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					Understanding this issue
     in real terms
Gross Domestic Product (GDP)

Measures how rich a country is

The dollar value of all of its goods and services

Debt is not measured in dollars; it is measured in
terms of the capacity to deal with it (wealth)
  The deficit as a
percentage of GDP
Deficit as a percentage of GDP – before Reagan
                           Largely cyclical – only
                            have deficits when
                              economy is bad
                                Clinton’s economy is so
                                good, that it disappears
    Structural deficit – have
      it in good times, too




Deficit as a percentage of GDP – Reagan through Clinton
    The two Bush wars and
                                   The Great
     prescription drug plan
                                   Recession
     bring back the deficit
                                   explodes it

Deficit as a percentage of GDP – Bush and Obama
  The debt as a
percentage of GDP
National debt as a percentage
of GDP
                        Question:
                 Why is the national debt
                   falling each year?




25%           Debt = 25 cents on each dollar




      1973?
Why is the debt
falling through
     1973?
                  0
                  0
                  0
              1. Economy is expanding
                 (imagine what doubling
                 your income would do to
                 your debt burden)
              2. Making the credit card
              payment
               No sacrifice?
              1. Govt spending grows every
                 year
              2. Taxes are high on the rich
25%           3. We’ve had a New Deal and
                 a Great Society


      1973?
              1. Economy is expanding
                 (imagine what doubling
                 your income would do to
                 your debt burden)
              2. Making the credit card
              payment
               Generational selfishness
              1. The 60s generation paid off
                  the WW II debt
               (Actually, the WW II
25%           generation did. The 60’s
              generation paid off the debt of
              the generations before that)
              2. Now they want you to
      1973?   support them in social security
   Question:
   Why is the
  national debt
exploding again?
Why is the debt
falling through
     1973?
                  0
                  0
                  0
                       Reaganomics

                      We run deficits
   Question:         even in good
                     times
 Who is going to
pay for this debt?    Structural Deficits

                      We keep taxes
                     low on the
                     wealthy

                     Federal spending
                     has been
                     constant in terms
                     of GDP during
                     this time
Everyone
 Votes!
           1.   Me (this generation of   0
                kids)
           2.   The Clinton (dot.com)    0
                economy in the 90s
            ¾ gets paid for in the 1990s.

            No sacrifice?
1. Government kept on
   spending
2. Taxes raised on the rich
   (slightly!)
1. Didn’t pay for the wars
2. Didn’t pay for the
   prescription drug plan for   Bush years
   seniors (a New Deal plan?)
(Note how today’s republicans
are different)
    Question:
Why did the debt go
  up so much?         Note how steep




                                       2008
Why is the debt
falling through
     1973?
                  0
                  0
                  0
   Economic Collapse

USA lost 9% of its wealth
When GDP drops 9%, it is a        Note how steep
MAJOR thing.
Imagine getting your salary cut
   (existing debts become
   more burdensome)

  Stimulus

We will look at this impact
later. Not as much as you
might think
                                                   2008
             Note how steep



    Question:
Who is going to pay
 for this round of
      drinks?




                              2008
Who is going to pay
   for this debt

                      0
                      0
                      0
   Compare to a business

Imagine being worth $100,000
and carrying 58,000 in debt
With today’s interest rates
being so low, it would be
cheaper than ever to finance
the debt
We aren’t Greece. We’re too
rich                              Gryffindor Points:
If we every were Greece, it      What did Hamilton do
was during World War II         about the revolutionary
                               war debt. Did he even try
                                     to pay it off?
    Hamilton’s
Financial Plan and
 the national debt
                     0
                     0
                     0
David Stockman

				
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posted:11/22/2012
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