Saturday, January 16, 2010

Food for Thought: Debt to GDP Ratio

Politicians are very good at spending other people's money. Heck, we're all good at that! Give me a Best Buy gift card for Christmas and I suddenly need something from Best Buy!

Despite what politicians think about deficits, they do actually matter. Or at least, they matter when they all get added up and turned into debt someone else needs to service or -- shudder -- pay back. Okay, yea, you can stop laughing over that last bit. It's been a loooong time since any of the federal debt actually got paid back (don't get me started on using SS trust fund surpluses to make the general fund deficits look smaller).

It can be dangerous to just look at debt levels without normalizing by something. Usually the federal debt is normalized (divided by) the U.S. Gross Domestic Product (GDP) yielding a chart of the debt something like this:

The optimist looks at this chart and says "See, it's been higher before, what are you so worried about?"

The pessimist notes a couple of things:
  • GDP includes all goods and services produced or consumed in the country in a given year. Given that large deficits allow consumption way beyond the natural level, and we are consuming much more than we produce these days, it's not hard to get a little worried that normalizing debt with debt-driven consumption (rather than true production and income-producing activity) doesn't yield much happy factor.
  • The previous peak was during a World War: Fighting for survival, all young men to the front, buy war bonds, that sort of thing. This peak (and it hasn't peaked yet, not by a long shot) is a year or two into a recession following an long period of peace and prosperity (fueled by debt, but prosperity nevertheless).
Color me pessimistic. I see the federal debt with nowhere to go but up. I ran in to this chart the other day. Seems pretty optimistic to take a clearly accelerating up trend in debt/GDP and suddenly flatten it for 8 years!

In a future post I'll talk about what countries do when their debt becomes impossible to service.

Thursday, January 14, 2010

It's All Good! ... Right?

I hear that phrase, "It's All Good," from a lot of younger folks these days. I'm not sure where it comes from, but it occurs to me that its use -- and overuse -- might be a symptom of something unhealthy in our society and the way it admits and deals with problems. So, for a first real post on my newly-christened blog, I thought I would start to explore some of the reasons I cannot share in the confidence inherent in the phrase "It's All Good" when it comes to our economy, our freedoms, and our future.

I'm worried. Scared, even. From where I sit, knowing what I know and believing what I believe, I don't think things are "good" now, nor do I believe they are getting better.

Perhaps I've spent too much time read James Kunstler and his post-apocalyptic view of society in a decade or so if we don't face up to, address, and solve some really big basic problems (Peak Oil, poor city planning, etc). Perhaps I've read (and understand) too many posts by the folks at zero hedge railing on the lack of regulatory oversight and the incredible power Goldman Sachs (aka the vampire squids) have over our legislative and executive process. Perhaps I actually understand the role of incentives and moral hazard in causing people to act the way they do, and how continuing bailouts of firms who bet badly simply encourages them (and others) to make different, but equally bad, bets. (Heck, the folks involved get paid their bonuses based on the number and size of their bets without needing to wait to see how they work out! Good work if you can find it...) Whatever it is, I don't see it as All Good or Mostly Good or even Bad But Getting Better. I see it as Bad and Getting Worse.

Wednesday, January 13, 2010

Once more into the breach...


I've decided to try blogging again after a seven-year hiatus. The last time I blogged it was a technology blog for BEA in conjunction with the publishing of my first WebLogic Server book, Mastering WebLogic Server, in 2003.

Unfortunately, I'm not the technology-chasing type, and my typical advice to people consisted of gems like "stick with what you know," "don't upgrade without a compelling reason," and "avoid using new frameworks or tools for at least 2-3 years." This didn't really jive with the needs of a vendor-sponsored technology blog. Go figure.

This time around I'm going to blog about the topics that interest me: Economics, finances, politics, religion, and perhaps a few others. I may also sneak in an entry or two concerning the design and development of Java enterprise applications, but don't hold your breath.

Why did I choose such a strange name for the blog? You'll just have to "stay tuned" and find out.