Yesterday morning, Senator Jeff Sessions’s office circulated a chart showing that government debt per capita in the U.S. is greater than it is in Greece and other European welfare states such as Spain and Italy. I have mentioned before that IMF data shows that the U.S. government’s financing needs are “exceptionally high” and higher than any other country with the exception of Japan. In 2010, the United States, for instance, needed to sell debt equivalent to 32 percent of GDP in order to rollover maturing debt (21 percent of GDP) and cover new deficits (11 percent of GDP).
These data, while scary, don’t tell us very much about how close the United States is to being in gigantic trouble. I mean, we know our prospects are grim, but no one can seriously say when investors will only lend to the U.S. in exchange for exorbitant interest rates or will refuse to lend to Washington at all. That’s because there is more that goes into investors’ decisions about a country’s debt than just the level of its debt burden. In fact, we know that investors rate countries on a curve. In other words, as long as the U.S. looks like a better “investment” than EU nations or China, things are unlikely to go terribly wrong — at least for a while.
But things could change. In fact, some things are already changing. It may seem minor, but the Wall Street Journal had a story about how the Greek-government-debt restructuring is exposing the fact that investors today perceive government bonds (including U.S.-government bonds) to be riskier than they were in the past, and, in some ways, riskier than corporate bonds.
As you can see, U.S.-government bonds continue to be perceived as less risky than other government bonds, yet it’s also unprecedented in history for it to be more expensive to insure against the risk associated with holding U.S. debt than IBM corporate bonds. These are unusual times.
Finally, it would be a terrible mistake to assume that, because rates are low for now, they will stay at these levels. For more on this, read this symposium on the potential of a U.S. default put together by the Mercatus Center and the Econ Journal Watch.
I'd be curious to know this number for each ascending year of Obama debt. How bad has he damaged us, year after year?
Reply to this commentLinkReport AbuseAbout eight years ago, the $600,000 starter house was also widely considered a no-risk purchase.
Reply to this commentLinkReport AbuseI think a lot of people forget about the roll-over debt when they look at the debt/interest rate picture. They think that as long as interest rates aren't climbing right now, things are stable. In fact, if interest rates are higher than they were 5 and 10 years ago, then in fact, things are getting worse, as older debt matures and has to be replaced by new debt at current rates.
I don't remember the exact ratios, but a significant fraction of US treasuries are issued in the form of 1 to 5 year bonds.
Reply to this commentLinkReport AbuseYou write: "I mean, we know our prospects are grim, but no one can seriously say when investors will only lend to the U.S. in exchange for exorbitant interest rates or will refuse to lend to Washington at all."
What you don't write is how you know. It's a prediction, and conservative economists have a poor prediction record over the past decade. The Bush tax cuts didn't flood the treasury with revenue. The stimulus didn't lead to hyper-inflation.
Krugman has been more accurate (luckier?). We have continuing low interest rates despite large temporary deficits. He also predicted the housing bubble collapse that led to our present mess.
Reply to this commentLinkReport AbuseI love the way liberals have to re-write history in attempt to make themselves look smart.
1) Bush's tax cuts did increase revenue to the treasury, nobody ever claimed they would flood the treasury with revenue.
2) Nobody ever claimed that the stimulus would result in hyper-inflation. The claim is that printing money results in inflation, and core inflation is taking off. It isn't reflected in the official numbers, but the official numbers are designed to hide inflation.
Krugman hasn't been right about anything in decades.
Reply to this commentLinkReport AbuseMost importantly, the stimulus didn't lead to stimulus.
But stimulus-minded policies did lead to a debt explosion that no tax cut and no war ever would have given us. And like NYC in the early 1970s, there's no problem at all -- because people are still showing up for the debt auctions.
Then there was that day when they held the bond auction and no one showed. That's the day they say the crisis began. Really, who could have seen that coming?
Reply to this commentLinkReport AbuseBefore the Bush tax cuts there was a surplus. After there was a deficit. How is that an increase?
You don't remember people saying hyper-inflation was around the corner? Did you watch Fox or read the Wall Street Journal? This post is a prediction of hyper-inflation (or some other calamity), which will not happen either.
Independent economists and the CBO estimate that the stimulus helped the economy by saving 3 million jobs. In other words, responsible economists believe that the economy now (in slow recovery) is much better than it would have been without stimulus. If you are so inclined, you can check all this. If not, links will not help you.
Reply to this commentLinkReport AbuseI love the way liberals pretend to be able to do math.
In liberal land deficits and surpluses are defined by receipts alone.
In the real world, the rest of us are able to notice the big increases in spending.
I love the way he defines independant as economists who either work for the govt or liberal think tanks.
Reality is that the stimulus not only didn't work, but hurt the economy, as govt spending always does.
Reply to this commentLinkReport AbuseSo the economy is better because the government used other people's money (and money it printed, same thing) to prevent markets from clearing and prices from resetting?
Do those same economists (the responsible ones!) wonder why the recovery is slow? Or was raiding OPM their objective all along and "stimulus" just a pretext to silence the rubes?
I'm gonna click on one of these paid ads in the sidebar -- I can save a few hundred jobs after the multiplier is applied!
Reply to this commentLinkReport AbuseIn light of the demonstrated incompetence of the bond insurance industry to assess the risk of mortgage backed bonds and CDO's in the 2005-2008 period, we should be extremely skeptical of their current assessment of the comparative risk of corporate bonds and sovereign debt. In fact I give their pricing decisions no credence at all.
Reply to this commentLinkReport AbuseIsn't some of that risk due to political, rather than financial, risk? IBM bondholders don't have to worry about IBM management deciding to default to make a political point and therefore don't have that priced in.
Reply to this commentLinkReport AbuseI don't know about ENI or Telefonica, but I'd definitely invest in any of the other corporates before US treasuries.
Even then, I'd only consider voluntarily putting money in Danone or National Grid as they sell to needs rather than wants. Thus they're more likely to survive and possibly even be profitable.
Even then, I'll be sticking with needs providers based in countries less likely to nationalize them when things really start to hit the fan.
Reply to this commentLinkReport AbuseThe debt of industry-dominating global corporates such as Nestle and ExxonMobil is higher-rated than all sovereign debt but Treasuries. Which are best thought of as providing return-free risk, not v-v.
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