Is there an upside to Vegas?

Quote: thecesspit

If you always run at a small deficit, doesn't that deficit grow over time?

I think you mean to say If you always run at a small deficit, doesn't debt grow over time?

Yes. But during the Clinton administration, GDP was growing at 4.64% per year and during GW Bush administration GDP was growing at 4.89%. Some of the proponents of Bush's policies argued that while the deficit was large compared to the Clinton era, it wasn't historically large as a percentage of GDP.

In the two years of the Obama administration GDP is growing at 0.40% per year (nearly at a standstill). Obama's prediction is that it will return to 4%, 5% or 6% in the next few years. But as I stated in a different post, there is almost no correlation between predictions and reality in the past.

With a population that is growing at 1% a year, the USA must exceed that amount at the very least. With the exception of the last two years, the worst year as far back as 1980 (when Reagan was elected) had a GDP growth of 3.1%.

Sorry I did mean total debt. If you always increase by 1% of GDP per annum, even if GDP grows by 4%, your still adding to the total debt (even if it doesn't grow in percentage terms as fast the GDP is growing).

GDP Debt %age debt of GDP

Start 100 0 0
1 104 1 0.96
2 108.2 2.04 1.89
3 112.5 3.12 2.77

(etc). The debt grows... how do you get away from it if you always run at a deficit?

Much will depend on the evolvement of sportsbetting and the water crisis facing the valley.

Quote: thecesspit

The debt grows... how do you get away from it if you always run at a deficit?

As a rough indicator of danger "debt as a percentage of GDP" is the relevant measure. There is a time value to money. If the deficit is below the normal inflation rate, then it is not that serious.

But the deficit has been growing much faster than inflation, GDP growth, or population growth.

Quote: pacomartin

As a rough indicator of danger "debt as a percentage of GDP" is the relevant measure. There is a time value to money. If the deficit is below the normal inflation rate, then it is not that serious.

But the deficit has been growing much faster than inflation, GDP growth, or population growth.

But as my example shows, it will grow as a percentage of the GDP if you never have surplus years. I understand the time value of money. I think :)

Really, all I'm questioning is the statement that you can consistently run a deficit... surely you need surplus years at times?

Quote: pacomartin

Even the worst of American cities only shrinks by 1.5% per year over the long term. Manhattan is probably the only major place in America to peak in population before WWI.

Name	Type	POPpeak	Year	POPnow	Year Now	Per Year
Brooklyn	County	2,738,175	1950	2,567,098	2009	-0.11%
Manhattan	County	2,331,542	1910	1,629,054	2009	-0.36%
Boston	City	801,444	1950	645,169	2009	-0.37%
Chicago	City	3,620,962	1950	2,851,268	2009	-0.40%
Washington DC	City	802,178	1950	599,657	2009	-0.49%
Philadelphia	County	2,071,605	1950	1,547,297	2009	-0.49%
Baltimore	City	949,708	1950	637,418	2009	-0.67%
Detroit	City	1,849,568	1950	910,921	2009	-1.19%
Cleveland	City	914,808	1950	431,369	2009	-1.27%
St. Louis	City	856,796	1950	356,587	2009	-1.47%

What do you forecast for Vegas?

I'm a bit disappointed you left out my birth city, Buffalo, one of the worst.

Quote: thecesspit

If you always run at a small deficit, doesn't that deficit grow over time? Shouldn't the mean be around the 0% mark, so there's very little long term government debt... as servicing debt cost money, and it's empty money as well... it's not money that provides anything to the citizens of the country (well except those lending that money).

Much like your home budget... running that at a 1-3% deficit over 30 years wouldn't be a good thing... or would it?

Note the first part of the sentence and the qualifier, "using a fiat currency." There are some complex economic reasons that go along with that. The founder of the USA Treasury, Alexander Hamilton, called a national debt, "a national asset."

Also, there is a problem with comparing running the country to running your household. There are practical reasons to keeping a managable national debt. First is to maintain an active and liquid market for your debt. For example, in the USA tax collections peak in March and April and are low in other parts of the year. In normal deficit times (1-3% GDP) there will be a surplus in Q1 and April. Even in the Clinton/Gingrich surplus years there was a deficit some months. The Treasury can't just take an advance on a HELOC, it must have auctions. People who manage money want to know they can buy and sell debt insturments NOW, in seconds is some cases. Keeping that 1-3% GDP deficit insures that there is enough debt to have enough people interested in buying and selling.

In the late 1990s the Treasury stopped selling 30 year T-Bonds for a few years. This caused issues as big institutions could not rollover maturing debt and had to put it into something else, helping cause bubbles. Many rates, including mortgages, is derived from the 30 year T-Bond, so they had to use other means.

You as an individual can have a similar issue. I used to run into older people who could not get a loan because they did not have enough credit. Not bad credit, but they did not use credit almost at all. Then they need to buy a car or something and no one will take a risk on them. Meanwhile a person who has a few cards with balances qualifies at 1.9% from GMAC.

Ahhhh, your saying the total deficit owing should be 1-3% of the GDP for the year, not that the per annum expenditure is 1-3% higher than receipts?

So indeed some years there will be a surplus, but what should happen is that there is not such a sequences of surpluses such that the total deficit is eliminated? As in that case the government should be in a position to give tax breaks and reduce the taxation burden?

Aren't most countries running at 20-200% deficit as %age of the GDP and nowhere close to the numbers you recommend?

I understand that a government has to use short, medium and long term debt for a variety of reasons, not least to smooth out receipts and to keep their access to debt as needed.

Quote: bluefire

Quote: pacomartin

Even the worst of American cities only shrinks by 1.5% per year over the long term. Manhattan is probably the only major place in America to peak in population before WWI.

Name	Type	POPpeak	Year	POPnow	Year Now	Per Year
Brooklyn	County	2,738,175	1950	2,567,098	2009	-0.11%
Manhattan	County	2,331,542	1910	1,629,054	2009	-0.36%
Boston	City	801,444	1950	645,169	2009	-0.37%
Chicago	City	3,620,962	1950	2,851,268	2009	-0.40%
Washington DC	City	802,178	1950	599,657	2009	-0.49%
Philadelphia	County	2,071,605	1950	1,547,297	2009	-0.49%
Baltimore	City	949,708	1950	637,418	2009	-0.67%
Detroit	City	1,849,568	1950	910,921	2009	-1.19%
Cleveland	City	914,808	1950	431,369	2009	-1.27%
St. Louis	City	856,796	1950	356,587	2009	-1.47%

What do you forecast for Vegas?

I'm a bit disappointed you left out my birth city, Buffalo, one of the worst.

Thats amazing, they all peaked in 1950, which is the exact year the suburbs exploded. Same where I live, the city is dead, everybody lives in the little cities that didn't even exist in 1950. When I was a kid in the 50's, there were no 'branch' banks. All the banks were downtown, can you imagine? There were no shopping malls, all the dept stores were downtown, in 10 story buildings. I remember when the first mall opened here in 1965, it was an event like going to the moon was. All your favorite stores in one not-downtown location. People went nuts for it and its still there and going strong.

Quote: thecesspit

Ahhhh, your saying the total deficit owing should be 1-3% of the GDP for the year, not that the per annum expenditure is 1-3% higher than receipts?

So indeed some years there will be a surplus, but what should happen is that there is not such a sequences of surpluses such that the total deficit is eliminated? As in that case the government should be in a position to give tax breaks and reduce the taxation burden?

Aren't most countries running at 20-200% deficit as %age of the GDP and nowhere close to the numbers you recommend?

I understand that a government has to use short, medium and long term debt for a variety of reasons, not least to smooth out receipts and to keep their access to debt as needed.

You are confusing "debt" and "deficit."

"Debt" is all owing and the USA is in danger of hitting > 100% to GDP soon.
"Deficit" is what is spent in excess of receipts for the year. Do in the USA you would want about $130-300 Billion of deficit a year to keep federal debt at a level that insures a liquid and orderly debt market. The 10% deficti-to-GDP Obama has been generating is WWII levels and will bury us.

But if the DEFICIT is always there, surely the DEBT is always getting bigger? Surely there must be years where the DEFICIT is a SURPLUS to keep the DEBT from growing > 100% GDP. This doesn't preclude the issuance of debt for that year to keep things liquid (you just issue less than the amount that becomes payable).

I should have said then :: "Aren't most countries running at 20-200% debt as %age of the GDP and nowhere close to the numbers you recommend?".

I've only used capitals to try and make it clearer to myself... my macro-economics course was 20 years ago...

Quote: thecesspit

But if the DEFICIT is always there, surely the DEBT is always getting bigger? Surely there must be years where the DEFICIT is a SURPLUS to keep the DEBT from growing > 100% GDP. This doesn't preclude the issuance of debt for that year to keep things liquid (you just issue less than the amount that becomes payable).

I should have said then :: "Aren't most countries running at 20-200% debt as %age of the GDP and nowhere close to the numbers you recommend?".

I've only used capitals to try and make it clearer to myself... my macro-economics course was 20 years ago...

The debt gets bigger in absolute terms, but not as a % of GDP. If the economy averages higher growth than the 1-3% GDP it will not grow as %/GDP. Lets use some hypothetical numbers. Pretend in 1980 the national debt was $1 Trillion and the GDP $5 Trillion. Assume 3% GDP Growth which will double GDP in 24 years. So in 2004 the economy would be $10 Trillion. If the deficit was 2% GDP over the same time debt would be $1.64 trillion. The ratio fell from 20% to 16.4%.

Again, don't compare it to personal debt as a person wants to be debt free by retirement as earning potential falls. The economy should grow over time, meaning "earing power" of the economy keeps going up. And as the economy grows the debt market grows.

Hmmm....

I must be misunderstanding the terms again, as I just plugged these numbers into a spread sheet.

3% GDP growth means that in year 27 a $5 Trillion GDP goes to $10.16 Trillion.

If the deficit is 2%, then in year 1 we add 0.1T to the total debt (2% of $5T). In year 2 the GDP is 5.15, so the deficit is 2% of that, so the debt grows by 0.103T.

And so on, so by year 27 (2007, say) the GDP is 10.16 Trillion, the deficit is 0.2Trillion and the total Debt is 4.59 Trillion, not $1.64 T. (It's only 1.64T if the debt itself grows by 2% per year, not by 2% of the GDP. To do this the total deficit spend would have to be reduced each year, not held steady) At this point the debt is now 45% of GDP. In this case it grows asymptotically to about 69%.

If we have 5% growth and 1% deficit per year, then we are pretty much stable at 21%.

I understand we aren't aiming for a 0 debt situation. I also assume that to cut the debt mountain now present in the US you'd have to run a surplus at some point to get back to a more stable state.

Quote: thecesspit

Hmmm....

I must be misunderstanding the terms again, as I just plugged these numbers into a spread sheet.

3% GDP growth means that in year 27 a $5 Trillion GDP goes to $10.16 Trillion.

If the deficit is 2%, then in year 1 we add 0.1T to the total debt (2% of $5T). In year 2 the GDP is 5.15, so the deficit is 2% of that, so the debt grows by 0.103T.

And so on, so by year 27 (2007, say) the GDP is 10.16 Trillion, the deficit is 0.2Trillion and the total Debt is 4.59 Trillion, not $1.64 T. (It's only 1.64T if the debt itself grows by 2% per year, not by 2% of the GDP. To do this the total deficit spend would have to be reduced each year, not held steady) At this point the debt is now 45% of GDP. In this case it grows asymptotically to about 69%.

If we have 5% growth and 1% deficit per year, then we are pretty much stable at 21%.

I understand we aren't aiming for a 0 debt situation. I also assume that to cut the debt mountain now present in the US you'd have to run a surplus at some point to get back to a more stable state.

I didn't use a spreadsheet, just some basic compounding rules so I could have gummed up the math or how I explained it. But the idea is if you grow the exonomy faster than you grow the debt you will "grow out" of debt. Same idea as the realtor who says buy the big house, the first few years are a struggle but as your career progresses you will make the payments easier.

AZD:

You can't "grow out of this Debt".

You can have an economy that is expanding and producing more, and that helps you manage the debt. But it doesn't get it paid off. And you can not expand your debt every year and expect to have a stable economy in the future. Your ability to control your interest cost, and repayment terms moves from your control to your creditors. We have some control now, but we will not in the future. And that will severly limit our options, and also seriously increase our borrowing costs.

This country, the USA, is NOT as bad off as some of the Central European countries that are on the verge of default, and our borrowings as a % of the GDP and deficit % to total spending are not as far out of whack. But they WILL be if we continue on these same paths.

The economy can and should have some years when the Government takes in MORE than it has to spend. ANd it should do that every three or four years.

It took us 231 years to get to this point, we are not going to resolve it is a year. You can NOT continue to have 1 trillion in deficit every year and "say" that you are going to reduce it to $500b in the future, and think that that is acceptable.

It is NOT. And to the argument that if the Government runs a surplus, it means that it has taken too much money from the population, I say hog wash. If the US Government collected $250b "extra" every year from its citizens, it would take 56 years to pay off the total federal debt. Debt as a % of GDP matters. And as that % gets to high, the economy does start to suffer. Oh, and that $250b "surplus? Less that 7% of total expenditures a year. So, its NOT an impossible goal. And yes, we can have lean years where we run a deficit, but we need to get the budget to a surplus on a regular basis so that this country does NOT go bankrupt.

By about 2022, we will have debt to GDP ratios that rival Greeces, if we continue with the same deficits every year.

SFB

well, it is certainly correct that properly there is *some* debt, the question is whether it is too much; for now, that seems to be the consensus, but that doesnt necessarily mean all these decisions were wrong at the time. A growing economy is pretty key to have the ability to pay off excessive debt, that is the reason previous excesses haven't turned us into Rhodesia.

Quote: AZDuffman

I didn't use a spreadsheet, just some basic compounding rules so I could have gummed up the math or how I explained it. But the idea is if you grow the exonomy faster than you grow the debt you will "grow out" of debt. Same idea as the realtor who says buy the big house, the first few years are a struggle but as your career progresses you will make the payments easier.

Your 2% on 1 Trillion assumes that the debt grows by 2% per year... which will be (in the first year) a mere 0.4% of the GDP itself. I added to the debt a deficit per year of 2% of the GDP. Thus the debt grows as a percentage of GDP, asymptotically to a point where the rate of growth of the debt is about the same as the rate of growth of the addition to the debt from the deficit. Phew.

I can see if your growth is high enough and the deficit small enough, that the debt/gdp ratio will reduce, without ever having a surplus, but this assumes much higher growth over a sustained period and a much lower deficit than is currently being run by any country. This is before we even look at the large debt mountains that many countries have taken on.

With the realtor example, the big difference is when I buy a house I don't increase the size of the mortgage ad infinitium... I look to pay it down (eventually)... which is the error I was making before... comparing national debt to household expenditure :)

I can now see why a government would want to keep a small (sub 20%? sub 10%?) national debt, but it's gotta run at a surplus to get there right now.

Vegas will be just fine, and we all know this.

Quote: bluefire

I'm a bit disappointed you left out my birth city, Buffalo, one of the worst.

Buffalo peaked in 1950 but growth after 1930 was negligible.

Buffalo
1930: 573,076
1940: 575,901
1950: 580,132 (max)
1960: 532,759
1970: 462,768
1980: 357,870
1990: 328,123
2009: 270,240

Las Vegas City
2000: 478,434
2009: 567,641

My point is that Las Vegas is roughly the size of Buffalo 90 years ago. It took a long time to lose half their population, and the main reason is the fewer number of children, and the average person requires much more living space than they did in the 1930's when four children might share a room (and no one heard of a family room or TV room or a home office for the computers).

The land area of Las Vegas city is roughly 3 times the area of Buffalo city so densities are very different (given that Las Vegas grew up in the age of widespread automobile ownership).

Predictions of half of Las Vegas leaving in a decade would mean an unprecedented decay of an American city.

Personally, I think that Las Vegas city will still be well over 1/2 million by 2020.

Quote: thecesspit

I can see if your growth is high enough and the deficit small enough, that the debt/gdp ratio will reduce, without ever having a surplus, but this assumes much higher growth over a sustained period and a much lower deficit than is currently being run by any country. This is before we even look at the large debt mountains that many countries have taken on.

With the realtor example, the big difference is when I buy a house I don't increase the size of the mortgage ad infinitium... I look to pay it down (eventually)... which is the error I was making before... comparing national debt to household expenditure :)

Yes, if the economy grows at a faster rate than the debt increases is all you need. GDP Growth adds up fast. During the Bush Administration GDP grew as much as the size of the nation of France. In other words, we "built" another France in the USA. We just need to get spending back to 2007 levels and we will be alright.

As to % of GDP needed, I feel you might be low, 30-35% seems to have worked well in the past.

BTW: Surplusses tend to be followed by recessions/depressions. Happened after surpluses under Clinton and Jackson. While Jackson was a smart guy and great POTUS his knowlege of banking at most extended to balancing his personal checkbook.

It's probably possible to work out what the deficit ratio and growth rate needs to be to hit the 30-35% value.

So I did play with it... and the percentage GDP of debt that you settle on is roughly : (Deficit / Growth) + (Deficit/100)... so if your running at 4% growth, and aiming for ~30% of GDP Debt pile, you want to run a deficit at around 1.2% [(1.2/4)+(0.012) = 31.2%]

I'm still not convinced that a surplus is a bad thing per se (*), and your assumption that GDP growth will always continue is a big one... just from recent memory there's been periods of minimal growth, stagnation and recession... when, if your running a deficit.... that's going to grow the debt faster than the GDP. Plus with the small percentage here, I'm sure an unexpected growth year could mean increased receipts = surplus result. A correction would have to be made.

Playing further, if the current GDP is 100 and the current Debt is 50 (50%, effectively), only a very small surplus would be needed to pay it down quickly. With 4% growth, a 1% deficit would get the Debt down to 35% in 25 years. A 1 % surplus, in 6 years.

(*) Though I can from your explanation why a constant surplus would be a dangerous thing.

Quote: thecesspit

I'm still not convinced that a surplus is a bad thing per se (*), and your assumption that GDP growth will always continue is a big one... just from recent memory there's been periods of minimal growth, stagnation and recession... when, if your running a deficit.... that's going to grow the debt faster than the GDP. Plus with the small percentage here, I'm sure an unexpected growth year could mean increased receipts = surplus result. A correction would have to be made.

Playing further, if the current GDP is 100 and the current Debt is 50 (50%, effectively), only a very small surplus would be needed to pay it down quickly. With 4% growth, a 1% deficit would get the Debt down to 35% in 25 years. A 1 % surplus, in 6 years.

GDP Growth will always be there barring a big population decline. Even in slow times it grows 1% or more. "The Great Recession" didn't have 2 years of decline. If we keep it near balance we will grow into it over time.

Other issuse is when you retire debt you create bubbles elsewhere. Consider now most investors roll over Treasurys. But tell a Chase Bank they can't have a new $1 Billion worth when they mature in June and Chase has problems. Too much of that cash moves too fast and you get bubbles.

I think we agree on most of this so I will wrap up be restating I don't like the current level of borrowing. However, you cannot compare it to how a person runs their financial life.

Quote: AZDuffman

BTW: Surplusses tend to be followed by recessions/depressions. Happened after surpluses under Clinton and Jackson. While Jackson was a smart guy and great POTUS his knowlege of banking at most extended to balancing his personal checkbook.

Andrew Jackson, the 7th POTUS? Where would you even find surplus and defecit information that far back?

Quote: AZDuffman

I think we agree on most of this so I will wrap up be restating I don't like the current level of borrowing. However, you cannot compare it to how a person runs their financial life.

I think we agree on the mechanism's, but like most eco-politcal debates, we may not end up with the same conclusions :)

Thanks for the info, it certainyl added to my understanding of nation-wide debt (which ever country it is!)

Quote: pacomartin

Andrew Jackson, the 7th POTUS? Where would you even find surplus and defecit information that far back?

It is well known that Jackson paid off the national debt. Actually I think the lowest it got was $44,000, effectively zero.

Quote: thecesspit

I think we agree on the mechanism's, but like most eco-politcal debates, we may not end up with the same conclusions :)

Thanks for the info, it certainyl added to my understanding of nation-wide debt (which ever country it is!)

Thank you for the intelligent discussion.

Nevada state fair closing after 167 years. Onlt other state without a state fair is Michigan. Sure hope Las Vegas recovery is faster than Detroit.