Paying Down Debt

[Celticguy]

https://www.cnbc.com/2022/06/09/cre...after-stimulus-checks-helped-reduce-debt.html

WOW

thanks.

 

[Flash]

And this has resulted in a pretty substantial decline in federal debt as a share of GDP. Back in mid-2020, the amount of federal debt was about 136% the size of our GDP, whereas now it's down to around 125%.

The overall trend is increasing:

2016: 105.2
2017: 104.6
2018: 105.4
2019: 106.8
2020: 128.1
2021: 137.2
2022: 124.6 (Q1)

 

[T. A. Gardner]

As many people know, the federal deficit shrank considerably in 2021. What may not be understood is just how aggressive that improvement was. In dollar terms, the decline of the deficit in 2021 was the second-most in any year in American history (just behind 2013). And this has resulted in a pretty substantial decline in federal debt as a share of GDP. Back in mid-2020, the amount of federal debt was about 136% the size of our GDP, whereas now it's down to around 125%.

That part of the story has been widely discussed. But what you hear less about is the decline in private debt. Household debt is about 80% of GDP right now, down from around 101% at the end of the Bush years. These days, household debt eats up about 9.3% of disposable personal income, versus about 13.2% at the end of the Bush years.

That's not just because the Bush years were catastrophic for American households (though they were). It's that there's been a massive deleveraging even relative to pre-Bush years. During the whole period from 1980 through 2011, the lowest the debt burden ever went for households was 10.25% of disposable income, versus 9.34% today.

Given the extreme media prejudice in favor of negativity, I think it's worth taking a step back to look at the areas where things are improving, because the media won't mention them. It's probably been a half century, at least, since debt was eating up people's budgets as little as it has been in the last few years.

https://fred.stlouisfed.org/series/TDSP

Ironically, this may actually be playing into one of the current problems we're facing: high inflation.

For most products, people have flexibility to substitute cheaper options in the face of higher prices: like if meat prices are up, you can eat less meat, and if gas prices are up, you can car-pool, walk, bike, take public transit, drive slower, downsize your vehicle, etc. And those things, in turn, cut demand for the high-priced goods, lowering inflation. But that relies on price sensitivity.

Are you distressed enough that when ground beef rises to $4.80/lbs, you are willing to switch to chicken at $1.85/lbs, or beans at $0.80/lbs? If you're price insensitive, you'll just go on buying what you were buying before and griping about it, rather than making such moves. And if you're feeling less pressed by household debt than at any point in decades, it makes sense that your reaction to price increases would be more likely to consist of impotent complaining, rather than any moves that would put downward pressure on prices. Right now we have a nation of households that have less of their disposable income going to debt than at any point in maybe half a century, so it makes sense few are making the economizing moves that would lower demand for the higher-priced goods.

If the government were doing things right the odds on favorite right now would be people wouldn't have to make those choices. They could still afford beef if that's what they wanted rather than having to switch to something cheaper because they can't afford it. When government interference and incompetence in the economy hurts your standard of living, you should seek to replace it with a government that doesn't do that shit, not seek alternatives and put up with those asshole politicians that fucked up your life.

 

[Mina]

The overall trend is increasing:

2016: 105.2
2017: 104.6
2018: 105.4
2019: 106.8
2020: 128.1
2021: 137.2
2022: 124.6 (Q1)

Yes. Although the deficit decreased last year and also in the Obama (and Clinton) years, there was a spectacular increase in deficits under Bush and Trump, and that's been driving an overall increase in debt as a share of GDP.

The frustrating thing is that none of this is a surprise. We've seen the same pattern over and over. Debt fell as a share of GDP for a long, long time between 1946 and 1981, but then Reagan pushed for a huge reduction in taxes on the rich and a big boost in military overspend, and that long trend reversed, and we had a period of debt growing as a share of GDP. Then we elected a more responsible president, Clinton, and started to fix the damage. But then the Supreme Court's conservatives appointed Bush president and he pushed through a huge reduction in taxes on the rich and big boost in military spending. Yet again, there was a period of debt exploding as a share of GDP. That basically flat-lined in the second half of the Obama years, thanks to more responsible policies, but then Trump pushed through upper-class tax cuts and higher military spending, and before long we had record debt as a share of GDP.

If we stick with a Democratic president, I expect debt will tend to come down over time, relative to GDP at least. The Dem's veto will tend to stand as an obstacle against any renewed attempt to slash taxes for the wealthy, as well as serving as a hedge against military spending growing faster than the economy. But if we get another Republican president, presumably we'll repeat the Reagan/Bush/Trump mistakes, with similar results.

 

[Mina]

If the government were doing things right the odds on favorite right now would be people wouldn't have to make those choices.

What should it be doing differently, exactly?

Recall, there are three major components to the inflation issue, at the moment:

(1) Supply chain issues triggered by the pandemic, which still haven't worked themselves out.
(2) An oil and food shock from Putin having started a war in Europe.
(3) A hangover from central banks around the world having slashed rates sharply to stimulate economies during the pandemic.

So, which of those should we be addressing and how?

The third of those issues is likely the least consequential to people's lifestyles, since by nature it's just higher prices driven by higher earnings (i.e., people have more money to spend, in nominal terms, so the stuff they buy rises in nominal price commensurately). It's effectively a net-neutral for people. The bigger problem isn't a money-supply one, which just alters nominal prices with no meaningful impact on people in terms of real price. Rather the problem is a shifting of the supply-demand balance. Too many people want to eat beef, relative to the supply of beef, so the price gets bid up even relative to rising incomes.

You don't like the idea of people reducing demand for the higher-price items to address that (e.g., eating less meat). So, a solution would then have to tackle the supply side of the equation. So, how do we increase the supply of beef to drive down its price?