2020.04.11 00:00
I got this information as below, yesterday, too serious to read alone and throw away!
Enjoy another weekend under the house arrest.
https://www.thebalance.com/trump-plans-to-reduce-national-debt-4114401
During the 2016 presidential campaign, Republican candidate Donald Trump promised he would eliminate the nation’s debt in eight years. Instead, his budgets would add $8.3 trillion during that time. It would increase the U.S. debt to $28.5 trillion at the end of eight years, according to Trump's budget estimates.
While a candidate, Trump had two strategies to reduce U.S. debt. He promised to grow the economy by 6% annually to increase tax revenues. But once in office, he lowered his growth estimate to 2%-3%.
These more realistic projections are within the 2%-3% healthy growth rate. When growth is more than that, it creates inflation. Too much money chases too few good business projects. Irrational exuberancegrips investors. They create a boom-bust cycle that ends in a recession.
Trump had promised to achieve 4% growth with tax cuts. In his first 100 days, he released the outline of what would become the Tax Cuts and Jobs Act. It cut the corporate tax rate from 35% to 21% beginning in 2018. The top individual income tax rate drops to 37%. It doubles the standard deduction and eliminates personal exemptions. The corporate cuts are permanent, while the individual changes expire at the end of 2025.
Note: Trump's tax cuts won't stimulate the economy enough to make up for lost tax revenue. According to the Laffer curve, tax cuts only do that when the rates were above 50%. It worked during the Reagan administration because the highest tax rate was 70%.
Trump’s second strategy was to eliminate waste and redundancy in federal spending. He demonstrated cost-consciousness in his campaign. He used his Twitter account and rallies instead of expensive television ads. He outlined his cost-cutting strategies in his book, "The Art of the Deal."
Trump was right that there is waste in federal spending. The problem isn't finding it. Both Presidents Bush and Obama did that. The problem is in cutting it. Each program has a constituency that lobbies Congress. Eliminating these benefits loses voters and contributors. Congress will agree to cut spending in someone else’s district, but not in their own.
Any president must cut into the biggest programs to make an impact on the debt. More than two-thirds of government spending goes to mandatory obligations made by previous Acts of Congress. For FY 2021, Social Security benefits cost $1 trillion a year, Medicare costs $722 billion, and Medicaid costs $448 billion. The interest on the debt is $378 billion. Taken together, these total $3.3 trillion.
To lower the debt, military spending must also be cut. Instead, Trump had increased military spending in FY 2021 to $934 billion. That includes three components:
What's left of the $4.8 trillion budgeted for FY 2021 after mandatory and military spending? Only $595 billion to pay for everything else. That includes agencies that process Social Security and other benefits. It also includes the necessary functions performed by the Justice Department and the Internal Revenue Service. You'd have to eliminate it all to make a dent in the $966 billion deficit. You can't reduce the deficit or debt without major cuts to defense and mandated benefits programs. Cutting waste isn't enough.
Trump has a cavalier attitude about the nation’s debt load. During the campaign, he said the nation could "borrow knowing that if the economy crashed, you could make a deal.” He added, “The United States will never default because you can print the money."
Trump thinks about the national debt as he does personal debt. A 2016 Fortune magazine analysis revealed Trump's business is $1.11 billion in debt. That includes $846 million owed on five properties. These include Trump Tower, 40 Wall Street, and 1290 Avenue of the Americas in New York. It also includes the Trump Hotel in Washington D.C. and 555 California Street in San Francisco. But the income generated by these properties easily pays their annual interest payment. In the business world, Trump's debt is reasonable.
But sovereign debt is different. The World Bank compares countries based on their total debt-to-gross domestic product ratio. It considers a country to be in trouble if that ratio is greater than 77%.
Note: The U.S. debt-to-GDP ratio is 108.2%. That's the $23.517 trillion U.S. debt as of March 23, 2020, divided by the $21.726 trillion nominal GDP.
So far, this high ratio hasn't discouraged investors. America is the safest economy in the world. It has the largest free market economy and its currency is the world's reserve currency. Even during a U.S. economic crisis, investors purchase U.S. Treasurys in a flight to safety. That's one reason why interest rates plunged to 200-year lows in March 2020 after the coronavirus outbreak. Those falling interest rates meant America's debt could increase, but interest payments remain stable.
The United States also has a massive fixed pension expense and health insurance costs. A business can renege on these benefits, ask for bankruptcy, and weather the resulting lawsuits. A president and Congress can't cut back those costs without losing their jobs at the next election. As such, Trump's experience in handling business debt does not transfer to managing the U.S. debt.
Trump is wrong to assume that the United States could simply print money to pay off the debt. It would send the dollar into decline and create hyperinflation. Interest rates would rise as creditors lost faith in U.S. Treasurys. That would create a recession. He's also wrong in thinking that he could make a deal with our lenders if the U.S. economy crashed. There would be no lenders left. It would send the dollar into a collapse. The entire world would plummet into another Great Depression.
At first, it seemed Trump was lowering the debt. It fell $102 billion in the first six months after Trump took office. On January 20th, the day Trump was inaugurated, the debt was $19.9 trillion. On July 30, it was $19.8 trillion. But it was not because of anything he did. Instead, it was because of the federal debt ceiling.
On September 8, 2017, Trump signed a bill increasing the debt ceiling. Later that day, the debt exceeded $20 trillion for the first time in U.S. history. On February 9, 2018, Trump signed a bill suspending the debt ceiling until March 1, 2019. It leapt to $22 trillion. In July 2019, Trump suspended the debt ceiling until after the 2020 presidential election. The debt soon rose to $23 trillion. Trump has overseen the fastest increase in the debt of any president.
Trump's Fiscal Year 2021 budget projects the debt would increase $4.8 trillion during his first term. That's as much as Obama added while fighting a recession. Trump has not fulfilled his campaign promise to cut the debt. Instead, he's done the opposite.
The national debt doesn't affect you directly until it reaches the tipping point. Once the debt-to-GDP ratio exceeds 77% for an extended period of time, it slows economic growth.
Note: Every percentage point of debt above this level costs the country 0.017% in economic growth.
The first sign of trouble is when interest rates start to rise significantly. Investors need a higher return to offset the greater perceived risk. They start to doubt that the debt can be paid off.
The second sign is that the U.S. dollar loses value. You will notice that as inflation rises, imported goods will cost more. Gas and grocery prices will rise. Travel to other countries will also become much more expensive.
As interest rates and inflation rise, the cost of providing benefits and paying the interest on the debt will skyrocket. That leaves less money for other services. At that point, the government will be forced to cut services or raise taxes. That will further slow economic growth. At that point, continued deficit spending will no longer work.
2020.04.11 01:05
2020.04.11 02:33
Thanks, Dr. Ohn for further explanation on this debt issue with timely arousing the world's greatest Ponzi Scheme, Social Security system I have been skeptical all along. Indeed, it is simply 'too good to believe' to work as they claim though I am one of the benefactors. More you look into, more skeptical how it would survive. Since I do not have enough knowledge of this financial issue to hold a bird's eye's view, I feel helpless whenever this serious issue should come up.
Concerning, BB Lee
P.S. Such strange and monstrous American health care system you correctly pointed out is another enigma to me! From the outset of the healthcare system under the name of the so-called 'INDUSTRY', I just didn't feel comfortable accepting though I am keenly aware this country is a capitalistic society with the freedom of own choice. So 'all for the medicare' because human beings are all equal so that they deserve the same equal dividend whether they deserved or not as Bernie claims????
2020.04.11 01:49
It is very unfortunate that a scumbag like Trump and his blind followers run the nation at this critical time.
His main objectives are "How to fatten his own pocket" and "How to use the crisis to the advantage of
winning the presidential election in November. He's not for the true welfare of American people.
The only way to get him defeated in the election is that his missteps bring a severe stock market
and economic crash in the summer and fall of 2020. I hope he shoots his own feet with his gun.
As much stupid as he is, he probably will.
2020.04.11 02:43
It reminds me of the old saying ‘ 초가삼간 다타도, 빈대새끼 다타죽어 좋다’, Steve.
As long as we could get rid of this bastard, I don’t mind watching the whole market go crash to let us bleed.
He is a real genuine SOB to fuck his own mother if anyone would pay extra pennies!
How in the world, Republicans elected this bastard for their own good?!
So sad to watch such a great country go down the drain while we all watch helplessly!
Death to all Republicans!
BB Lee
2020.04.13 05:58
This is my opinion about national debt in excess of $20 trillions.
It started with George Bush in the amouint of $8 trillions by the end of his presidency.There was a terrible economical collapse and many banks fell down. I think it had something to do with the Iraq War.
Obama started some kind of economic transfusions such as building dog parks, water parks, repairing of roads and bridges. He even gave $200 to every American to activate our staggering economy. Somehow he increased our debt to almost $20 trillions. This fellow created $12 trillions debt over 8 years, averaging $1.5 trillions per year.
Donald Trump, everybody's favorite, made meager $3,266,795,731,264.14. up to this point, so more or less $One trillion per year.
This is my mathematical conclusion which may not be very accurate. I certainly am not a Trump fan. I dislike him. But I don't like Obama, Biden or Bernie either. I feel these three individuals, Bush, Obama and Trump, must jointly take responsibility to these serious failures. I am resigned to accept these fateful national debts, which will be inherited to future generations.
Does anyone have any bright idea to solve this quagmire?
Thank you, Dr. Lee for giving us an insight of the national debt. Capitalism, i.e. free market
economy is based on the credit. The credit is debt. The economic growth represents the expansion
of the credit. It is generally known to be "the total amount of money circulating"(통화량). The prices
of the goods inevitably go up in the capitalistic economy. It is a kind of perpetual inflation. But it
has to go up reasonably slowly. The price has to match with the growth of the economy. The budget
deficit will incite the hyperinflation at some point as explained in the posting. The price of goods will
become too high for the people to buy anything.
I think U.S. will implode if she continues to spend the money on defense and welfare including health care as
she has been. Particularly spending on defense, I could not find any merits of her fighting abroad. U.S. has
been losing almost every war since Korean War. I know it benefited defense industry tremendously. It is a huge
waste basket.
Social Security system is the greatest Ponzi Scheme in the world. The benefactors gets the money from the newly
coming givers. The money that contributed by oneself is gone to the stranger. It has to change to the form of
an investment like 401K. In other words, you get what you put it in and let it grow over the time.
American health care system is a monster. It is inefficient and extremely expensive. It is not cost effective at all.
It is threatening the integrity of the U.S. economy and people's lives. Corona virus showed us how bad it is.
Every empire rose and fell. Every one of them imploded because of its own fault.