Billion Dollar-o-gram

[ramnik]

Just found this diagram which gives a clear idea of the cost of the recent financial crisis! Interesting!

 

[tylor]

... what is 'African Debt'?

 

[ThinkDifferent]

@WilliamY: as per previous discussion isn't healthcare supposed to be a bigger chunk of this graph?

I would have expected that over the lifetime of the war in Iraq (~10 years or so?) medicare would take up more than merely twice the cost of the war.

doesn't it say "medicare per year"?

 

[ThinkDifferent]

LOL@ "World-wide porn industry" and "Erectile dysfunction"....damn, according to a digram, Bill Gates could've bought world-wide porn industry instead of giving away money to those silly charity funds...

 

[WilliamY]

Lyosha:

The graph shows total war cost around $3 trillion dollars. We are probably fine for now; I was talking about future entitlements and unfounded obligations (Medicare, Medicaid and Social Security).

The present value of those unfunded obligations is an estimated $45.8 trillion. Approximately $7.7 trillion relates to Social Security, while $38.2 trillion relates to Medicare and Medicaid. Sometime between 2030 and 2040, mandatory spending (primarily Social Security, Medicare, Medicaid, and interest on the national debt) will exceed tax revenue. In other words, all discretionary spending (e.g., defense, homeland security, law enforcement, education, etc.) will require borrowing and related deficit spending. [Source]

 

[TraderJoe]

Already 40% of the population of Florida is over the age of 65 years. The Baby Boomers are starting to retire and will all be retired in the next 10-15 years. They will need Social Security and Medicare. The national debt is $14 Trillion and is increasing at the rate of $1.5 Trillion per year. Social Security and Medicare programs are not going to be around by 2030-2040. The national debt will drive the US government into a default long before that. Once debt reaches 1.5 times GDP, you are looking at a government default.

 

[ThinkDifferent]

Once debt reaches 1.5 times GDP, you are looking at a government default.

where did this rule of thumb come from? why not 1.6?

 

[TraderJoe]

I agree. These figures like 1.6 and 40 seem to be a lot more reasonable than 1.5. It would be helpful if you wrote a paper on it. The top economics and finance journals would surely be interested to publish your paper because you would be proving a lot of academic theory to be faulty.

 

[ThinkDifferent]

I agree. These figures like 1.6 and 40 seem to be a lot more reasonable than 1.5. It would be helpful if you wrote a paper on it. The top economics and finance journals would surely be interested to publish your paper because you would be proving a lot of academic theory to be faulty.

do you mind sharing a reference to "a lot of academic theory" proving a widly known "rule of a 1.5 ratio" our uneducated minds are not aware of?

 

[TraderJoe]

Is this 1.5 rule general or just for the USA? ... because I can name a couple of countries off the top of my head with higher debt than that that aren't and haven't been in default...

It is not just for USA. Japan has been living with a Debt / GDP ratio of around 2. But the debt servicing has crippled their economy. The Nikkei is BELOW the value for 1987. Once Debt / GDP goes over 0.9, economy gets crippled. Once Debt / GDP goes over 1.5, you are looking at a default. USA Debt/GDP is currently 0.97 and they are paying $270 Billion a year to service their debt, which is 10% of tax revenues. If it increases, you just enter a cycle of debt servicing payments from which you can never escape. The debt servicing will be more than the tax revenue. Government can never cut Medicare and Social Security benefits because the old people go out and vote like crazy. The young people don't vote. They only pay the taxes to the government which the government uses for medicare and social security. So people can just watch the debt spiral out of control and the medicare and social security benefits will be cut only when it is too late to stop the default.

 

[ThinkDifferent]

...once it goes over 0.9 the economy get crippled.

and here goes another magic number 0.9...

TraderJoe, are you into numerology or something?