Responses - The Debt Ceiling Example Of Why We Need A Mindset Change

The original subject posting brought many comments that I really appreciate – this is how we all learn including this series of exchanges from a long time reader who always questions everything as you can see below – my responses are in red to each of his points:

 

This professor (Krugman) does not agree with you.  Maybe he does not read the news.  Or should he be hit with the stupid hammer, my fingers know how it feels.

 

Most people start to produce wealth for themselves when they go into debt like buying a house with 20% down & an 80% mortgage. At the end of 30 years they have some real wealth that started with debt so debt is not a bad factor when it is a reasonable size compared to the income a person or country has. The problems with debt start when spending is too great as Professor Friedman taught. More simply – just live within your means to avoid trouble.

 

The home owners scenario works - the Federal Government debt does matter - otherwise why are we paying taxes?

 

Of course debt is important but the danger comes from too much spending beyond our taxing means. We are paying taxes to meet the burden borne by the American economy from spending on government programs. Just look @ the example I gave in the original posting – the burden is greater with a $2 trillion spending budget & no deficit than with a $1 trillion spending budget & a $500 billion deficit. BO wants us to keep our eye on the deficit while spending keeps going up – a financial loser for taxpayers but all in the name of deficit reduction. To use a calculus term – spending is the derivative of deficits.

 

Other responses:

 

---Response #1---

 

I do not always agree with you, but this time I do.  2013-2014 are years when the camels back is broken: Bad times.  Now both parties blame each other for rising deficits - makes good reading in the papers.  I pray I am wrong.

 

---Response #2— From our Wall Street Financial VP

 

Very relevant post  - Total debt has been growing almost 10% a year since 2008 while our GDP in 2011 Q4 just recovered to level prior to recession. Projections are our GDP will only grow 2% a year while spending and debt grow at almost 10% a year. Sooner or later our creditors will realize that financing our debt is not a great way to preserve capital. All hell will then break loose. So what can US do?

1 - across board 30% cut from our $3.8 trillion budget over 2 years or 15% per year. This will cut $1.2 trillion annually from $1.6 trillion projected annual debt increase. Bring spending back to 2007 levels adjusted for inflation.

2 - implement the FairTax for at least 2 reasons – A) reward success, grow economy, improve GDP to debt ratio and B) save $430 billion per year with replacement of IRS. Use this to reduce debt. This figure added to $1.2 trillion above reaches target projected annual deficit increase of $1.6 Trillion.

3 -- use Canada as an economic best practice. They safely drill for energy (oil, shale, gas, coal, frac, etc) and have a 6.5% unemployment rate. Our economic growth depends on energy. Greater domestic supply will decrease imports adding to our GDP.