Report: U.S. Government’s Debt-to-GDP Ratio Now Worse Than Greece Before the 2008 Crash
“Biden’s plan will almost certainly make the deficit worse. Though the plan contains various tax increases to fund its programs, the taxes are likely to fall well short of government outlays, economists say.”
Have you been alarmed by the size and speed of spending by the government over the last few months? Unfortunately, it’s worse than you probably thought.
When people start mentioning the nation of Greece in the same sentence as the United States, you should be worried.
It’s easy to lose track when trillion-dollar spending packages are flying by us in real-time. But at some point, we will feel the effect of this.
Jon Miltimore writes at the Foundation for Economic Education:
The US Government’s Debt-to-GDP Ratio Is Worse Than Greece’s Before the 2008 Crash (And It’s About to Get Worse)
President Biden on Wednesday pitched a new plan to Americans before a joint session of Congress: more spending.
The just-released $1.8 trillion plan, presented just weeks after Biden signed a $1.9 trillion in COVID relief spending into law, includes “free” community college as well as universal preschool for all three and four-year-olds.
“Mr. Biden could usher in a new era that fundamentally expands the size and role of the federal government,” The New York Times reported.
How Much Debt Is Bearable?
The announcement comes months after the Congressional Budget Office released a report projecting a $2.3 trillion deficit in 2021.
Biden’s plan will almost certainly make the deficit worse. Though the plan contains various tax increases to fund its programs, the taxes are likely to fall well short of government outlays, economists say.
“The laws of economics are more rigid than the laws of the federal government, and these tax hikes are unlikely to yield the windfall Biden expects,” Joshua Jahani, the managing director of Jahani and Associates, noted in a recent NBC News article.
This is where Miltimore mentions Greece, and your ears should perk up:
There is a school of thought that suggests these debts pose no serious risk. After all, in theory, a government can roll over its debt indefinitely. However, in a recent article for the Federal Reserve Bank of St. Louis, economist David Andolfatto noted that ultimately the government doesn’t decide how much debt is bearable. The market does.
“There is presumably a limit to how much the market is willing or able to absorb in the way of Treasury securities, for a given price level (or inflation rate) and a given structure of interest rates,” Andolfatto wrote. “However, no one really knows how high the debt-to-GDP ratio can get. We can only know once we get there.”
A Dangerous Level of Debt?
Andolfatto is right that no one really knows the debt tipping point. But it’s worth noting that the US debt-to-GDP ratio—essentially a country’s debt compared to its annual economic output—was 129 percent at the end of 2020. In other words, the official US debt was nearly a third larger than the entire US economy.
That is considerably higher than Greece’s debt-to-GDP ratio in 2010, when it received a bailout from the International Monetary Fund to avoid defaulting on its obligations.
As recently as 2016, Greece was experiencing riots due to pension cuts and other forms of austerity.
If you think that can’t happen here, you are mistaken.
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Comments
When the “free” UI money runs out in Sept, you can expect a chilly fall.
While that will have a good uptick in employment numbers, the consumer spending will crater as many are getting paid more to stay at home and happily spending every penny of it.
I’m not sure of the balance between that money running out and things opening back up. It COULD balance itself out, but with the way government is rolling I see the yoke of regulations returning and one wonders if they will get their way with taxes. The eviction moratoriams ending are going have an effect too (don’t know what it will be).
I’ve put more money on the sidelines than I have at any other time in a decade. I’m not very confident the market will rise much during the Biden era. I could be wrong, but I’m really taking measures and looking for measures for my cash to do well during a Jimmy Carter economy. Later this summer I MAY even be buying protective PUTs.
Petition asking government for monthly $2k stimulus checks passes 2 million signatures
“The best thing our government can do right now is send emergency money to the people on a monthly basis.”
Uh-Oh.
This is a national security risk.
When asked about piling on trillion of debt, Janet Yellen said in March that “there is no meaningful inflation on the horizon and so the USA can borrow all it needs.
Problem is, when rates double or triple, the service on the debt will become unbearable.
Greece was borrowing a relatively low rates – until the rates doubled and they had a problem.
They say – it cannot happen in the USA because out debt in denominated in USD. Of course it can happen. If people lose confidence and they think inflation will eat away the value of their USD – they will put money into everything except USD. You could have a million or a billion printing presses – it will not be enough.
Printing presses never provide confidence in a currency. In fact, there is an inverse relationship between confidence and the number of printing presses a country has available.
Malignant people with the inelligence of Le Bron James are running our government. Their goal is chaos and desruction. The BLM founder states today that she is proud she is being compared to Mao.
Bide is a mere addled puppet, and Harris is a mere you know what.
But at least we are purging the GOP – to some extent.
But our government is now at war with us – literally.
This is a problem that has been building for decades. What is different now is that the Biden* administration is going pedal-to-the-medal with spending.
At any rate there will be no austerity, no cutbacks, no rollbacks, nothing. The Federal government will continue to churn out checks until the utilities fail and the buildings are abandoned/burned down. The Communists have already reduced several countries’ economies to rubble, and the GOP is hardly any better.
It is estimated that the richest man who ever lived, a black Islamic imperial slaver, destroyed whole economies through redistributive change. A catastrophic forcing of disparity between wealth and currency, ostensibly, hopefully with good intentions.
n.n. has a good sense of dark humor.
As long as good intentions are involved it’s okay (said no sane person, ever)
“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually and then suddenly.”
EH
The US can easily carry the debt because interest rates are near zero for Treasuries, unlike Greece, which had to pay huge interest costs.
If inflation kicks in either the Fed can control it (because it tends to raise interest rates) or it can’t. If it can’t, it will unwind very fast.
You’ve got the nail on the head, how long will low interest rates last? Big question. I think to assume it would last for a long time would be foolish, so the question becomes what the long term plan for deficit reduction.
In over a decade of historically low rates the US government as chosen to fund its operations with mostly short term debt so when rates rise (and signs of potentially explosive inflation are popping up everywhere) the interest component of the national debt will increase dramatically further extending our annual deficits and blowing out the national debt even further. It will be a vicious negative feedback loop and there aren’t enough “rich” people to tax to do a damn thing about it.
Interesting thanks
Treasury officials on Wednesday urged Congress to pass either a new borrowing limit or another suspension of the debt before a July 31 deadline. The Treasury will continue to initiate the types of bookkeeping maneuvers it has used in the past to keep the government from breaching a level that would trigger a default on the massive national debt.
There’s no danger of default on the national debt because the Treasury just pays off maturing Treasuries by issuing replacements, which doesn’t raise the debt.
It would be nice if they didn’t backpay federal workers sent home during a shutdown, though.
Well sure…they can issue replacement debt …assuming of course that a replacement bondholders can be found and at the same interest rate and for existing debt but not increasing debt.
That’s a bunch of assumptions. Granted as the worlds reserve currency the USA has more latitude than other Nations. However that isn’t unlimited.
It will continue until it can’t. Then it gets ugly very fast. Which competing group doesn’t get paid?
Federal employees? Federal retirees? Recipients of Federal ‘welfare’? Contractors? Military personnel? State administered but Fed funded programs? University grant recipients? GI bill? Pell Grants? Fed K -12 funds? Payment in lui of property tax to States and localities?
All those and more. Left out bondholders and believe this the bondholders will not be in a go along get along mentality. The institutional bondholders will not be taking a haircut before those others.
Then we have the secondary effects. No EBT card payments for a few weeks ….I recommend you have an adequate supply of canned goods and shotguns for that.
Lastly the Greeks impounded a % of bank deposits. Above 10,000€ as I recall. So have multiple accounts of less than $10K if you keep funds in the bank to potentially mitigate that. Along with cash on hand to run a month of bills as a mitigation for ATM denial and bank withdrawal being temporarily suspended.
It won’t be tomorrow but it will stop and when it does it will not be pretty.
The US has two very big advantages over Greece. First, the US borrows its own currency, which it can create out of thin air. Greece could not. Second, the US can pay for international goods and services with its own currency. Combined with being able to create the currency out of thin air, that’s very powerful.
As long as the US can do both, things will run along fairly well, and I presume this will carry on until a viable alternative to dollar rises as an international store of value and medium of exchange.
In short, the US can incur much greater debt than Greece and still function. Believe me, I am not advocating running up the debt. You need that cushion for actual emergencies and not pay off constituents or interfere in the economy to try and reverse self-inflicted wounds aka unnecessary and ineffective “lockdowns.”
With China actively seeking to replace the dollar as the world’s base currency, that may not hold true much longer.
Not sure China will get there. We will see. But if the US continues on its path, something will.
In ordinary life, bankruptcy laws make bankruptcy of an individual a mild event. The individual’s debt is easily dispose through one of the 6 bankruptcy chapters of the federal statutes. That is not the case with a nation, especially the U.S., which is a critical node in the global trade network. In this case, bankruptcy is a systematic failure of the economy. Congress sees seignorage, the gain from the Fed issue of base money, is free. But, if you crunch the numbers, the increased money growth actually decreases the “real” seignorage, because it decreases real-money holdings. In economic terms, using the excess seignorage to balance the Intertemporal budget constraint is the equivalent of a heart attack. It’s a key indicator the Government is broke and systematic failure is in progress.
On the bright side, hyper-inflation and debasing the dollar will essentially wipe out much of that debt. It worked for Weimar. /s
BTW…
“The best way to destroy the capitalist system is to debauch the currency.”
— Vladimir Lenin
We could always restore domestic production, but between the progress and secular incentive of labor and environmental arbitrage, immigration reform, and planned parent/hood, that doesn’t seem to be forthcoming.
Weimar hyper-inflation came about because of Germany’s need for gold to pay reparations to France and England, and its fear of a communist revolution.
Instead of imposing austerity and impoverishing its own population, Germany sold bonds denominated in Marks to Wall Street at generous terms for gold. It then gave the gold to the victorious allies as reparations. The allies gave the gold to Wall Street to pay off war debts. Germany then printed more marks to buy that gold back from Wall Street at even more generous exchange rates. Lather, rinse and repeat.
More and more Marks chasing a finite amount of gold = inflation.
As long as everyone (here and abroad) is content to think big piles of green paper is wealth, Uncle Sam’s Ponzi scheme can continue. But even as I type, dollars are being converted into stocks, real estate, precious metals, art, collectibles and other things that don’t come out of a printer.
I expect there will be few complaints here since so many of the hard core Trump supporters on these boards wanted Mitch to support a spending plan similar to what Biden juts passed in an attempt to buy a GA Senate win or 2.
No complaints now. You loved this insane spending 6 months ago.
Not true. I was NOT a fan of Trump’s big spending, not one tiny bit. But having experienced numerous arguments with self-labeled “conservatives” during the Tea Party years, I learned that my brand of small government conservatism is completely out of step with the rest of the GOP. I care about spending, I care about our budget, and I absolutely care that every single dollar the feds spend is really ours, and usually spent to exert power and control over us. Loathed that twenty years ago, loathed it six months ago, loathe it now.
There is not one Trump supporter I’ve ever met in life or online who agreed with 100% of his policies and/or actions as president. Is there ANY politician with whom you agree 100% of the time? If so, you’re the only person I’ve ever encountered who can claim that.
Not directed at you specifically Fuzzy but there are very few of us who are consistently opposed to massive deficit spending whether the occupant of the WH is an R or a D while others only appear to get upset by Democrat deficit spending.
“…hard core Trump supporters on these boards wanted Mitch to” jump off a cliff.
Obviously you know nothing about Trump or Trump supporters.
Trump’s plan was always the same, put into place sane tax levels, get rid of odious regulations, and require fair trade between trading partners. That plan, which was working beyond anyone’s expectations, would grow us out of the debt problem.
The current marxists that are in power have no use for prosperity, like all marxists they desire nothing but power and control, and they like death, being responsible for 150 million+ deaths in the last century.
Loved Trump’s tax plan, pro growth policies and trade actions but he paid no attention to the deficit spending and up to the end he was advocating for $1,200 handouts for everyone when that clearly wasn’t what was needed and he blamed Mitch for not supporting it and contributing the loss of the GA Senate seats.
Free money for everyone is not a conservative idea. I commented on it here and was downvoted ~20:1 for that commentary.
In an abstract, academic sense you are correct in stating that ‘free $ for everyone is not a conservative idea’.
In the very real results in the two GA general and runoff Senate elections that becomes much less clear. Opposing a cash payment despite the fact that d/progressive could and did in fact legislate the very same payments post election when they gained two Senate seats seems ….unwise.
The d/progressive, with a 50/50 + the VP now control the Senate. They added all sorts of goodies costing far more than the famous $2K checks you oppose.
They can and will continue to spend huge sums on bad policies because they won the two seats.
The bottom line is ideological purity doesn’t advance the agenda if the result is lost elections and giving d/progressive control of the Senate.
The first and most important thing in politics is to win elections and gain/retain a working majority. That means some places a Susan Collins is the most electable conservative. She ain’t exactly what I would desire from a r but I would prefer her to a d/progressive alternative.
Refusing to vote or bemoaning one policy because it doesn’t meet a litmus test but will probably help retain political majorities in the Senate is extremely short sighted, IMO.
Debt at these levels, about 120% of GDP, is the danger zone on two fronts.
1. Debt holders decide not to ‘roll over’. Instead of purchasing another ten year Treasury at the end of the period they want their principal back. If enough do that then the interest rate on that Treasury must rise to attract other investors.
2. Rising interest payments begin to take up am even larger share of the budget. Those payments crowd out other spending.
The problem is that the elites are committed to MMT which is the basis for the cavalier attitude about out of control federal spending.
Illinois will be an interesting prelude to view what happens when bondholders refuse to rollover debt. Their budget is already impacted by the crowd out effects of increasing borrowing cost.
The U.S. economy and the housing market grew well into the 1970s, ( Pres. Carter) but that growth stalled as the U.S. Federal Reserve took aggressive steps to rein in rampant inflation. The Fed did so by raising interest rates to historic highs – so high, in fact, that the going 30-year fixed mortgage rate stood at 18.5% in 1981. Inflation ebbed into the 1980s, (Pres. Reagan) and U.S. mortgage rates gradually slid downward, and kept sliding, well into the 21st century where rates currently are between 2.4% and 5%..
Here we go again…it’s already started. Thanks to the “vision” of the Democrats who disregard any sense of history and are hell bent to make the same mistakes over and over.
“…hell bent to make the same mistakes over and over.”
The marxists in power do not consider economic destruction and ruin a mistake. It is their goal.
The government-employee marxists don’t care because their incomes can be indexed to the same printing presses that are destroying everybody else. The question is why the billionaire industrialists are cooperating with them. Bezos, Gates, Cuban, and the rest will be just as penniless as the rest of us if the stock market crashes to zero from a black swan hyperinflation trigger. They won’t be able to sell out ahead of the tsunami once it begins.
Those people have useful assets outside the stock market. Poorer after the crash, but still wealthy. So, they are taking a risk, trading the chance of an economic downfall for massive power. They don’t see the risk in the way we do. I suggest not using their products / services. No one listens.