The Green Swan: BIS Urges Climate Action to Prevent a new GFC

“When every uptick in growth is accompanied hand in hand by further rise in debt? You are either witlessly blind, or worse, wilfully.”
Get a grip there, Ace!
Who said any increase in economic growth is necessarily accompanied by an increase in spending?
I did not say that.
You said it, in the form of a question yet.
One might wonder or ask what the heck you are talking about.
Besides for that, you said controlling spending is a solution, but I said it first.
Only you said controlling spending and making repayments is the only practical solution.
How is it practical?
I would be willing to settle for an answer that only describes how it is even vaguely possible to reduce spending and actual repay (buy back?) the debt?
Let us hear some numbers, or admit you are just making crap up.
I really do not appreciate being addressed in such language, Dick!
One might suggest that it is, in fact, you being the witless wunderkind here…or worse yet, willfully and woefully misinformed.
Or one might suppose you are a deliberate purveyor of disinformation.
There are lots of ways to determine the level of debt, but the metric most economists agree is the most important is the debt to GDP ratio.
A look at a couple of charts makes it obvious why this is the case.
For one thing, if we look at a graph of national debt which is not adjusted for inflation, we get one chart…a chart of the actual dollar amounts of the national debt as it was reported at the time.
But most graphs of the national debt are in what is called constant dollars, meaning they have been adjusted for inflation and are NOT a graph of what the actual debt amount was in the past years.
And a look at the level of debt that takes into account the total size of the economy looks different than either of those first two graphs.
Six hundred dollars in debt means something different for a single parent who earns $600/week, and is a far different matter, than the same 600 dollars for a doctor who makes $250,000 a year(~$4800/week).

Not adjusting for inflation, the national debt has not decreased appreciably since the year immediately following WWII:

http://www.alternativeinsight.com/FederalDebtDollars.gif

After adjusting for inflation, the amount of the debt, when graphed, looks completely different…huge spike during WWII followed by a flat pattern for many years until about 1980 or so, then rising to the present except for a few years in the 1990s when it decreased slightly:

And looked at as a percentage of GDP, the graph looks completely different, dropping sharply after WWII until the 1980s.
Inflation and a growing economy have a large effect on the significance of a given dollar amount of debt.
And the debt has not shrunk in actual dollar amount since prior to WWII, except for the four years of so from 1996 to 2000 or so.

During those years the amount of the debt shrunk back to where it was in about 1992.
But those were also years of rapid economic growth, and rapidly increasing federal tax revenue due to the stock market going up sharply, coupled with a decrease in capital gains taxes, as well as other changes to the tax code.

So you are factually and demonstrably wrong, as a matter of logic and as a matter of historical fact.
Growth is not automatically “accompanied hand in hand by a further rise in debt”.
Where on Earth did you get that idea?
What were you taking when you hallucinated that this was the case?

During the late 1990s rapid growth was coupled with spending freezes, but there was never any actual year over year decrease in actual dollar level of spending of any significance:

And yet the amount of the debt shrank, if only slightly and only briefly.
In the years from about 1950 to 1978 or so, the dollar amount of the national debt did not decrease, it increased, but in inflation adjusted dollars it was basically flat, and as a percent of GDP it was shrinking dramatically.
For a few years in the late 1970s and early 1980s the debt shrank, after adjusting for inflation, although it never did in actual dollars…it was growing rapidly in those years. But inflation was very high, so in constant dollars the debt was shrinking.

Debt as a percentage of GDP:
https://upload.wikimedia.org/wikipedia/commons/e/e1/Public_debt_percent_of_GDP.pdf

And the same data back to 1790:

Try not to be so nasty.
I have no desire to communicate with anyone who behaves like you do, except for the reason of pointing out that you actually have no idea what the hell you are talking about…and I do know exactly what I am talking about.
Being a jackass is easy.
Knowing the facts takes caring what the facts are and doing a little homework.
But there is no excuse anymore for such ignorance and uninformed blathering…this is the frickin’ internet, and all the info in the world is available with a few clicks of a finger.

People that speak in absolutes while also being a gigantic assclown are easy to ignore…especially when they say things that are factually inaccurate, logically challenged, or just plain wrong.
Public debt exists primarily in the form of bonds which have been issued, typically with various periods of maturity.
Such debt is rarely paid down…it is more commonly retired as the bonds mature and are not reissued.
Ronald Reagan made a campaign issue out of the national debt in 1980, and won the White House that year in part because he made it seem like it was getting really bad…it was rapidly approaching 1 trillion dollars for the first time in history.
But as a percentage of GDP the debt was lower in 1980 than it had been at any time since the Great Depression, after reaching a peak in the year after WWI, and falling through the Roaring ’20s, before rising again after the stock market crash of 1929.

Economic growth is what can change the most easily and painlessly.
Economic growth increases the size of the pie, and can do so rapidly.
From 1980 to 2002 the economy of the US approximately quadrupled in size, from 2.8 to nearly 11 trillion dollars.

It actually requires both sides of the equation to work together. Basically you have 4 possibilities:
1) income grows/increases while spending does not (it either stays steady or it deceases)
result: debt increases slow down and eventually become debt decreases.

2) income grows/increases and spending rises by the same amount or more.
result: debt continues to steadily grow

3) income does not grow (it stays the same or drops) while spending stays same or increase
result: debt continues to steadily grow

4) income does not grow (it stays the same or drops) while spending drops more than income does
result: debt increases slow down and eventually become debt decreases.

Only 1 & 4 have a hope of decreasing the debt (and 4 is unlikely to happen as government spending rarely ever shrinks). So yes, growth (option 1) is the solutions to debt so long as spending isn’t increasing to match – otherwise you are in option 2 territory.

One can also go to work serving coffee in Seattle and get $15 an hour starting salary, which was not possible when you could buy dinner for a nickel.
It was not obvious to many people who grew up in the inflation addled days of the 1970s and 1980s, but deflation is no picnic either. Deflation is what happens during periods such as The Great Depression or The Great Recession, when our assets become worth less and less, and cannot even be sold for what we paid for them, jobs become scarce at a wage which will meet expenses, etc.

I used to worry as much as anyone about the deficit and the debt.
But consider the analogy to a person with a 30 year home mortgage.
If that person has a $200,000 mortgage at 3.5%, and a monthly payment of around $1000, then a lot of the monthly payment will be for interest, and that will be the case for year after year.
Suppose one has $200,000 in liquid assets, such as stocks, bonds, 401 k plan mutual funds and ETFs, etc…would it be a better idea to sell those assets and pay off the mortgage?
Over many decades, the annualized rate of return on a balanced portfolio of stocks, such as at S&P 500 index fund, has been 8% or so. And in recent decades it has been higher than that in most year.
So the net effect of disposing of the debt would be to forgo all of the years of 8% annual growth of wealth on the 200k, plus the effects of compounding on the accumulating portfolio, for the purpose of avoiding paying an interest rate of less than half of that 8%.
Another way to look at it is, between now and 30 years from now, the money that is used to pay off that loan will become easier and easier to earn, as wages and such other sources of income as stock dividends and social security payments increase due to inflation.

Perhaps a more straightforward way to look at it is…there is no realistic way to pay off the national debt. It stands at over $20 trillion dollars. The US federal government has about $3.6 trillion in annual tax revenues from all sources, and a budget proposal for 2020 is pending which will be over $4.7 trillion is passed as is.
Of that 4.7 trillion, 2.84 trillion is mandatory obligations such as Social Security, Medicare, and Medicaid.
Interest of the national debt will be about 0.48 trillion.
And discretionary spending…the part which can be cut to nothing without cheating anyone out of what they are “owed” (scare quotes for numerous reasons) is about $1.42 trillion.
More than half of that is for the military.
Every year we have to build and maintain all of our planes, build and maintain ships, build and maintain out arsenals of various weapons…and pay a bunch of people.
Excluding the military budget and Veterans Affairs, there is about $500 billion in discretionary spending…for everything else.
Health and Human service, Education, Homeland Security, Housing and Urban Development, Dept of State and International spending, Departments of Energy, Justice, Transportation, Agriculture, Treasury, Interior , Commerce, and the Labor.
Those are in descending order of the amounts of their budgets…from $90 billion down to $11 billion.
Where would money to pay down the debt come from?
What would attempting to extract it, from the people that have the money to take, do to the economy?
Very little of the large concentrations of wealth exist in the form of piles of money or gold.
It is in real estate, stocks of large corporations, etc.
Any attempt to sell some large percentage of such assets to raise money would cause the value of them to crash…to an extent no one can really specify for certain.
But what would happen to the share price of Amazon if Jeff Bezos started to sell all of his shares? To Microsoft or Berkshire Hathaway of Bill Gates or Warren Buffet did so?
I have wondered if Elizabeth Warren has considered this before she called for a wealth tax of over 5% on such people?

In any case, no one has ever articulated a plan for actually paying down the debt. Most calls for shrinking it do so by freezing spending or reducing spending at some small rate for some number of years, across the board.
The problem of course is that every single dollar of the federal budget has a constituency…someone on the receiving end of each and every one of those dollars…and every one of those people screams bloody murder at any serious talk or suggestion of cutting those spending dollars.
Recall what happened in 2017 when Trump called for freezing or even eliminating some redundant federal programs?
Trump called for shrinking the budget for the Dept of Health and Human services by some 17% back in march of 2017. The hue and cry was immediate and thunderous…that Trump was trying to starve senior citizens who relied on Meals On Wheels for part of their food consumption. Because some small part of that agencies funding goes to support some of the many agencies around the country that run those Meals on Wheels programs.
It did not matter that Trump never said one word about cutting Meals on Wheels.
Repeat that same scenario for every dollar in the budget, and also keep in mind that in the bizarre world of Waskington D.C. speak, merely suggesting that future increases in any spending be curtailed is the same thing as calling for a cut in spending.
Reducing the rate of expected future increases is translated, in budget lingo, into a de facto budget cut!

Besides for all of that…the question few ever consider is…who does the government owe all that money to?
Who are the holders of public debt?
From the way the issue is typically bandied about in media and such, one might think that the Chinese are the holders of most US national debt…but this is not the case.
Americans citizens and our institutions hold the vast majority of it, through pension funds, direct holding of bonds, the Federal Reserve bank holdings, etc.
26% of the $23 trillion national debt is held by other US governmental institutions…one federal agency owes it to another !
How many times have you heard anyone point that out?

The remaining 74%, some $17.1 trillion as of last September…the most recent time that data is available for…is what is held by the public.
Of this public debt, ~29% is held by foreign governments. Individuals, banks and investors hold 17%. The Federal Reserve holds 11%
Mutual funds hold 9%.
State and local governments own 5% of it.
The rest is held by pension funds, insurance companies, and savings bonds.

Five countries, Switzerland, Luxembourg, Ireland, Brazil, and the UK, between them hold about 1/5 of all foreign held debt, about $1.41 trillion.
China holds about $1.1 trillion.
And Japan holds the most…some $1.17 trillion.

Someone once said words to the effect that when you owe someone a million dollars, they own you.
But when you owe them a billion, you own them.
Some countries hold a lot of our paper.
If we ever defaulted…what could they do?
Come and take Iowa back to their country?
Maybe we would get lucky…they would come and take NYC and Washington DC.

If anyone wants a source for these figures, just ask. It is all readily available public info.