Government Debt (chart)
economist.com
economist.com
http://costsofwar.org/article/macroeconomic-impact-military-...
How can every country be indebted? Don't mutual debts cancel each other out? How can the whole world be in debt?
Whom do they owe that money? Whom do they pay the interest? Does a government debt mean that each citizen has a debt? Does it mean the government owes that money to its citizens?
If anyone has insight in this, please enlighten me!
http://www.treasurydirect.gov/indiv/products/prod_tbills_gla...
Debt serves an important function in modern economies as a safe place to put money. That's why this debt ceiling showdown is a problem. Investors will take their money somewhere else instead of putting it in T-bills if they think the US might default.
Trillions in debt looks ominous, but it represents the trust (and wealth) of thousands of investors.
The U.S. government is already working to cheat its debt investors by repaying them with devalued printed paper. One could argue that U.S. government debt is one of the least safe investments out there. You will get repaid, but it will be in devalued currency. That dollar you invested 5 years ago, for example, only buys about 1/3 as much oil as it did when you invested it. That is a catastrophic loss.
Even in the U.S., which is generally very responsible, government debt has been a terrible investment at times through the years. The U.S. massively devalued during the Great Depression and devalued again after World War Two. An investment in a U.S. ten-year bond in the late-1960s would have been absolutely creamed, I'm talking about losing much of the real value of your investment. That's not anyone's idea of safe.
Giving the government all your money to keep it afloat in those situations was still superior, even if the government ended up ruining the value.
Good point but really bad example which bring your intentions into question. Oil is in high demand, thus the price has increased. You should've picked a relatively stabler item to compare the price of.
Also, how much interest did you gain on the dollar in 5 years? An investment is not the same as putting a dollar bill in your pocket.
You could also measure against corn, or gold, or the cost of college. It's been pretty ugly for the dollar for the past 11 years, and it may get worse.
http://www.treasurydirect.gov/indiv/products/prod_tips_glanc...
A lot of government debt is held by private entities. You're thinking about the national debt, and here is a long detailed explanation:
How can the average amount of debt for an individual, country and corporation all be negative?
Look into fractional reserve banking and the Federal Reserve.
[aside] I love the the Planet Money podcast and highly recommend it. I wish more of the talking-podcasts I follow (Mixergy, Teckzing, back-to-work, stackexchange, etc) were available in 20 min chunks instead of the 60 min they all seem to favor. [/aside]
[1] http://www.npr.org/blogs/money/2011/04/15/135423586/when-the...
For more details, I recommend the blog of Bill Mitchell, especially his Debriefing 101 section: http://bilbo.economicoutlook.net/blog/?cat=11
The brief answer to your question is that yes, money is always a zero-sum game, just by the definition of how accounting works. If you sum up all financial assets and liabilities over the entire world, they sum up to zero.
Now when people say that a country is indebted, what they really mean is that its government is indebted. The corresponding financial assets are owned by the private sector. It's really as simple as that.
That is why trying to pay down the government debt is such a stupid idea. All it does it attempt to force the private sector out of its financial assets. And as the communists learned the hard way, putting undue force onto the private sector against its natural behaviour usually leads to bad results.
Thus begins the biggest poker game of all, in which the U.S. suddenly cares about military spending and is trying to get Europe to spend itself into an inflationary cycle. Meanwhile, Europe is trying to prevent that through severe budget cuts. Ultimately though, neither can get rid of their debt without inflation so both taking inflationary measures is the only logical outcome. China and other countries heavily invested in euros (e.g., Russia) and dollars (e.g., Japan) will not be pleased, but ultimately their wealth is heavily dependent on the economic well-being of their biggest lenders and trading partners. There will be few winners in this game.
Not buying that, especially not at the moment - Greece is doing far more damage to the Euro as a reserve currency than anything the US could do to the dollar before August 2nd, and if Greece gets its house in order, there's still Portugal waiting in the wings. What's more, the US has an inflation rate right now that's practically nil, and I suspect China's interest is in the US spending again - their bond holdings exist for the sake of currency control, not as a legitimate investment.
You're right, though - the picture's looked an awful lot rosier. I don't believe there's anything concrete that assures the US's decline, but that's not for lack of trying on the part of Congress.
Belgium 100.7%? France 94.1%? That's not much better than Ireland (102.4%) and Portugal (103.1%)!
Obviously some countries are much better at managing their debts than others (or at least their public image). Can we learn anything?
For politics:If everything is well we wouldn't need politics to make it right. Therefore politics must assure that everything is screwed for them to prosper.
For banksters: they must assure that that everyone is indebted and even entire countries in order for them to survive.
Don't expect solutions from those that thrive on the misery of others.
The chart below shows OECD calculations of what it would take governments to reduce gross debt to 60% of GDP by 2026. This is around the level considered healthy and is also the ratio set by the widely ignored Maastricht agreement, which is meant to govern debt in the European Union. It is not pretty.
http://en.wikipedia.org/wiki/Making_Sweden_an_Oil-Free_Socie...
According to Wikipedia (http://en.wikipedia.org/wiki/Economy_of_Sweden) Sweden's main industries are: telecommunications equipment, wood pulp and paper products, motor vehicles, pharmaceutical products, iron and steel.
That's quite a nice spread.
And ABBA. (I'm only half joking the royalties on their music equal quite a few Volvos.)
... between 1974 and 1982,they earned nearly twice the GNP of Sweden
This too: "When ABBA was active, only the Volvo car company made more money in Sweden.".
What you are talking about doesn't even describe Norway properly -- they have largely not spent the revenue they got from oil. Instead, it has been collected into a sovereign wealth fund. At present, the fund holds some $100 000 for every Norwegian. Future decline of oil profits will be covered by the investment income from the fund. There hasn't been any cutting of government services to fit revenues -- there hasn't been any need to.
Sweden, like the other Scandinavian countries, has held a responsible and rational budget for most of it's existence as a democratic country. So while it might be incredibly rare for governments worldwide, for some reason it seems that the Scandinavians can make the idea of a well-run welfare state work. I have yet to figure out why they can do it and most of the rest of the world seemingly can't.
Normally an influx of wealth from oil (or other natural resources, even humanitarian aid) will suppress the country's abilities to be competitive in manufacturing or other (non-oil) sectors. It's often called a "Resource Curse" or "Dutch Disease".
Avoiding the curse requires not to spending the oil money directly... and instead to invest it and spend only the interest.
It helps a lot to have a small country with an ethnically homogenous population, extremely low corruption, high tax morale, and high public trust of government offices and institutions.
Maybe, or a big but dictatorial country like China.
an ethnically homogenous population
Care to elaborate? Would you consider countries such as Switzerland, Canada, Taiwan, and Singapore ethnically homogeneous?
extremely low corruption, high tax morale, and high public trust of government offices and institutions.
Chicken and egg problem - High tax compliance and trust in government come from having a reasonable tax rate from which you get a lot of effective government services. Low corruption is a pre-requisite for trust in government institutions.
I bet what also helps is not having a culture of cousin marriage, that seems to create a culture where is much more difficult to have any kind of trust with people outside of your clan.
I think the modern well functioning democracy is to a very large degree a result of complex game theory.
You don't have to look back much more the 2 centuries, to see thousands of years of European history that's full of corruption, lawlessness, crushing tax rates, all the typical modern day 3rd world problems and then some.
If just being Swedish led to modern Sweden, Swedish history would be a lot less interesting. For one, it would almost certainly be entirely Viking free.
<sarcasm>And it's working out great!</sarcasm>
Also their central bank cranked up QE higher than our Fed, and their politicians didn't run around freaking out about "debasing the currency".
Read about it here http://www.washingtonpost.com/business/economy/five-economic...
I don't think enough people understand that Keynes doens't work if you are running a massive deficit all the time. In good times you _need_ to be solvent so that in bad times, extra gov't spending will actually have an effect.
The US is not able to implement Keynesian policies b/c we borrow and spend constantly.
It's too bad you apparently can go to jail there if you have sex with someone, they regret it, and then a politician wants to make that a crime afterwards.
They crashed in the 90's:
http://en.wikipedia.org/wiki/Economy_of_Sweden
Then they reformed and recovered.
http://www.heritage.org/research/reports/2000/06/pension-ref...
"Partial privatization. Workers can invest 2.5 percentage points of the 18.5 percent of their income that they must set aside for retirement. Soon workers will be able to choose the pension fund into which the funds will go."
Any talk of even partial privatization in the US gets the old folks quite worked up. Political scare tactics and such. Plus a healthy (and not unwarranted) distrust of Wall Street that would love to get it's filthy paws on _even more_ retirement money.
Pillar 1 is called AHV (AVS in French). This is the responsibility of the federal government and there are no plans to privatize this; ever. Since there is a maximum payout, which is quite low it has a certain wealth redistribution component. That is: When you make a lot of money you pay a percentage into the fund, which is a percentage of your earnings. So, a person making a lot of money pays more into it, but since the payout is capped at a fairly low level, he may get the same benefits as somebody who earned much less and thus payed much less into the fund
Pillar 2 is the actual pension plan, which is mandatory. Every company must insure their employees and big companies run their own schemes. While those funds are privately run, there are strong restrictions in place how they can invest the money of their insureds. The difference to the AHV is that the payout depends on the amount you payed in over your lifetime as a worker. Payout is based on a formula and the age of retirement can be dependent on the insurer. Employees don't have a choice about which pension plan they have and there are differences in quality. I could imagine that the system in Sweden is comparable (private, but very restricted in how they invest) but must admit that I'm assuming here.
Pillar 3, incidentally called pillar 3 (3. Säule) is not mandatory. You can pay a maximum yearly amount into a fund, a bank account or to an insurer (~ 7500$ if employed ~ 38000$ if you're not part of a pillar 2 pension plan) and this amount is fully tax deductible. The string is that you can only get it out when you turn 60. There are ways to get the money out before that. Either when you invest in a house, or apartment or when you leave the country for good. Same goes for the pillar 2 assets accumulated.
There's no such thing that a company can legally pull an Enron and invest the assets of their employees into their own company.
I know that the Swiss system is considered excellent. The dutch system is considered even better, but I have no expertise to discuss it.
http://pensionsmyndigheten.se/AboutYourPensions_en.html
Basically, part of the blob of income tax you pay on your salary is a "pension fee". When you retire around the age of 65, your final pension depends partially on how much you've paid in pension fees in total while working. But you don't set aside that money, instead the pensions fees people pay now are used to pay pensions for retired citizens, and future pensions will be financed by the future workforce.
But then you have the "Premium pension" which does allow you to set aside part of your pension fee and invest into private funds. Generally the systems is a failure, most people don't care about choosing funds, so they automatically end up in a government run generally mediocre fund. A small percentage are investing soundly and successfully, a larger percentage are investing badly, and most people get screwed by high commission fees of the various funds.
On top of these systems there are of course ways to save additional money for your retirement, there are some tax benefits, and you are free to invest pretty much however you want.
But yes, it is interesting that we have more privatization than the US in this, it doesn't happen very often. :-)
http://www.economicshelp.org/blog/uk-economy/uk-national-deb...
http://www.heraldscotland.com/northern-rock-could-be-left-of...
By definition government debt equals net private savings (+/- exports). If the private sector wants a surplus you have to have a government debt. The alternative, as seen on the chart, is to replace net private savings with welfare state programs.
This seems to ignore the ability to add value. The sum of material possessions is determined by the amount the market would be willing to pay, but the market doesn't have to actually enact every transaction for that value to hold. So if I build a house, I still have the surplus value of a new house, even though the exchange of goods was only for raw materials.
I get that technically money is either in the hands of the government or the people (or foreign entities) and so debt and surplus must match between these two (three) groups, but that does seem overly simplistic given that the worth of our material possessions increases as we had value to raw materials.
This is bogus. Sure it's technically true, but it doesn't actually mean anything.
If the private sector wants a surplus you have to have a government debt.
There is no such thing as what's meant by a "surplus" here.
There are two things that can be considered "saving". There is stockpiling useful things for your own later use, and there is collecting rights to other people's future work (which can be approximated by stockpiling your chosen medium of exchange).
But when you consider net "savings" of an entire economy, rather than individual "savings" of individual people, there is no "other people" to collect future work from. The government can create more medium-of-exchange for people to stockpile, and it's recorded as a debt of the government, but it's entirely meaningless because there's nothing to exchange it for. The only way to have net savings -- deferring the benefits of current work -- is to stockpile those benefits in a warehouse somewhere for later retrieval.