The Senate approved a $1.9 trillion increase to the debt ceiling, which will get us through the end of the year (yes our debt is increasing $2 trillion this year). It seems like only yesterday when $10 trillion was reached, no wait, it was early Oct. 2008. That means that in two years time we will have increased it 40%. Incredible.
This increase will see us reach about 100% of the debt to GDP number, which historically is when things start to get dicey and a country can expect lower growth. OK, technically a large chunk of that is made up of IOUs to Social Security and the like, with our public debt rising closer to 70%, but we will have to pay back those IOUs over the coming years so I don’t see how they can be counted separately.
However, that’s the official GDP, and there are real and growing questions about how accurate that figure is. A commenter pointed me to Chris Martenson a few weeks ago, who has created a series of videos about the basis of our economy and its implications that I highly recommend. I think he is dead on, and the consequences and challenges we are going to face over the next decades are mind boggling.
For now though I’d like to point out his video about government statistics, which is something that I’ve been harping on for a while now.
He explains how a decades long bipartisan process has completely undermined the quality of government statistics on the economy, a process that has been accelerating recently. The video is really good (and outrageous) but what is important to this post are his claims about GDP. He states that in 2003 a full 35% of of the official number was made up of non-transactional adjustments, or in other words, stuff that didn’t happen. Assuming that nothing has changed since then, it suggests that our real debt to GDP number will be nearly 150%. Then, consider that a massive amount of our GDP is based on non productive uses like healthcare and defense, not to mention consumer consumption. That makes our long term ability to pay even worse. Our national debt crisis isn’t something that is going to happen, the ship has long sailed. The only question is what to do about it.
I personally think that Joseph Stiglitz has the best framework as shown here:
A part that he left out was letting the banks fail and wiping out a large amount of their debt. I also think that we could partially default on our national debt at the same time. Unfortunately his plan would only work if our politicians are competent and honest. If the last few years have shown anything, it’s that this is the furthest thing from the truth and any large scale government investment program would most likely fall apart due to cronyism and fraud. There is a very good chance that no economic recovery will happen without a political one.