22 Trillion in national debt.  Here is an interesting article on the effect of rising interest rates on the government's budget.  https://www.pgpf.org/analysis/2018/12/higher-interest-rates-will-raise-interest-costs-on-the-national-debt

[stahleyp]

Good thing the tax cuts are helping to make this...ugh worse?

[Guest MarkS]

Hi stahleyp

 

You won't hear me argue that republicans are free from blame. Since we've dug ourselves such a deep hole we have limited ways out of it.  Broadly speaking we can cut services, raise taxes, devalue our currency, try to grow ourselves out of it or some sort of combination.  I'm not against cutting taxes to generate growth as long as the growth benefits exceed the adverse effects of the tax cuts on revenue.  I can certainly understand how people can have different opinions on the subject.

[stahleyp]

I'm of the opinion that we should increase taxes and cut spending. I'm sure that'll cut into economic growth in the short term but long term the country would be better off, I believe. People are way too afraid of a slow or no growth economy.  Too much easy money and a too easy of a life makes people weak.

[DooDiligence]

I'm of the opinion that we should increase taxes and cut spending. I'm sure that'll cut into economic growth in the short term but long term the country would be better off, I believe. People are way too afraid of a slow or no growth economy.  Too much easy money and a too easy of a life makes people weak.

 

Agreed. No pain, no gain.

 

We need another Bush, Sr.

[DTEJD1997]

I'm of the opinion that we should increase taxes and cut spending. I'm sure that'll cut into economic growth in the short term but long term the country would be better off, I believe. People are way too afraid of a slow or no growth economy.  Too much easy money and a too easy of a life makes people weak.

 

Increase taxes?  There is a HUGE problem with the money we already collect.  Here in Michigan, untold BILLIONS are collected for "edukation".  For example, property taxes (which are high, sometimes HIGHEST in the nation), State Lotto sales, Gasoline tax, and others ALL go to fund "edukation".  As such, we have some of the WORST skools in the country.

 

Meanwhile, the infrastructure in MI is literally falling apart.  We have absolutely some of the WORST roads in the country.  We have had cutbacks in municipal services also.  For example, when I was a young man, the sidewalks & streets were plowed when there was maybe 1+ inches of snow.  Today, only the main arteries are plowed/salted.  Neighborhood side streets are NOT plowed at all.

 

There are other very serious problems in MI. 

 

I would suggest that the solution would start with BETTER SPENDING of what is already collected in taxes.  Once that is accomplished, then we talk about raising taxes if it is truly needed.

[Cardboard]

One thing is certain, cutting corporate taxes to make them more competitive with the rest of the world is one of the best thing done in the U.S. in a long time.

 

Leaving aside some of the rest of the politics, Canada is losing HQ's, plants, foreign investment heading down big time and this despite a very low Loonie vs USD. You can only come to the conclusion that a lower tax burden is playing a big part into corporate decision making as to where to be.

 

Regarding revenues vs spending, I have to agree with DTEJD1997. Tremendous amount of waste at all level of government. Terrible incentives as Munger would say. I am also amazed at how big Washington D.C. has become over the past 25 years.

 

Cardboard

[Guest MarkS]

I'm of the opinion that we should increase taxes and cut spending. I'm sure that'll cut into economic growth in the short term but long term the country would be better off, I believe. People are way too afraid of a slow or no growth economy.  Too much easy money and a too easy of a life makes people weak.

 

Increase taxes?  There is a HUGE problem with the money we already collect.  Here in Michigan, untold BILLIONS are collected for "edukation".  For example, property taxes (which are high, sometimes HIGHEST in the nation), State Lotto sales, Gasoline tax, and others ALL go to fund "edukation".  As such, we have some of the WORST skools in the country.

 

Meanwhile, the infrastructure in MI is literally falling apart.  We have absolutely some of the WORST roads in the country.  We have had cutbacks in municipal services also.  For example, when I was a young man, the sidewalks & streets were plowed when there was maybe 1+ inches of snow.  Today, only the main arteries are plowed/salted.  Neighborhood side streets are NOT plowed at all.

 

There are other very serious problems in MI. 

 

I would suggest that the solution would start with BETTER SPENDING of what is already collected in taxes.  Once that is accomplished, then we talk about raising taxes if it is truly needed.

 

One of Michigan's big problems, along with many other states, are it's underfunded pension and retiree healthcare funds.  For years state and local municipalities have been siphoning funds from other areas like road maintenance and education to meet their pension responsibilities. https://www.mackinac.org/pension

This is another ticking time bomb the country will eventually have to deal with - probably by bailing out lots of states.

[cubsfan]

Too much easy money and a too easy of a life makes people weak.

 

Oh, that is such a brilliant comment, and hits at the crux of the problem in America.

So many people, (gov workers, etc) - want something for NOTHING.

 

Where did the idea of sacrifice and work ethic go?

 

With government - cutting spending has to happen - I live in Illinois - and there is going to be a tax revolt here one of this days.

Real estate taxes are out of control, Chicago city taxes are out of control and city workers don't actually work.

Pensions, etc - they all want to retire at 50 with full pension/benefits and get a second job.

 

It's a ticking time bomb - raising taxes will be the route they take, until the public revolts and forces spending down.

I hope I am out of here by then...Florida, here I come!

[DooDiligence]

Too much easy money and a too easy of a life makes people weak.

 

Oh, that is such a brilliant comment, and hits at the crux of the problem in America.

So many people, (gov workers, etc) - want something for NOTHING.

 

Where did the idea of sacrifice and work ethic go?

 

With government - cutting spending has to happen - I live in Illinois - and there is going to be a tax revolt here one of this days.

Real estate taxes are out of control, Chicago city taxes are out of control and city workers don't actually work.

Pensions, etc - they all want to retire at 50 with full pension/benefits and get a second job.

 

It's a ticking time bomb - raising taxes will be the route they take, until the public revolts and forces spending down.

I hope I am out of here by then...Florida, here I come!

 

You can buy a really nice waterfront home in NWFL for around $500K - 700K.

The higher end gets you a property with more elevation & lower flood premiums.

 

Cost of living is low.

No state income tax.

Beautiful beaches.

Tolerable winters.

[cubsfan]

I'm there Doo!!

[DTEJD1997]

Too much easy money and a too easy of a life makes people weak.

 

Oh, that is such a brilliant comment, and hits at the crux of the problem in America.

So many people, (gov workers, etc) - want something for NOTHING.

 

With government - cutting spending has to happen - I live in Illinois - and there is going to be a tax revolt here one of this days.

Real estate taxes are out of control, Chicago city taxes are out of control and city workers don't actually work.

 

I have no doubt that real estate taxes are bad in IL....but I VERY MUCH DOUBT they are ANYWHERE near as bad as what they are in the metro Detroit area.

 

There are two problems with commercial property taxation in the Detroit area.

 

1). Properties tend to be "over assessed".  I started a thread here a couple of years describing my experiences buying a couple of office buildings in a nearby suburb of Detroit.  I took a BIG GAMBLE with the taxes when I bought them.  They were indeed over assessed.  Had I not contested the taxes, I would have been paying about 30% of the property's value a year in taxes.  I contested the assessment and am now only paying about 17% of the property value a year in taxes. 

 

My situation is a bit odd, but it still shows that there is some EXTREME over assessment of property.

 

2). The actual and "correct" tax rates are very high to begin with.  A neighboring city has an effective tax rate of just over 5% of true market value on commercial property.  That is like a mortgage that can NEVER be paid off.  It is crushing property values AND reducing the market.

 

 

Needless to say, this is a bad situation. 

 

Obviously property taxes need to be paid, but the spending by local government is WILDLY out of control.  In my little suburb of 32,000 people, there are 14 property inspector/code enforcement vehicles parked at city hall!  I would assume that there are about an equal amount of inspectors?  What does a city of my size need with so many inspectors?  The city is largely built out.  It is mainly residential, but there is some commercial and maybe a touch of industrial?

 

We have no odd geography (built on side of mountain) and no bodies of water to create an extra hazard for buildings or builders.  There is almost NO new construction going on...all the houses and buildings are already built out.  I would think 2-3 full time inspectors could easily get the job done if they were efficient.

 

Residential property taxes are high, but no where near as bad as commercial.

 

Another problem that we are grappling with is the high rate of water/sewage.  It is actually a stealth tax.  In my two little office buildings, there is effectively NO water/sewage usage in one, and little in the other.  The only water usage in the one building is "normal" usage of 1-2 office workers.  The toilet gets flushed a couple times a day, the sink is turned on, sometimes water is used for coffee/tea.  No water is used in commercial production...just normal office functions.  The water/sewer bill is AT LEAST $120/month, sometimes close to $150.

 

So we don't need any higher taxes...we need the government to do MORE work, that is HIGHER QUALITY, with LESS MONEY.  Just like the private sector has done!

[scorpioncapital]

I question the concept of allegiance or patriotism to debt payback. I mean, I can move now to a small European country with no to little income tax and no tax on capital. They don't go to wars, they don't have to deal with so many people. Things run just fine. Is there a reason I should take the higher American taxes just because I should help the country out?

[TwoCitiesCapital]

Realistically - we would need to do something like cut spending and/or freeze it at some level below revenue for 5-10 years. It might take something extraordinary like fixing rates on Federal debt too - but we're probably not there yet. Global demographics will keep U.S. treasury rates lower for a bit of time.

 

I'd be down for raising federal taxes on all brackets and pushing more responsibility to the state and local govts that are more easily held accountable, but let's just be honest. Nothing is going to happen.

 

State/Local/Federal govts all run deficits, all spend irresponsibly, and nothing will change that. When it blows it - I'm betting that it will be blamed on capitalism... ironically

[Cardboard]

What about military spending?

 

The U.S. is spending way too much on that during peace time. It should be something that could be ramped up and down depending on need.

 

Cardboard

[Spekulatius]

Too much easy money and a too easy of a life makes people weak.

 

Oh, that is such a brilliant comment, and hits at the crux of the problem in America.

So many people, (gov workers, etc) - want something for NOTHING.

 

Where did the idea of sacrifice and work ethic go?

 

With government - cutting spending has to happen - I live in Illinois - and there is going to be a tax revolt here one of this days.

Real estate taxes are out of control, Chicago city taxes are out of control and city workers don't actually work.

Pensions, etc - they all want to retire at 50 with full pension/benefits and get a second job.

 

It's a ticking time bomb - raising taxes will be the route they take, until the public revolts and forces spending down.

I hope I am out of here by then...Florida, here I come!

 

You can buy a really nice waterfront home in NWFL for around $500K - 700K.

The higher end gets you a property with more elevation & lower flood premiums.

 

Cost of living is low.

No state income tax.

Beautiful beaches.

Tolerable winters.

 

Summers are less tolerable. There are also no well paid jobs in North West Florida, which is the issue with most nice low  tax states. Of course for retirement , it doesn’t matter and that why the folks from the NE like to move there. Schools are also rumoured to be terrible.

 

I have lived in 3 states so far and at least in NY and MA, the high taxes paid for a relatively safe environment and good schools. Illinois and particular Chicago seems to be basket case to me, because it appears to have neither of the above and high taxes.

[rb]

I have lived in 3 states so far and at least in NY and MA, the high taxes paid for a relatively safe environment and good schools. Illinois and particular Chicago seems to be basket case to me, because it appears to have neither of the above and high taxes.

Take a look at Lake Forrest, IL.

[Guest MarkS]

Here is the link to the U.S. National Debt Clock.  I actually find it interesting.    http://www.usdebtclock.org

Most interesting is the 122 Trillion in unfunded liability ( over 1 million  for each taxpayer).

[Cigarbutt]

Here is the link to the U.S. National Debt Clock.  I actually find it interesting.    http://www.usdebtclock.org

Most interesting is the 122 Trillion in unfunded liability ( over 1 million  for each taxpayer).

These depictions are interesting but like the mandated publicity on cigarette packs (black lungs, photos of people on chemo etc), the sensational aspect wears off quite rapidly, especially if you're addicted to nicotine.

 

This is truly a bipartisan problem/issue and here's a graphic link with relevant info also about military spending. It seems to me that a combination of expense reduction and revenue increase is doable.

https://www.debtconsolidation.com/us-debt-presidents/

 

With all the talk about decline (Mr. Munger etc), it's noteworthy to remember that it's not the persistently high military expenditures that broke Pax Romana, it's when the Romans' intrinsic capacity to generate revenue declined and when they had to outsource protection at the borders of the Empire where the Barbarians were waiting at the door.

 

[Guest MarkS]

Here is the link to the U.S. National Debt Clock.  I actually find it interesting.    http://www.usdebtclock.org

Most interesting is the 122 Trillion in unfunded liability ( over 1 million  for each taxpayer).

These depictions are interesting but like the mandated publicity on cigarette packs (black lungs, photos of people on chemo etc), the sensational aspect wears off quite rapidly, especially if you're addicted to nicotine.

 

This is truly a bipartisan problem/issue and here's a graphic link with relevant info also about military spending. It seems to me that a combination of expense reduction and revenue increase is doable.

https://www.debtconsolidation.com/us-debt-presidents/

 

With all the talk about decline (Mr. Munger etc), it's noteworthy to remember that it's not the persistently high military expenditures that broke Pax Romana, it's when the Romans' intrinsic capacity to generate revenue declined and when they had to outsource protection at the borders of the Empire where the Barbarians were waiting at the door.

 

I hope you're right.  But I'm not as sanguine about our debt. 

Federal Debt - 22 Trillion

Present value of  unfunded federal liabilities -  49 Trillion

State and municipal debt - 3 Trillion

Unfunded state municipal pension plans - ?

 

You're looking at about 75 to 80 Trillion dollars of U.S. Government debt, including state and municipal.  The world's GDP is about 80 Trillion.

Perhaps government debt doesn't matter?  I hope so because we have a lot of people asking for medicare for all along with open borders and a green new deal.

[DooDiligence]

Here is the link to the U.S. National Debt Clock.  I actually find it interesting.    http://www.usdebtclock.org

Most interesting is the 122 Trillion in unfunded liability ( over 1 million  for each taxpayer).

These depictions are interesting but like the mandated publicity on cigarette packs (black lungs, photos of people on chemo etc), the sensational aspect wears off quite rapidly, especially if you're addicted to nicotine.

 

This is truly a bipartisan problem/issue and here's a graphic link with relevant info also about military spending. It seems to me that a combination of expense reduction and revenue increase is doable.

https://www.debtconsolidation.com/us-debt-presidents/

 

With all the talk about decline (Mr. Munger etc), it's noteworthy to remember that it's not the persistently high military expenditures that broke Pax Romana, it's when the Romans' intrinsic capacity to generate revenue declined and when they had to outsource protection at the borders of the Empire where the Barbarians were waiting at the door.

 

That's a scary scenario.

[rb]

The unfunded liability headline number is bullshit.

[Guest MarkS]

The unfunded liability headline number is bullshit.

 

I'm using credible sources like https://www.usnews.com/opinion/economic-intelligence/articles/2016-12-01/myths-and-facts-about-the-us-federal-debt and https://www.forbes.com/sites/johnmauldin/2017/10/10/your-pension-is-a-lie-theres-210-trillion-of-liabilities-our-government-cant-fulfill/#2ad6ba6165b1

 

If anything it appears that the 120 Trillion in unfunded liability might be understated.

 

I am interested in your opinion.  If you would like to expand on your statement i would appreciate it.

[rb]

I apologize. I realize now that I should have expanded on it.

 

So there is such a number that is called unfunded liability and I think from memory that 120 Trillion sounds about right. But the only useful thing about that number is that you can use it to write scary headlines. 120 trillion sounds very big. Then you add the word unfunded which sounds very scary. But the unfunded liabilities number is meaningless in itself. Here's why.

 

The unfunded liabilities counts the total future payments under a number of programs - though social security and medicare make up the bulk of it. The present value of the unfunded liability I think is around 50 Tn. But the real reason the number is meaningless is that it doesn't take into account the payroll tax the the US government collects to pay for these benefits. If we would shut down the US economy today, then yes you would have a 50 trillion liability. However the US economy will not shut down today. It employs millions of people and it will employ more people every year in the future. These people, as anyone who gets a paycheck knows, will pay lots and lots of trillions to offset that liability.

 

Looking at the unfunded liability is like looking at a the liability of a life insurance policy and ignoring the premiums. It's meaningless. What one should look at to get to any sort of meaning is a sort of funding gap: PV of unfunded liability - PV of future payroll taxes. But then the stories would become a lot more boring.

[Guest MarkS]

I apologize. I realize now that I should have expanded on it.

 

So there is such a number that is called unfunded liability and I think from memory that 120 Trillion sounds about right. But the only useful thing about that number is that you can use it to write scary headlines. 120 trillion sounds very big. Then you add the word unfunded which sounds very scary. But the unfunded liabilities number is meaningless in itself. Here's why.

 

The unfunded liabilities counts the total future payments under a number of programs - though social security and medicare make up the bulk of it. The present value of the unfunded liability I think is around 50 Tn. But the real reason the number is meaningless is that it doesn't take into account the payroll tax the the US government collects to pay for these benefits. If we would shut down the US economy today, then yes you would have a 50 trillion liability. However the US economy will not shut down today. It employs millions of people and it will employ more people every year in the future. These people, as anyone who gets a paycheck knows, will pay lots and lots of trillions to offset that liability.

 

Looking at the unfunded liability is like looking at a the liability of a life insurance policy and ignoring the premiums. It's meaningless. What one should look at to get to any sort of meaning is a sort of funding gap: PV of unfunded liability - PV of future payroll taxes. But then the stories would become a lot more boring.

 

I appreciate your answer.  Thank you.  As I understand the system - and I might not understand it well enough -  when social security started you had approximately 7 workers for every retiree and the system functioned beautifully.  Unfortunately that number has been trending much lower over the decades and is now around 2.5 workers for every retiree.

https://www.pgpf.org/chart-archive/0004_worker-benefit-ratio

I've read where we need at least 3 workers for every retiree just to have a stable social security system.  It actually appears tbat the trend is for less workers per retiree in the future and not more.  As I understand it, Medicare is in much worse shape than social security.  So I tend to disagree.