“Soft despotism is a term coined by Alexis de Tocqueville describing the state into which a country overrun by "a network of small complicated rules" might degrade. Soft despotism is different from despotism (also called 'hard despotism') in the sense that it is not obvious to the people."

Monday, June 29, 2009

The National Debt explained in a way we can all understand.

Economic theory suggests that reasonable levels of borrowing by a developing country are likely to enhance its economic growth. Countries at early stages of development have small stocks of capital and are likely to have investment opportunities with rates of return higher than those in advanced economies. As long as they use the borrowed funds for productive investment and do not suffer from macroeconomic instability, policies that distort economic incentives, or sizable adverse shocks, growth should increase and allow for timely debt repayments. These predictions hold up even in theories based on the more realistic assumption that countries may not be able to borrow freely because of the risk of debt repudiation.

Why do large levels of accumulated debt lead to lower growth? The best-known explanation comes from "debt overhang" theories, which show that if there is some likelihood that, in the future, debt will be larger than the country's repayment ability, expected debt-service costs will discourage further domestic and foreign investment and thus harm growth. Potential investors will fear that the more a country produces, the more it will be "taxed" by creditors to service the external debt, and thus they will be less willing to incur costs today for the sake of increased output in the future. This argument is represented in the debt "Laffer curve" (Chart), which posits that larger debt stocks tend to be associated with lower probabilities of debt repayment. On the upward-sloping or "good" section of the curve, increases in the face value of debt are associated with increases in expected debt repayment, while increases in debt reduce expected debt repayment on the downward-sloping or "bad" section of the curve.

more at the IMF


  1. T asked the question in the last thread:

    "Deuce, of all the countries you posted in this article, the US has the lowest per capita external debt and the only one that is less than 100% of GDP, and tiny Ireland has $549K per head, yet its the US which has a problem?"

    External debt has three components that I am interested in:

    1. The absolute rate or amount.
    2. The rate of growth or accumulation of debt in real terms of GDP.
    3. The relative size compared to the world economy.

    If the US would stop accumulating debt, the existing amount is sustainable. There are two problems. The amount of off balance sheet US debt and obligations are considerably larger than $13.6 Trillion. I have seen some credible estimates that it my be as high as $78 Trillion.

    The amount of growth of US debt is only sustainable if the rest of the world is willing and able to advance funding to the US, so that the US can sustain its spending needs, which will are beyond current receipts of taxes.

    Looking at the current external debts of these other countries, it seems unlikely that they will be either capable or willing.

  2. Currently, domestic US savings rate has spiked to 5.5%. Keep that up, cut oil imports, restrain government spending to cover inflation, and our external debt could vanish in ten years.

  3. Keep in mind:

    (1)"The President Proposes, Congress DISPOSES."

    (2)Congressional elections happen every 2 years.

  4. By God I tell ya, it's still a beautiful country. You get out on the road a bit, does wonders.

    The Elephant Bar is still banned in most of the motels.

    This is a mark of distinction.

    I see the Honduran establishment has more balls than we got.

    Just give the guy a plane ticket to Costa Rica.

    Damn good idea.

    Of course Obumble comes out in favor of the proto dictator, singing along with Chavez, Castro, (that wonderful respector of human rights, and that prick in Nico land).

    How you doing Rat's ass? Has the wound to your precious ego healed yet?

    Do as I do.

    Take a trip.

    And, read a book.

    "Utopia and Revolution" by Lasky ain't bad. Talks about language and stuff.

    Where the word 'revolution' came from. It's pedigree.

  5. Rat's ass logic would probably credit the goings on in Honduras to Obama's speech in Cairo, or somethin.


  6. The $78 Trillion isn't nearly as important a number as it's, sometimes, made out to be. The key is to keep "Productivity" growing in the 2% to 3% range. We do that and "Real" GDP Growth will take care of the $78 Trillion easily enough.

    Energy could be the problem. We've got plenty of opportunities, but if we wait "too" long to get off the "Imported Oil" Horse, we might lose a Decade, or two sitting in place. THAT could be Deadly.

  7. And, I haven't even begun to attack his wife, like he did mine.

    I don't do that.

    But, I note, Rat's an idiot, and his first wife had it right.

    Drop the baby.

    Get the hell out.

  8. Rat's a shithead.

    Everybdy else is a good guy.

    Missoula is a wonderful place.

    So's Twin Falls.

    This old country has some life left yet.

    Tomorrow--on the road again.

    Does a body wonders.

  9. We're all waiting around for "son of Shah"--Rat's ass prediction--to glide into Iran, make everythin right.


    Of course, while acting like the general, moving armies here and there, Rat's ass also wants us to vote for that moron libertarian Ron Paul, who wants to give up, and come home.

    Rat's a fool.

    Well, the wife is calling.

    I got to go. Thankfully.

    On the road again, tomorrow.


    Even if we have dead damnable depressing pricks like Rat's ass aroung to tell us it's not.

    Rat's ass is wrong.

    He is right in his own mind.

    But, for the rest of us,l it's not theraputic.

    Cheer up.

    This Obama crap will pass.

    I admit, I've had a couple of drinks, after a road trip.

  10. God damn, I've never read a man like Rat, so certain, with so little knowledge.
    Good night.

  11. To be fair to Rat, he did come up with an excellent phrase and picture for protesting O'bumble.

    Pirate of the Potomac isn't bad, let us admit.

  12. If you drive some of these back roads up this way, you will see wonders.


    Like you might have dreamed the entire country was, a hundred years ago.

    It is very uplifting.


  13. Take a couple of aspirin before you go to bed, Bob.


  14. I will do that now, Doc Rufus, thank you.

    And, grnite to you too.

  15. Energy could be the problem.

    Energy is the problem, Rufus.

    U.S. opportunities are slip-slidin' away, as you note. If something doesn't turn in the lead-in and elections of 2010, like popular public sentiment to repudiate the current insanity, I'd figure the lost opportunity costs will alone be staggering. All compounded by the delays in development and misallocation of assets into enviro-wet dreams.

    Then you'll see real recession.

    Just my opinion.

    Good night.

  16. Energy is the problem, I agree.

    Having followed this nuclear reactor proposal in south Idaho, and all the money spent just to get it to the county commissioners, I hope the hell it passes, as I think it will.

    But, that's just the first step.

    If I was King, I'd fast track nuclear energy.

    We have some real answers.

    We just got to do it.

    We are going through a period of insanity, right now, is what I think.

    Hopefully, temporary insanity.

    The answers are there, just got to do it.

    I will bring up the Giant Palouse Earthworm in this context.

    We, actually, have a big dispute about this worm, which none of the ancestors--according to my best intelligence--and I know a lot of the old farmers--has ever seen--yet we got cases under the
    Endangered Species Act, or whatever it is called--in Federal District Court right now.

    It's insane.

  17. A quart of cold buttermilk in the morning, Bob. Clears up that hangover.

  18. If we don't do something pretty soon, goats milk will sound good, at the break of the day.

  19. Son of Shah, that's the answer to the Iranian problem, I INSIST!

    Now, really, good nite.

  20. One might consider the futility of the use of the word "revolution", which was used in former days to describe an orbit of the spheres.

    In it's original use it was described as a 'coming back', or as in a 'wheel of fortune'.

    It is used this way in our poet, the bard of England, for instance.

    The new use seems to be a substituting of the old religious use(very very often used) of the word meaning resurrection, redemption, even reincarnation to a new use signifying some kind of paradise in time on earth.

    This is a fools garden.

    The idea being at base, things are out of whack, something will put them into whack. This idea is testified to over the whole earth.

    The new thing with the use of the word revolution is that a secular vision comes into play.

    We all know this cannot be true, as life is like life is. Central planning don't work, etc. Millions dead in this experiment.

    It's very odd, that a killler like Putin might actually have some better ideas for our society than we currently do ourselves, if we follow the One.

    Such is life.

    The flowers are blooming, blooming out this way now.

    Follow them.

    The flowers bloom.

    There has been an attempt to deny this simple truth by the experience of the Twentieth Century.

    We know better now.

    Obama is right on one thing.

    Words mean a lot.

    And can lead us astray.

  21. Or a one quart smoothie of equal parts prune juice and buttermilk with a banana tossed in for potassium. Served in a well chilled mug.