# on 29-Nov-2015 (Sun)

#### Annotation 319163660

 However, with the exception of a brief period during and immediately after World War II, debt levels have never been as high as they are now.

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#### Annotation 322571532

 Currently, the national debt held by the public is about $13 trillion, which is around 74 percent of the country’s economy, as measured by Gross Domestic Product (GDP). The gross debt, which includes money owed to other parts of the federal government, is about$18 trillion, or roughly 102 percent of GDP.

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#### Annotation 324406540

 For example, if we start now, we would need spending cuts and/or tax increases equaling 2.6 percent of the economy to bring the debt gradually down to historical levels in the next 25 years. Waiting 5 years, however, would require adjustments of 3.2 percent of GDP and waiting 10 years would require 4.2 percent. Waiting has real costs.

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#### Annotation 430312716

 The second financial firewall is between U.S. currency and government debt. The Federal Reserve could unleash the Zimbabwe option. My expectation is that, faced with the alternatives of seeing both the dollar and the debt become nearly worthless or defaulting on the debt while saving the dollar, the U.S. government will choose the latter.

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#### Annotation 431361292

 Russia in 1998 is just one recent example of a government choosing partial debt repudiation over a collapse of its fiat currency (Chiodo and Owyang 2002).

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#### Annotation 432672012

 the United Kingdom was able to successfully manage and reduce a World War II-government debt that had climbed all the way to 250 percent of GDP.

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#### Annotation 433720588

 a more meaningful indicator is interest on government debt as percent of total revenue.

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#### Annotation 434769164

 Doug Elmendorf (2009, slide 11), director of the CBO, provides some sobering calculations. The report’s Alternative Fiscal Scenario estimated that if federal revenues remained in the neighborhood of 20 percent of GDP for the next 75 years, while federal expenditures net of interest rose to 35 percent of GDP (roughly similar to the 2011 CBO estimate), adding interest payments from the accumulating national debt would drive total federal expenditures up to 75 percent of GDP by 2083, and that would entail interest amounting to a fantastic 40 percent of GDP. Obviously government finances will have reached an explosive tipping point long before that level is ever reached.

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#### Annotation 436079884

 Yet if one is concerned about the looming fiscal gap, then one needs to add not just the trust funds but the remainder of the fiscal shortfall, yielding as mentioned above a total variously estimated between $79 trillion and$211 trillion.

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#### Annotation 437128460

 The Federal Reserve, which is anomalously considered part of the public in official reports, holds about $1.6 trillion in Treasury securities as of September 2011, or almost 17 percent of the publicly held debt (Financial Management Service 2011). That percentage is not much higher than it was before the enormous increase in the Fed’s balance sheet brought on by the recent financial crisis. It could grow substantially if the Fed monetizes more Treasury debt, unless the Fed sterilizes its purchases by selling off its nearly$1 trillion worth of mortgage-backed securities and assorted miscellaneous assets. But to the extent that the Fed is now paying interest on bank reserves (and at a rate that exceeds the return on short-term Treasuries), this portion partly represents indirect holdings of private commercial banks and other depositories.

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#### Annotation 438177036

 About 45 percent of the publicly held U.S. Treasuries is owned abroad,

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#### Annotation 439225612

 Most of the interest that the Fed earns on its securities is now simply rebated to the Treasury, which consequently would directly lose an insignificant annual flow of revenue from repudiation

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#### Annotation 440798476

 A sudden and unanticipated repudiation of a private debt, so long as no one expects it to be repeated or extended to other debts in the future, has only a distribution effect: The debtor gains by the exact same amount that the creditor loses, with no net wealth effect.