Summary of the project
There are few pessimists who believe the national debt will never be paid down. Referring to recent history, they claim that there is no way government can even reduce the debt in the future.
“Consider that from 1985 to present, the national debt has grown at more than 8.5 percent a year on average, such that today the gross debt to GDP ratio is more than 100 percent. Yet, the economy nominally has only grown about 5 percent a year on a non-inflation adjusted basis.”
The american government had a long history of defaulting debt. The last time national debt reduces is more than half century ago in 1958. These people believe the government careless style of spending had pushed the nation past the point of no-return. By 2044, at the rate of 8.5 percent a year, the national debt will be $227.6 trillion, but the estimated GDP will only be $77.1 trillion, with a gross debt to GDP ratio of 294 percent. At that time, government had to spend around 20 percent of revenue just for paying the interest alone. The whole thing will be a disaster.
While the pessimists believe government can’t do anything to prevent this from happening, their arguments appear to be naive. First of all, officially, there is not a point of no return. “Economists had long tried to determine a tipping point at which national debt will strangle an economy. The most infamous effort – by Carmen Reinhart and Kenneth Rogoff, which located that point at 90 percent of GDP – collapsed upon examination.” Since the current 101 percent is only a little higher than 90 percent, certainly, U.S. government still has the power to turn the tide. Besides, there is a legitimate reason account for the recent increase in national debt- the depression. Until 2008, America had successfully maintained the debt at around 40 percent and 60 percent for decades, which was healthy base on international standards. Six years after 2008, the debt did go up rapidly, but the fact that nobody can ignore is economy recovered effectively. “Obama’s debt is a continuation of that trend and neither Bush nor Obama are directly responsible for that acceleration. It happened because of the recession.” No one can blame Obama for failing to raise tax rate to keep up tax revenues in those six years, just as no one can mark the 40 percent increase in national debt as irresponsible.
While people were bolstering the no-return debt crisis, on the very opposite side, plenty of economist believe that there is no crisis in sight in term of national debt at all.
“Worries about the national debt are warranted, but they are exaggerated and distorted in the popular media. The debt’s absolute size is not as important as its rate of growth. And if we can slow the growth rate to match GDP growth, then there is no need to shrink the debt.”
The federal budget deficit was $506 billion for fiscal 2014. That’s about a third the size of the deficit in 2009. Since deficit has fallen from more than 10% of GDP in fiscal 2009 to only 2.9% GDP in fiscal 2014, these economists believe the nation is already on the way of securing debt stability in the future. After, government has no need to pay down the debt fully. As long as the debt continues to grow at a reasonable rate that is pegged to GDP growth, then a large amount of government debt would even ensure American financial stability. “Serious threats of default induced by a misplaced zeal for fiscal responsibility may be the most dangerous threat of all. When it comes to the national debt, keeping a promise to pay is more important than its size.”
It is important to know that, in turn of national debt, debt/GDP ratio is much important the debt size itself. While there are enough reasons to show the legitimacy of recent debt increase, it is rising to unprecedented – and probably unsustainable- levels. “Under official budget projections, the public debt of the U.S. is projected to grow to about 100% of the economy by 2035 and nearly 150% and still climbing by 2050.” This data is exaggerated in a way that not a somber would permit government to keep adding national debt at current rate, but it also highlights an important fact that government should cut down its deficit sometime in the recent future, at least keep down the debt/GDP ratio, and reduce the debt if possible.
Here are ways to do it:
“Consider that from 1985 to present, the national debt has grown at more than 8.5 percent a year on average, such that today the gross debt to GDP ratio is more than 100 percent. Yet, the economy nominally has only grown about 5 percent a year on a non-inflation adjusted basis.”
The american government had a long history of defaulting debt. The last time national debt reduces is more than half century ago in 1958. These people believe the government careless style of spending had pushed the nation past the point of no-return. By 2044, at the rate of 8.5 percent a year, the national debt will be $227.6 trillion, but the estimated GDP will only be $77.1 trillion, with a gross debt to GDP ratio of 294 percent. At that time, government had to spend around 20 percent of revenue just for paying the interest alone. The whole thing will be a disaster.
While the pessimists believe government can’t do anything to prevent this from happening, their arguments appear to be naive. First of all, officially, there is not a point of no return. “Economists had long tried to determine a tipping point at which national debt will strangle an economy. The most infamous effort – by Carmen Reinhart and Kenneth Rogoff, which located that point at 90 percent of GDP – collapsed upon examination.” Since the current 101 percent is only a little higher than 90 percent, certainly, U.S. government still has the power to turn the tide. Besides, there is a legitimate reason account for the recent increase in national debt- the depression. Until 2008, America had successfully maintained the debt at around 40 percent and 60 percent for decades, which was healthy base on international standards. Six years after 2008, the debt did go up rapidly, but the fact that nobody can ignore is economy recovered effectively. “Obama’s debt is a continuation of that trend and neither Bush nor Obama are directly responsible for that acceleration. It happened because of the recession.” No one can blame Obama for failing to raise tax rate to keep up tax revenues in those six years, just as no one can mark the 40 percent increase in national debt as irresponsible.
While people were bolstering the no-return debt crisis, on the very opposite side, plenty of economist believe that there is no crisis in sight in term of national debt at all.
“Worries about the national debt are warranted, but they are exaggerated and distorted in the popular media. The debt’s absolute size is not as important as its rate of growth. And if we can slow the growth rate to match GDP growth, then there is no need to shrink the debt.”
The federal budget deficit was $506 billion for fiscal 2014. That’s about a third the size of the deficit in 2009. Since deficit has fallen from more than 10% of GDP in fiscal 2009 to only 2.9% GDP in fiscal 2014, these economists believe the nation is already on the way of securing debt stability in the future. After, government has no need to pay down the debt fully. As long as the debt continues to grow at a reasonable rate that is pegged to GDP growth, then a large amount of government debt would even ensure American financial stability. “Serious threats of default induced by a misplaced zeal for fiscal responsibility may be the most dangerous threat of all. When it comes to the national debt, keeping a promise to pay is more important than its size.”
It is important to know that, in turn of national debt, debt/GDP ratio is much important the debt size itself. While there are enough reasons to show the legitimacy of recent debt increase, it is rising to unprecedented – and probably unsustainable- levels. “Under official budget projections, the public debt of the U.S. is projected to grow to about 100% of the economy by 2035 and nearly 150% and still climbing by 2050.” This data is exaggerated in a way that not a somber would permit government to keep adding national debt at current rate, but it also highlights an important fact that government should cut down its deficit sometime in the recent future, at least keep down the debt/GDP ratio, and reduce the debt if possible.
Here are ways to do it:
- Flat Tax of 25% on all classes
- Set a defined limit to the budget deficit
- Redirect the money spent on medicare and social security
- Raise the retirement age