The backwards-ticking debt clock, and how to fix the debt-limit farce

Imagine opening up the sports page to see how your local sports teams did yesterday, and seeing the following "scores":

• Baseball:  NY Yankees 4
• Football:  NY Jets 28
• Basketball:  NY Knicks 101

That wouldn't tell you much about what happened yesterday, would it?  In fact, you'd probably consider switching your subscription to a better newspaper.  I would, anyway. 

Why, then, do so many editorial writers and Capitol Hill politicians think we'll keep taking them seriously when all they tell us is "The national debt is at an all-time high of $8,942,383,522,008.61"?  Or "The debt is growing by $8,872.90 per second"?  Or "Each person's share of the national debt is $29,610.54"?  Do they really think that kind of meaningless drivel won't make us switch to a better source of information?

Why don't they think we'd also like to know that "The size of the economy is at an all-time high of $13,818,809,181,973.50"?  Or "The economy is growing by $19,869.16 per second"?  Or "Each person's share of the national output is $45,757.65 per year and growing"? 

I can't explain why.  But I can provide the complete score for anyone who prefers the bigger picture. 

The debt clock shifts into reverse
I knew this had to happen sometime soon, and it did: The debt clock is now ticking backwards.  [Notice the clock at top right, which I recalibrated yesterday.]   

As a portion of GDP, total debt is 64.6% and dropping; publicly held debt (the more important statistic) is 36.2% and dropping.  This blog is one of the few places on the web, if not the only one, where that good news is prominently displayed.  Everyone else is just giving you a partial score; try googling "debt clock" and see what I mean. 

The reason for the backwards-ticking clock is simple: the economy is growing faster than the debt.  GDP is growing at an annual pace of about 4.5%; total debt is growing at 3.1%; publicly-held debt is shrinking at 0.8% (all current-dollar rates).  Those relationships cause the ratio clocks to tick backwards. 

In short: The Yankees beat the Blue Jays 4-0, and GDP growth is beating debt growth 4.5% to 3.1%. 

Isn't that information a lot more useful?

The debt-limit farce, and how we could fix it
Here it comes again: the political farce about the debt limit.  Here's an article predicting the same old political game we are about to witness once again:

The U.S. debt limit is set by statute, so the Treasury has to seek Congress' approval for an increase. With both houses of Congress now under Democratic control, the request likely sets the stage for a debate about the Bush administration's management of the economy and of the national debt.

It doesn't matter which party is in control of the agenda; the game is the same: a completely meaningless, time-wasting parade of politicians trying to make political hay out of the dollar value of the debt (...which, conveniently for their rhetorical game, looks like it's approaching Avogadro's number).  It is a disgusting waste of valuable debate time. 

But I have a way to fix the problem of the debt-limit farce, and get the debate onto a far more productive track.  All it would take would be one simple little change to the debt-limit law to put some real teeth into it.  All it would take would be to change the debt limit from a dollar number (currently $8.965 trillion) to a percentage of GDP (say, 80.0%). 

Think how that would change the debate for the better: it would force our politicians to address economic growth, instead of just continuing to demagogue the debt number ad nauseam.  All of a sudden, a "new" way to keep the debt below its legal ceiling would be to pass growth-friendly laws. 

Unfortunately, I'm afraid that opening up the debate to growth ideas would be too scary for many of our politicians, because debating how to enhance economic growth can become complex very quickly.  Let's face it, it's a lot easier to leave growth out of it, and just demagogue the debt in the headlines and in front of the C-Span cameras.   It's a lot more difficult to reject theatrics and start engaging in real leadership. 

As a result, I pessimistically look forward to another inane, meaningless debate about the dollar debt limit in the coming weeks.

=========

End note, added 8/9/07:

To clarify why the publicly-held debt is shrinking, here are two graphics, which I explain in more detail in a comment below.  Click to enlarge.

Comments

[Counter Revolutionary]

Steve, we're on the right track. I say it nearly every time, but I am amazed at how the Pols haven't caught on. I will credit Rove probably until he says otherwise. Great news for the country and economy.

[Counter Revolutionary]

Steve, we're on the right track. I say it nearly every time, but I am amazed at how the Pols haven't caught on. I will credit Rove probably until he says otherwise. Great news for the country and economy.

[Counter Revolutionary]

Steve, we're on the right track. I say it nearly every time, but I am amazed at how the Pols haven't caught on. I will credit Rove probably until he says otherwise. Great news for the country and economy.

[Counter Revolutionary]

Sorry folks, at least Steve's comment count is going up, even if the clock is goi8ng backward. I kept trying to back out of the comment page and coming back. My browser or THE browser?

[lowtax]

The idea of relying on journalists or politicians to tell you how the world works is one the most dubious propositions known to man. Caveat emptor.

[mark]

Where do the points in the score come from? The Yankees scored four runs last night. Who credited the Yankees with the four points and where did they get the points from?
Come to think of it, where did the 8+ trillion dollars of fiat money come from for the govt to go in debt?
Or maybe this whole govt debt thing is just like sports. A score card of financial assets (federal reserve notes and treasury securities) created by the govt for use by the private sector to support economic activity.

[me]

"change the debt limit from a dollar number to a percentage of GDP"

And when GDP falls, we buy back the excess debt we sold earlier? Sure, that's very likely (snicker).

And what is to prevent the chronic borrowers from fudging the numbers to inflate economic performance even more than they do already? Nothing that I can see.

[muirgeo]

Good point and if I were a democratic candidate I'd just show this graph to the nation on a regular basis.

http://home.comcast.net/~markthoma/Graphics/federal-debt-GDP.jpg

[Counter Revolutionary]

Muirego, or we could just keep showing this graph:
http://bp1.blogger.com/_yBU2IH33oeM/RrfI0UPDICI/AAAAAAAAAjA/tmjpXxgUshM/s1600/surplus%2Bdeficit%2Bgraph%2B3.jpg

Eight years with avg "unified budget" surpluses since Ike. Five of the eight by Republican presidents. And, soon to be a sixth of nine.

[marmico]

Stevie is already rolling back the debt to GDP ratio and he hasn't even seen the final Q2'07 GDP number let alone the July budget deficit (which is due in a couple of days)*. [Of course, it will be revised again in 2008, 2009 and 2010 with the annual revisions, and then again, it will be further revised in 2008 and 2013 with the comprehensive revisions] Good gosh, tallyho, everything is just fine, dandy & peachy. Pass the candy floss. Another economic expansion and another $3 trillion in debt. Whoppee. What will happen in the next economic contraction?

Hint: the debt to GDP ratio will explode upwards and Stevie's graphs will look alot different. Like crayon drawings from kindergarten class.

It's like Stevie has had an epiphany. I don't think he understands that tax revenues lag the economy. The economy is slowing. Tax revenues will slow. Who knows what the congresscritters will spend next.

Hmmm... as an aside, when will interest payments on the debt exceed the Department of Defence budget?

Hint: before Stevie has another grandchild to shoulder the burden of his profligacy as he climbs from the golfcart to the first tee, swings and slices the ball onto sunset drive, ricocheting all the way to the medicaid/medicare halfway house while collecting his social security stipend on the 19th hole. That's a remarkable shot for such a wangler! :-)

http://www.federalbudget.com/chart.gif

*The CBO has estimated that the 2007 unified budget deficit is $158 billion year to date.

http://www.cbo.gov/ftpdocs/85xx/doc8518/MBR_08_2007.pdf

[Kevin]

Whoa, chill out a bit Marmico. Forget your medication today?

You forget that Steve is reporting BAD news -- I think he's made it clear he'd like to see a bit more deficit spending and a bit more Debt-to-GDP :)

[Steve]

muirgeo:
If you were a Democratic candidate, you'd be asked what the future line would look like if you were elected. Would it be higher, or lower, or the same? If the same, that implies you think you have no control over it; if different, why?

But I suspect your point is to demonize your hated political opposition, as opposed to taking a position and committing to an economic forecast of your own that might draw criticism. It's a common tactic... as marmico's comment illustrates.

marmico:
Do you have any positive ideas for enhancing the private sector's ability and incentives for growing the economy? Or is your schtick limited to personal attacks on those whose ideas you oppose?

The reason I'm asking is that your submissions have been looking less like attempts to converse, and more like trolls or comment spam. I have limited tolerance for either of the latter. Send me an email if you would like to discuss this in private.

[ilsm]

You can see the federal debt here:

http://www.treasurydirect.gov/govt/reports/pd/feddebt/feddebt.htm

They just uploaded the 31 July 07 report.

They have the increase in debt held by the public as well as the debt increase for the intragovernmental accounts.

The fiat money for debt held by the public comes from citizens, Japan and China, as well as some euro traders.

The money that represents the intragov debt is taxes collected and spent for other things like the war machine.

The intragov debt is taxation without representation and someday they will try to default on the taxes collected and wasted where the congress failed to appropriate the money from income taxes.

Steve, is you debt ratio clock working on the slopes of the 6 month moving average or what?

[Counter Revolutionary]

Marmico, so what? *The CBO has estimated that the 2007 unified budget deficit is $158 billion year to date. Down already by $81B from 06 is bad news?

Ilsm, some of the ?fiat? money comes from foreign investors.

[Crashex]

I understand that if the GDP is growing faster than the debt the percentages displayed in the debt clock roll backward, i.e. become smaller with time. But the dollars of Debt displayed are also rolling backward!? While the rate of debt increase is clearly getting smaller, and will potentially balance next year, shouldn't the total debt values updated in your display still be increasing with time?

[Bob]

Muriego and Marmico:

Obviously you don't agree with Steve's position. I'm sure that Steve expects argument, otherwise he wouldn't have comments open. So let's try this.

What are your recommendations to reduce the debt. I'm assuming that is where you are both headed. Here's ideas you can look at.

1. Cut government spending. Where and by how much?

2. Raise taxes. To what level and in what income brackets?

3. Cut social security and medicare entitlements. By how much?

Those are pretty much the big headline items. So have at it. Ooops. Forgot something. Yep, Congress can, right now, cease funding for operations in Iraq and Afghanistan. Put that in if you want.

[rufus]

I'm confused, also, about the debt clock running backward. What is it Crashex, and I, don't understand.

[workindev]

Total debt is going up, it's only the public debt figure that is going down. All that means is that Federal tax revenues (on the unified budget) are covering real expenses now, so the only debt that is being added is the money going into the trust funds.

[muirgeo]

What are your recommendations to reduce the debt.

1. Cut government spending. Where and by how much?

2. Raise taxes. To what level and in what income brackets?

3. Cut social security and medicare entitlements. By how much?

Posted by: Bob

1. Making lobbying illegal if it involves any transfer of gifts, money or conflict of interest. As a doctor I can lose my license for taking too nice of a pen from a drug rep so don't tell me it's not possible. Bribery is NOT free speech.

Publicly fund elections

Have instant run off voting

Pass a constitutional amendment to allow line item vetos by the president.

End the war. Serious oversight of government contract and privatization of government programs

2. Repeal the tax cut for the top 1% of earners and get rid all deductions. Keep estate tax at about 5 million level. Tax dividend and stock gain as regular income. ( No reason Paris Hilton should pay less on her taxes then a firemen or teacher.

3. Drop the social security rate to 3% but get rid of the cap. Single payer health care system.

[rufus]

I think I see it now. I'd forgotten that we ran a little Surplus in June.

[Steve]

ilsm, crashex, and rufus:
[Where do you get those creative names, by the way?]

Good questions about the trend lines and decreasing dollars of publicly-held debt. Because the actual end-of-month debt balances tend to jump around, I smooth them into a trend line before calculating the debt growth rate; that smoothed line, in turn, yields a more reliable forecast for the upcoming month or two -- usually.

As noted, the total debt is increasing, but at a slower pace than GDP; that makes the total ratio tick backwards. The trend of publicly-held debt is in fact decreasing, so that makes both the ratio and the dollars tick backwards. (That may or may not last; when it's this close to zero growth either way, it alternates between up and down, and can look confusing.)

I've added an end note with two graphics. The first is the segment of the monthly debt report from the Treasury showing where I get the numbers, and the second is a chart showing both the raw end-of-month numbers and the trend line for publicly-held debt. Note the downward trend. You can get the monthly debt reports at this page:
http://tinyurl.com/yq5v7x

Even though I'm smoothing it, the trend line still jumps around more than I'd like to see, because it makes this stuff more difficult to explain. Also, remember that the reported deficits are just one of several things that can change the debt balances, although they are the major factor. (Another thing that can change the debt balance is a change in an asset account at the Treasury, for example. Those other effects are the reason the deficit is never quite equal to the change in the debt balance.)

[rufus]

Got it. Thanks.

[Bob]

Muriego wrote:

"1. Making lobbying illegal if it involves any transfer of gifts, money or conflict of interest. As a doctor I can lose my license for taking too nice of a pen from a drug rep so don't tell me it's not possible. Bribery is NOT free speech.

Publicly fund elections

Have instant run off voting"
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Alrighty then. You're PO'd at our political system. Fine, I'm not all that happy either. But you failed to address how any of the above will reduce the debt.
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"Pass a constitutional amendment to allow line item vetos by the president. "

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Not happy about pork and earmarks, eh? Neither am I. You think the fox is going to do away with the hen house? You're crazy.
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"End the war. Serious oversight of government contract and privatization of government programs"
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This is incoherent. So, it's all Halliburtion, right? Okay how much will that save in the budget? Look, I'm upset with the mismanagement of the whole thing. But, it would take a very long time for us to recover from admitting defeat and defeat it would be.
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2. Repeal the tax cut for the top 1% of earners and get rid all deductions. Keep estate tax at about 5 million level. Tax dividend and stock gain as regular income. ( No reason Paris Hilton should pay less on her taxes then a firemen or teacher.
---------------------------------
Okay, it's all about the wealthy according to you. Fine. How much will this save?

Answer my question, darn it!
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"3. Drop the social security rate to 3% but get rid of the cap."
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You got some numbers to show me?
---------------------------------
"Single payer health care system."
---------------------------------
So, how will this reduce spending or reduce the debt? Come on now, you're kidding me, right?
---------------------------------

[Mike H]

Look, I make around $20,000 a year, but I also earn dividends. Do my taxes need to go up as well?

I see it as an unfortunate side effect of an extremely positive tax policy: that people with lots of money can have a lower overall tax rate due to dividends. But why is the answer always to just raise their taxes in the name of fairness?

Keep in mind that the low taxes on dividends benefits everyone by promoting investing and growing the economy faster. This, on average, incrementally improves everyones life the fastest. Sure, it may not have as obvious and sudden impact on an individual life as increasing the minimum wage, but that's why the economic growth idea isn't an easy one to proliferate.

If we're going to make the system more fair AND economically viable, any change in tax code should be revenue neutral. But I think raising the dividend rate on even just the people with the most money would stifle our economy to some extent. I for one am not willing to make that sacrifice, which would hurt everyone, in the name of fairness.

[Bob]

Mike H.

Great point! By increasing taxes on investment gains we will get less investment. Why should the government share the rewards for MY risk?

[Crashex]

Thanks for the more detailed explanation.

Now, you have previously described Public Debt as a form of income for the holders of the debt. How does the change to the Public Debt trendline effect the other aspects of the economy?

[clive oxer]

Sir
Your charts and comments are flawed, for three reasons
1. you leave no spare debt capacity for the unexpected like the iraq war or hurricane katrina etc
2. the idea is built on a house of cards by assuming the economy will always grow (this is changing as we speak, and it makes debt harder to pay if not impossible, if recession is prolonged as in Japan
3. All assumptions are based on politicians making rational decisions, this has been proved wrong, as they have spent approximately 5 TRILLION dollars in the last 8 years which is not sustainable and even now they seem unable to make cut backs

All the above would not be so serious if it did not have such a large impact on the working families of America, and no impact at all on the politicians.....