In less than two weeks, on August 2, the US federal government's public debt of $14.294 billion threshold where the government can no longer borrow, will be reached. That is why the noise on "debt default" is becoming louder. See my paper on this 3 days ago, Fiscal irresponsibility 11: US debt default talks.
Please note that these figures are public debt by the federal government alone. Not included here are debt by local governments -- states, counties and cities. Those lower government levels have their own share of debt crisis too, like the state of California.
The extent of fiscal irresponsibility, of persistently living beyond their means, criss-crosses various levels of government.
The next chart is from Dan Mitchell of Cato, Mr. President, Here’s that Balanced Approach You Keep Demanding, July 15, 2011.
Over-spending, then over-borrowing to finance the excess spending. This is the plain and simple reason why the US government is digging deeper in public indebtedness and the various economic, financial and political problems attached to it.
There should be other potential government revenues aside from more taxation. Privatization of many government assets (land, corporations, banks, universities, hospitals, etc.) is one important policy tool. But it is not palatable to the political class. And this attitude is not unique to the US. There is deep insecurity and hypocrisy in the political and bureaucratic class not to entertain this policy tool.
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Today, July 28, 2011
There is a good graphics I saw from CQ.com, Debt limit of the US federal government from 1980 to 2011. There are 4 lines there. Topmost is US GDP, next (light brown) is the debt limit, below it is the debt subject to debt limit (light green) and further below (dark green) is marketable debt.
The debt limit started rising more frequently since 2003. And the gap between the size of GDP and debt limit used to be far until about mid-2008. Since then, the gap between the 2 has become narrower and narrower. The two almost intersected in early 2010. That's when the US government was bailing out many big private corporations using money it borrowed from many sources. Click these charts for a larger image.
This table is interesting. It shows who lent how much to the US federal government, as of end-March this year.
Domestic private investors lent $3.23 trillion while foreign investors, mostly governments and foreign central banks, lent $4.48 trillion. Of the latter, the Chinese government lent $1.15 trillion, Japan government lent $0.91 trillion. Graph source, Who holds the federal debt.
Chart source below, The Economist, Daily Chart July 28th 2011. It shows the overall debt over GDP ratio for both the US and Canada. I just copy-pasted them from the interactive graph of The Economist. All 4 sectors -- financial, government, non-financial business, and households, contribute to rising overall debt.
Fiscal irresponsibility of the government is often matched by corporate and household irresponsibility, of further accumulating more debt. Having debt is normal, especially for investments or for emergency spending. But having an ever-rising debt is not normal, or not proper as the cost of their future payment becomes more and more difficult.
