Saturday, July 30, 2011

30/07/2011: US debt woes - some cool grpahics from NY Times

Several people asked about some of the assumptions I used in my post on US debt after the debt-ceiling increases.

While I outlined all of the assumptions in the original post, some of them are motivated by the following excellent infographic on US debt problems presented by the NY Times - link here. The subsequent post will show some comparatives for the US debt crisis.

These are reproduced here, with some commentary.

Note that in the entire debate about the US debt limits, I am of the view that the issue at hand is not the ceiling itself, by the level of the US overall indebtedness. In other words, if the US raises debt ceiling, in my opinion, it avoids immediate crisis, but loads the 'spring' of unsustainable debt levels even more.
Again, the above is irrelevant from my point of view. The US can simply print money or issue IOUs to cover its own debts in the short term. In reality, however, any more debt piled onto the US economy is going to be unsustainable and warrants a downgrade.

Clearly, the argument that the Republican presidencies are more fiscally conservative does not hold. Since Ronald Regan (who at the very least delivered on the stated objective of facing up to the USSR), US Republican presidents have accumulated $7.6 trillion worth of debt, or $633 billion worth of new debt per annum, on average, with George Bush, Sr at $375 billion annually, while his son - George W Bush, Jr at $625.5 billion per annum on average. Ronald Reagan accumulated new debt at ca $237.5 billion per annum on average.

In contrast, 2 Democratic administrations have managed to rake up $3.8 trillion worth of new debt, averaging $175 billion per annum on average for Bill Clinton and $800 billion per annum for Barak Obama.

Hence, Obama now holds an absolute record in fiscal profligacy, followed by George W. Bush (Jr), then by George Bush, Sr and Ronald Reagan. Bill Clinton is the least profligate of all US presidents since 1981.
Lastly, take a look at the source for my assumptions on the yields used in the post linked above:
So my assumptions of 3.5-4% post-debt deal are pretty close to what we can expect on the back of a 1 notch downgrade for the US debt.

Please see the following post on more comparatives for the US debt and economic dynamics.
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