Basic Economics and Balanced Budgets/Surplus's.

[Free Trade is managed by the invisible hand.]

I see this has become an issue in not only this forum,but also among many non-economists. I am going to go eat,and than read my math book. While I am doing this I want people to think about the fact that over 90% of economists  believe that if the federal budget is to be balanced, it should be balanced over the course of the business cycle rather than over every fiscal year. Secondly in one of my basic economic textbooks it says that many economist disagree with any Balanced Budget Amendment.( my brothers a financial mathematic major, so he gives his textbooks to read, and thus allowing me to learn but also teach him as well).

I use to worry about our budget when I was a teenager,but I began to worry less when I started to read up on the issue.

[Free Trade is managed by the invisible hand.]

by the way I am a non-economist just in case anyone starts to think otherwise.

[Southern Senator North Carolina Yankee]

Which why I oppose a balanced budget amendment. I also agree that a certain level of deficit is okay in bad economic times. But you reach a threshold where it becomes unsustainable and the damage to the economy by the deficit outweighs the benefits. In good economic times a deficit should only be allowed if there is a trade deficit as a means of counteracting the lost GDP.

[Free Trade is managed by the invisible hand.]

Which why I oppose a balanced budget amendment. I also agree that a certain level of deficit is okay in bad economic times. But you reach a threshold where it becomes unsustainable and the damage to the economy by the deficit outweighs the benefits. In good economic times a deficit should only be allowed if there is a trade deficit as a means of counteracting the lost GDP.

you speak of a Threshold, well here it is.
For budget crisis I normally stick by the 90% Historical average for soveirn default(A class countries have been known to go far beyond this threshold though).
For currency crisis I normally stick to 20% per annium.

[Southern Senator North Carolina Yankee]

Which why I oppose a balanced budget amendment. I also agree that a certain level of deficit is okay in bad economic times. But you reach a threshold where it becomes unsustainable and the damage to the economy by the deficit outweighs the benefits. In good economic times a deficit should only be allowed if there is a trade deficit as a means of counteracting the lost GDP.

you speak of a Threshold, well here it is.
For budget crisis I normally stick by the 90% Historical average for soveirn default(A class countries have been known to go far beyond this threshold though).
For currency crisis I normally stick to 20% per annium.

You mean the annuall deficit relative to GDP? If so, then we still have a ways to go, but the closer you get the more risky it becomes and its best to stay as far away as possible.

[Free Trade is managed by the invisible hand.]

Which why I oppose a balanced budget amendment. I also agree that a certain level of deficit is okay in bad economic times. But you reach a threshold where it becomes unsustainable and the damage to the economy by the deficit outweighs the benefits. In good economic times a deficit should only be allowed if there is a trade deficit as a means of counteracting the lost GDP.

you speak of a Threshold, well here it is.
For budget crisis I normally stick by the 90% Historical average for soveirn default(A class countries have been known to go far beyond this threshold though).
For currency crisis I normally stick to 20% per annium.

You mean the annuall deficit relative to GDP? If so, then we still have a ways to go, but the closer you get the more risky it becomes and its best to stay as far away as possible.

Debt-to-GDP ratio is a measure of financial leverage,but it is most commonly used to estimate a countries ability to meet its debt debt obligations. I disagree with the Idea that moving closer to the Threshold will create a bigger risk of failing to meet our debt obligations. This is because not only do we have a central bank, but we are also one of the few countries that have the macroeconomic conditions that would allow us to move past the 90% threshold. I would also like to point out that the 90% figure also includes countries such as Spain, argentina, mexico, and many other countries that have defaulted frequently. Thus The 90% historical average is a conservative estimate because its inclusion of low grade countries would bring the historical average down for even higher grade countries.

[Southern Senator North Carolina Yankee]

Which why I oppose a balanced budget amendment. I also agree that a certain level of deficit is okay in bad economic times. But you reach a threshold where it becomes unsustainable and the damage to the economy by the deficit outweighs the benefits. In good economic times a deficit should only be allowed if there is a trade deficit as a means of counteracting the lost GDP.

you speak of a Threshold, well here it is.
For budget crisis I normally stick by the 90% Historical average for soveirn default(A class countries have been known to go far beyond this threshold though).
For currency crisis I normally stick to 20% per annium.

You mean the annuall deficit relative to GDP? If so, then we still have a ways to go, but the closer you get the more risky it becomes and its best to stay as far away as possible.

Debt-to-GDP ratio is a measure of financial leverage,but it is most commonly used to estimate a countries ability to meet its debt debt obligations. I disagree with the Idea that moving closer to the Threshold will create a bigger risk of failing to meet our debt obligations. This is because not only do we have a central bank, but we are also one of the few countries that have the macroeconomic conditions that would allow us to move past the 90% threshold. I would also like to point out that the 90% figure also includes countries such as Spain, argentina, mexico, and many other countries that have defaulted frequently. Thus The 90% historical average is a conservative estimate because its inclusion of low grade countries would bring the historical average down for even higher grade countries.

Maybe, but how do you stop a debt spiral once it starts, it would be the same in any country though granted we have a greater ability to repay then other countries but in my opinion the higher the debt, the harder it will be to repay and markets are forward looking. There are scenarios which could plunge us into that situation as you get closer to the threshold but not having crossed it.

[Free Trade is managed by the invisible hand.]

Which why I oppose a balanced budget amendment. I also agree that a certain level of deficit is okay in bad economic times. But you reach a threshold where it becomes unsustainable and the damage to the economy by the deficit outweighs the benefits. In good economic times a deficit should only be allowed if there is a trade deficit as a means of counteracting the lost GDP.

you speak of a Threshold, well here it is.
For budget crisis I normally stick by the 90% Historical average for soveirn default(A class countries have been known to go far beyond this threshold though).
For currency crisis I normally stick to 20% per annium.

You mean the annuall deficit relative to GDP? If so, then we still have a ways to go, but the closer you get the more risky it becomes and its best to stay as far away as possible.

Debt-to-GDP ratio is a measure of financial leverage,but it is most commonly used to estimate a countries ability to meet its debt debt obligations. I disagree with the Idea that moving closer to the Threshold will create a bigger risk of failing to meet our debt obligations. This is because not only do we have a central bank, but we are also one of the few countries that have the macroeconomic conditions that would allow us to move past the 90% threshold. I would also like to point out that the 90% figure also includes countries such as Spain, argentina, mexico, and many other countries that have defaulted frequently. Thus The 90% historical average is a conservative estimate because its inclusion of low grade countries would bring the historical average down for even higher grade countries.

Maybe, but how do you stop a debt spiral once it starts, it would be the same in any country though granted we have a greater ability to repay then other countries but in my opinion the higher the debt, the harder it will be to repay and markets are forward looking. There are scenarios which could plunge us into that situation as you get closer to the threshold but not having crossed it.

When a country borrows from us they buy Treasury bills, and thus we gain/lose N dollars immediately. The United States and other countries have these things called payment schedules which is basically something that tells a country when this borrowing occurs. Last time I checked these payment schedules operate on a yearly basis, and the United States has always been on time in their payments.

On a side not I would also like to point out that our country has a Central Bank, and this is a great asset that allows countries to pay off their debt.

[Southern Senator North Carolina Yankee]

Which why I oppose a balanced budget amendment. I also agree that a certain level of deficit is okay in bad economic times. But you reach a threshold where it becomes unsustainable and the damage to the economy by the deficit outweighs the benefits. In good economic times a deficit should only be allowed if there is a trade deficit as a means of counteracting the lost GDP.

you speak of a Threshold, well here it is.
For budget crisis I normally stick by the 90% Historical average for soveirn default(A class countries have been known to go far beyond this threshold though).
For currency crisis I normally stick to 20% per annium.

You mean the annuall deficit relative to GDP? If so, then we still have a ways to go, but the closer you get the more risky it becomes and its best to stay as far away as possible.

Debt-to-GDP ratio is a measure of financial leverage,but it is most commonly used to estimate a countries ability to meet its debt debt obligations. I disagree with the Idea that moving closer to the Threshold will create a bigger risk of failing to meet our debt obligations. This is because not only do we have a central bank, but we are also one of the few countries that have the macroeconomic conditions that would allow us to move past the 90% threshold. I would also like to point out that the 90% figure also includes countries such as Spain, argentina, mexico, and many other countries that have defaulted frequently. Thus The 90% historical average is a conservative estimate because its inclusion of low grade countries would bring the historical average down for even higher grade countries.

Maybe, but how do you stop a debt spiral once it starts, it would be the same in any country though granted we have a greater ability to repay then other countries but in my opinion the higher the debt, the harder it will be to repay and markets are forward looking. There are scenarios which could plunge us into that situation as you get closer to the threshold but not having crossed it.

When a country borrows from us they buy Treasury bills, and thus we gain/lose N dollars immediately. The United States and other countries have these things called payment schedules which is basically something that tells a country when this borrowing occurs. Last time I checked these payment schedules operate on a yearly basis, and the United States has always been on time in their payments.

On a side not I would also like to point out that our country has a Central Bank, and this is a great asset that allows countries to pay off their debt.

Debt monetization is the same as defaulting because the dollars used to repay them have less value then what they initially lent.

Another thing, you keep forgetting about is that those bond sales are driven by the market and if the market determines that the risk of defaulting (including monetizing) is greater, interest rates on T-bills  will rise, making it harder pay and raising the deficit even further. With small deficit it is possible to pay more off on the debt then you add to it. However that requires high levels of economic growth (4% and 5%) and you can't get that with high taxes or the solutions you advance.

Yes, we haven't missed a payment schedule yet, but thats because we always made fiscal responsibility an important factor in policy making. During WW2 people new the war would end and the US would be able to repay it later, because of how strong the US was economically (even with the depression prior to the war), and because fiscal responsibility was key.

The looming financial cliff is undeniable. Entitlements have to be reigned in or the Debt will reach 700% of GDP by 2080 and the deficit running annually at 45% of GDP. Since these are CBO numbers, I fully expect they will be much worse much quicker (Why I disklike the CBO). The dirty secret is we will never get there. We would end up like Greece before we got half-way to 2080 numbers because the people on those bond markets will say no more and Gov't bonds will be unmarketable. Everything will have to be cut significantly and taxes jacked up to unsustainable and unreasonable levels. The bottom tax bracket raised to 40%, the next one up raised to 80%. At those levels, the tax gap widens to the Trillions of dollars, and the decline in economic strength destroys any gains in revenues.

[Free Trade is managed by the invisible hand.]

Which why I oppose a balanced budget amendment. I also agree that a certain level of deficit is okay in bad economic times. But you reach a threshold where it becomes unsustainable and the damage to the economy by the deficit outweighs the benefits. In good economic times a deficit should only be allowed if there is a trade deficit as a means of counteracting the lost GDP.

you speak of a Threshold, well here it is.
For budget crisis I normally stick by the 90% Historical average for soveirn default(A class countries have been known to go far beyond this threshold though).
For currency crisis I normally stick to 20% per annium.

You mean the annuall deficit relative to GDP? If so, then we still have a ways to go, but the closer you get the more risky it becomes and its best to stay as far away as possible.

Debt-to-GDP ratio is a measure of financial leverage,but it is most commonly used to estimate a countries ability to meet its debt debt obligations. I disagree with the Idea that moving closer to the Threshold will create a bigger risk of failing to meet our debt obligations. This is because not only do we have a central bank, but we are also one of the few countries that have the macroeconomic conditions that would allow us to move past the 90% threshold. I would also like to point out that the 90% figure also includes countries such as Spain, argentina, mexico, and many other countries that have defaulted frequently. Thus The 90% historical average is a conservative estimate because its inclusion of low grade countries would bring the historical average down for even higher grade countries.

Maybe, but how do you stop a debt spiral once it starts, it would be the same in any country though granted we have a greater ability to repay then other countries but in my opinion the higher the debt, the harder it will be to repay and markets are forward looking. There are scenarios which could plunge us into that situation as you get closer to the threshold but not having crossed it.

When a country borrows from us they buy Treasury bills, and thus we gain/lose N dollars immediately. The United States and other countries have these things called payment schedules which is basically something that tells a country when this borrowing occurs. Last time I checked these payment schedules operate on a yearly basis, and the United States has always been on time in their payments.

On a side not I would also like to point out that our country has a Central Bank, and this is a great asset that allows countries to pay off their debt.

Debt monetization is the same as defaulting because the dollars used to repay them have less value then what they initially lent.

Another thing, you keep forgetting about is that those bond sales are driven by the market and if the market determines that the risk of defaulting (including monetizing) is greater, interest rates on T-bills  will rise, making it harder pay and raising the deficit even further. With small deficit it is possible to pay more off on the debt then you add to it. However that requires high levels of economic growth (4% and 5%) and you can't get that with high taxes or the solutions you advance.

Yes, we haven't missed a payment schedule yet, but thats because we always made fiscal responsibility an important factor in policy making. During WW2 people new the war would end and the US would be able to repay it later, because of how strong the US was economically (even with the depression prior to the war), and because fiscal responsibility was key.

The looming financial cliff is undeniable. Entitlements have to be reigned in or the Debt will reach 700% of GDP by 2080 and the deficit running annually at 45% of GDP. Since these are CBO numbers, I fully expect they will be much worse much quicker (Why I disklike the CBO). The dirty secret is we will never get there. We would end up like Greece before we got half-way to 2080 numbers because the people on those bond markets will say no more and Gov't bonds will be unmarketable. Everything will have to be cut significantly and taxes jacked up to unsustainable and unreasonable levels. The bottom tax bracket raised to 40%, the next one up raised to 80%. At those levels, the tax gap widens to the Trillions of dollars, and the decline in economic strength destroys any gains in revenues.

I have a strong faith in bond investors because they have been known to accept high risk bonds quite frequently. In any event since the dawn of the 20th century defaults have only been partial because gun boat diplomacy is dead, and secondly most countries have a central bank which makes it really easy to pay off debt in extreme scenarios. The most extreme example of a partial-default occured in the early 20th century when Russia was unable to collect tax's in order to fund its government. Instead of going into an all out default Russia Simply used its central bank to repay its debt.

[Free Trade is managed by the invisible hand.]

my 90% historical average does account for changes in bond ratings. This is because bond investors do respond to changes in GDP/dept ratio. In 2080 the GDP/dept ratio is expected to be around 700%,but it is important to note that the Threshold has increased in the past two centuries.