Who Is Really to Blame for the Deficit?

I am always bemused when we hear one party blame the other for deficits; both parties have a focus on the short term (helps to get elected, make people happy, and pay back the large corporate donors) without care for the long term. Sure there are a few souls who care, but they seem to get lost in the blather of D.C. In the meantime, in just the last year alone, we've added a staggering $55,000 in obligations for each household in America and now we each owe half a million; even if we did not build up a penny more of debt and 0% interest on our debt. [May 29, 2009: In 1 Year U.S. Taxpayers on Hook for $55,000 More per Household] Just wait until you see how much you owe in about a decade.

We've gone through a litany of our long-term obligations many times on the blog, along with all the new debts we've added to bail out the financial oligarchs... err, save the economy [Mar 31, 2009: Financial Rescue Pledges Now $12.8 Trillion, because if you don't make bondholders of banks 100% whole on the dollar - the economy dies. I never have even touched the lesser issues i.e. the fact that taxes such as the AMT, which was intended to capture a tiny slice of the citizenry is ensnaring huge swathes of the middle to upper middle class. Just reversing that alone on an annual basis will take a tremendous hit - and that's one of our easiest fixes (which we won't address).

[Nov 23, 2008: David Walker in Fortune Magazine]
[Aug 7, 2008: I.O.U.S.A. Movie Trailer]
[Jul 28, 2008: US Budget Deficit to Half a Trillion]
[May 23, 2008: David Walker on CNCB this Morning]
[Mar 26, 2008: Annual Spring Entitlement Warning Falls on Deaf Ears]

Anyhow, as I peruse the internet, I see these issues are just the concern of a select few, and most are just out to "get theirs", and try to profit from paper printing prosperity. Understandable - who cares about the future anyhow. I will post these just so they are here when some soul stumbles on them in 2015 and wishes these alarming numbers were all we had to worry about.

Keep in mind, in my 2009 Outlier Predictions [Dec 16, 2008: 13 Outlier 2009 Predictions] I wrote

Consensus is that the United States will face it's first trillion dollar deficit in budget year 2009 (Oct 1, 2008 - Sep 30, 2009). That is excluding the war since we don't consider the war an expense but much like our banks an "off the balance sheet" accounting "figure". The largest postwar budget deficit has been $413B in 2008; hence consensus says we are about to do 2.5x the largest previous record. I say it will be 5x the previous record and not only will we have our first $1 trillion deficit, fiscal 2009 will be so poor we will have a $2 trillion deficit.

Within weeks of that piece the CBO came out with [Jan 7, 2009: CBO Projects $1.2 Trillion Deficit in 2009]

Who should you of placed your chips on? The CNBC pundits? ($1 Trillion)? CBO ($1.2 Trillion)? Or that grassy knoll blogger who keeps a trade in 'creating doom and gloom out of green shoots' aka reality. You can guess which will be the most accurate. Rhymes with Tea.

Folks, I am but a simple man with a simple (solar powered, $2.99) calculator. I don't have an army of federal workers with platinum benefits working 40 hours a week in an office like the CBO to crunch these numbers in a sophisticated way with their so called "computers". But one advantage is I don't drink Kool Aid as my daily beverage of choice... by not doing so. I don't live in denial and I could see receipts would plummet and expenditures would soar. [Jun 5, 2009: 1 in 6 Dollars of Income Now Via Government; Highest Since 1929] [May 5, 2009: Federal Aid Surpasses Sales Taxes as Top Revenue Generator for States]

Do you realize how much money our country could save if I took over the entire CBO? Not sure how big their office is ... but I digress. (to be fair, the CBO is one of the "better" federal organizations).

So with 4 months to go in our fiscal year we already sit right at$1 Trillion

.

• The federal budget deficit soared to a record for May of $189.7 billion, pushing the tide of red ink close to $1 trillion with four months left in the budget year.
• As a share of the overall economy, the deficit this year would be the highest since 1945, (what happened then?) when the government was borrowing heavily to win World War II. (oh; well now we have the war on financial oligarchs losing net worth - I'd rank them equally important)

CNBC pundits from last fall - you're wrong again. That said, when can we reschedule you for more insight about the future without talking about how you've been wrong on almost everything for 2 years? Just make sure you end the segment with "stocks are for the long haul and always end up being the winning play" and "I'm bullish". This April was the first April since the early 80s that in the month the US gets tax monies, it ran a deficit. May? We're rocking the house ... a staggering $190B deficit. I need to stop here. $190 Billion. Folks, the worst year before this was last year - at just over $400 Billion*. For a year. We almost did half that in 1 month in 2009. People are numb to the numbers; they are staggering.

*some things, like war spending were kept off balance sheet under the Bush years, so perhaps it was closer to $500 Billion in "non Enron" accounting.

Now perhaps the green shoots of prosperity will reduce the monthly deficits to something like $150B a month the next 4 months (I doubt it); I think we have a great chance of $200B a month from here until September. But let's say it's going to be $1.7-$1.8 Trillion for the fiscal year. That's impressive considering our entire debt is $11 Trillion. And our entire economy is $13-$14 Trillion. We done good; overachievers.

And don't expect any serious improvement next year.

*********************************

I saw this piece by David Leonhart over at the New York Times dividing the "blame" if you will on how we got here. Since each time you bring up the G word, and the D word the banshees come from the heavens to attack, I thought this was a quite fair piece. Even if it comes from a "liberal rag" (not my words, I got them straight from FOX News). Truth is we are all to blame to some degree. Because we let the fearless leaders take us down this path... and we live in dogma infested waters.

Basically it breaks down how we "got here" via 5 categories...

Read on, unless you just want to find a way to make money in the next 24 hours ... then this is inconsequential. Unless you have kids I suppose.

• There are two basic truths about the enormous deficits that the federal government will run in the coming years. The first is that President Obama’s agenda, ambitious as it may be, is responsible for only a sliver of the deficits, despite what many of his Republican critics are saying. The second is that Mr. Obama does not have a realistic plan for eliminating the deficit, despite what his advisers have suggested.
• The story of today’s deficits starts in January 2001, as President Bill Clinton was leaving office. The Congressional Budget Office estimated then that the government would run an average annual surplus of more than $800 billion a year from 2009 to 2012. Today, the government is expected to run a $1.2 trillion annual deficit in those years. ($2 Trillion swing)
• You can think of that roughly $2 trillion swing as coming from four broad categories: the business cycle, President George W. Bush’s policies, policies from the Bush years that are scheduled to expire but that Mr. Obama has chosen to extend, and new policies proposed by Mr. Obama.

• (1) The first category — the business cycle — accounts for 37 percent of the $2 trillion swing. It’s a reflection of the fact that both the 2001 recession and the current one reduced tax revenue, required more spending on safety-net programs and changed economists’ assumptions about how much in taxes the government would collect in future years.
• (2) About 33 percent of the swing stems from new legislation signed by Mr. Bush. That legislation, like his tax cuts and the Medicare prescription drug benefit, not only continue to cost the government but have also increased interest payments on the national debt. (trickle down economics - boo yah)
• (3) Mr. Obama’s main contribution to the deficit is his extension of several Bush policies, like the Iraq war and tax cuts for households making less than $250,000. Such policies — together with the Wall Street bailout, which was signed by Mr. Bush and supported by Mr. Obama — account for 20 percent of the swing. (no bailouts here... Main Street = Wall Street)
• (4) and (5) About 7 percent comes from the stimulus bill that Mr. Obama signed in February. And only 3 percent comes from Mr. Obama’s agenda on health care, education, energy and other areas. (let's revisit this in about 1 year) If the analysis is extended further into the future, well beyond 2012, the Obama agenda accounts for only a slightly higher share of the projected deficits. How can that be? Some of his proposals, like a plan to put a price on carbon emissions, don’t cost the government any money. Others would be partly offset by proposed tax increases on the affluent and spending cuts. (again, let's revisit in 1 year)
• Alan Auerbach, an economist at the University of California, Berkeley, and an author of a widely cited study on the dangers of the current deficits, describes the situation like so: “Bush behaved incredibly irresponsibly for eight years. On the one hand, it might seem unfair for people to blame Obama for not fixing it. On the other hand, he’s not fixing it." (fair statement) “And,” he added, “not fixing it is, in a sense, making it worse.”
• The Medicare budget really is the linchpin of deficit reduction. But there are two problems with leaving the discussion there. First, even if a health overhaul does pass, it may not include the tough measures needed to bring down spending. Ultimately, the only way to do so is to take money from doctors, drug makers and insurers, and it isn’t clear whether Mr. Obama and Congress have the stomach for that fight. (no way that happens - that would hurt one of the largest lobbyist groups) So far, they have focused on ideas like preventive care that would do little to cut costs.
• Second, even serious health care reform won’t be enough. Obama advisers acknowledge as much. They say that changes to the system would probably have a big effect on health spending starting in five or 10 years. The national debt, however, will grow dangerously large much sooner.
• Mr. Orszag says the president is committed to a deficit equal to no more than 3 percent of gross domestic product within five to 10 years. The Congressional Budget Office projects a deficit of at least 4 percent for most of the next decade. Even that may turn out to be optimistic, since the government usually ends up spending more than it says it will.

This is a favorite take away line from the piece and pretty much sums up our issues with only have 2 (almost identical by this point) "captured" parties...

• So Mr. Obama isn’t on course to meet his target. But Congressional Republicans aren’t, either. Judd Gregg recently held up a chart on the Senate floor showing that Mr. Obama would increase the deficit — but failed to mention that much of the increase stemmed from extending Bush policies. In fact, unlike Mr. Obama, Republicans favor extending all the Bush tax cuts, which will send the deficit higher. (ah but if you just cut taxes - perhaps to 5% for everyone we will grow out of these problems. 0% taxes might generate even more revenue. Cutting spending? Nah. Just make the solution into a 10-15 second sound bite. Sophisticated massive problems are generally solved by sound bites that are half the length of a typical commercial break)

And...(more solutions)

• Republican leaders in the House, meanwhile, announced a plan last week to cut spending by $75 billion a year. But they made specific suggestions adding up to meager $5 billion. The remaining $70 billion was left vague. “The G.O.P. is not serious about cutting down spending,” the conservative Cato Institute concluded. (another of my favorite tactics, talk in sweeping generalizations - "we'll cut all that pork!" while coming through with specifics that are meager. Because being specific means you upset someone... and if you upset someone, you might lose a vote. So everyone must be made happy because 'representative' is now a career choice, unlike what the founding fathers had in mind. Kick the can. Kick it hard. Kick it long. Just keep kicking until you take us all into a brick wall)

What, then, will happen?

• Either a solution will be put off, or foreign lenders, spooked by the rising debt, will send interest rates higher and create a crisis.
• The solution, though, is no mystery. It will involve some combination of tax increases and spending cuts. And it won’t be limited to pay-as-you-go rules, tax increases on somebody else, or a crackdown on waste, fraud and abuse. Your taxes will probably go up, and some government programs you favor will become less generous.

It will be an interesting decade ahead. In the meantime, back to the gambling hall and watching futures rise pre market as they do 8 out of every 10 days...

(click to enlarge)

Comments

[TCK:]

I would add the complicity of the press. How often do we "Bush tax cuts", or "Obama spending". Anyone vaguely familiar with the Constitution should know The President has no authority to spend any money.

I will also add the public school system. Current grads of high school and even college have so little basic knowledge of civics it is completely embarrassing !

Jun 15 09:34 AM

[pftittl:]

Excellent piece. I voted for Obama but he hasn't changed a thing. We're still fighting two wars we can't afford, and NO ONE other than Ron Paul in Congress is worth a bucket of warm spit. The reason Clinton was fiscally responsible was because the first Bush insisted on PAYGO in 1990 when he compromised with the Democrats and ensured he would be defeated for re-election by raising taxes. Clinton kept that and with decent economic growth and a break on the spendthrifts from both parties in Congress, we were paying down our government debt.

Jun 15 10:18 AM

[Ferdinand E...:]

"Who is really to blame for the deficit". The short AND long answer is George W. Bush. Hasn't anybody figured out that if he had known what he was doing, Obama could have presented another game plan - assuming that he became president of course, which is doubtful.

Jun 15 10:29 AM

[Gdub53:]

All of you smart people out there..and for the most part yes smart, just don't get it. Until Federal Reserve is abolished and the fractional banking system done away with we are and will be toast.

Jun 15 11:58 AM

[Al Fin:]

Wrong on all counts.
What is called "Bush Policies" are in reality the accelerating expansion of programs in place since the 1960s. Social Security, Medicare, social services, entitlements, etc etc. A big balloon on a programmed trajectory.

Obama is taking that programmed debt expansion and exploding it in unprecedented ways. This is a gotterdammerung of debt, and trying to excuse Obama for his mass destruction of the economy is counterproductive. It just gives him more time to administer the killing blow.

Jun 15 12:28 PM

[Cardio:]

Putting the fiscal mess entriely at Bush's feet is, of course, overly simplified.He is just the most recent of a long line of politicians spending other peoples wealth (by using their credit, no less). Bush had the misfortune to be in office during 9-11, which was the result of years of mismanaging the terrorist threat. His response of invading two countries, while admirable in its intent (free millions from tyranny, deal death blow to extremism), was tacticly flawed and expensive.

I, like axelrod68, agree that these deficits are a manifestation of the way politics is, and has been, played in America for the last 75 years or so. Career Washington politicians know how the game is played. Give away enough of "other people's money" and you can buy yourself a long, respected, and lucrative lifestyle. There is simply no way for them to get elected and re-elected by saying "we're all going to need to cut back a little".

The Amreican people recently received a dose of economic reality with the collapse of the housing bubble. The borrow and spend mentality was no longer viable for individual households or businesses.To their credit, they made the necessary adjustments in their spending habits and lifestyle and the economy has reverted to the mean (i.e. shrunk) and the national savings rate is apprecaibly above zero for the first time in over a decade. Yet, at the very same moment, when history is screaming for frugality, Obama and the other "Statists" are accelerating the increase in the national deficit at an unprecedented pace. How can it be that the solution for overleveraged citizens or businesses is to tighten the belt and make do with less, but for the overleveraged "State" the answer is to borrow more and continue to spend money you don't have?

We will never see change for the better until we do one simple thing; Make Washington smaller. Pointing fingers at one party, then the other, is simply a diversionary tactic perpetuated by those spendthrift demagogues we call our represenatives. A pox on the lot of 'em.

Jun 15 01:56 PM

[inthemoney:]

> People who think that national elections should be decided on borderline issues like abortion and gay rights rather than on fiscal integrity are to blame.

This deserves being repeated.

Jun 15 02:30 PM

[inthemoney:]

> We will never see change for the better until we do one simple thing; Make Washington smaller. Pointing fingers at one party, then the other, is simply a diversionary tactic perpetuated by those spendthrift demagogues we call our represenatives.

And this too. See, there are plenty of smart people in the US who understand what is happening and how to fix it. It is too bad poltics is so corrupt, smart and honest people cannot get through.

Jun 15 02:34 PM

[inthemoney:]

> What is called "Bush Policies" are in reality the accelerating expansion of programs in place since the 1960s.

Yeah, do you mean like expansion of the empire with the war in Iraq? I won't be surprised to hear that it was planned by Nixon.

Jun 15 02:35 PM

[TraderMark:]

Don't forget the "I voted for him because he seems like a guy I'd like to have a beer with" mentality. Or I guess in Obama's case - a wine. ;)


On Jun 15 02:30 PM inthemoney wrote:

> > People who think that national elections should be decided on borderline
> issues like abortion and gay rights rather than on fiscal integrity
> are to blame.
>
> This deserves being repeated.

Jun 15 03:10 PM

[Alphameister:]

Some good comments redeem a very politically slanted article. When Obama chooses to extend Bush programs, they become Obama programs. Both major political parties are a disgrace and I won't support either of them.

Jun 15 03:13 PM

[speeddaimon:]

I do love the comments that agree that its not one party of the other, its the entire culture of government that is corrupt and needs to be changed.


On Jun 15 03:13 PM Alphameister wrote:

> Some good comments redeem a very politically slanted article. When
> Obama chooses to extend Bush programs, they become Obama programs.
> Both major political parties are a disgrace and I won't support either
> of them.

Jun 15 04:33 PM

[basehitz:]

It is refreshing to see many posters have an adult discussion on hot button issues, in contrast to the often divisive food fights that pass for political discourse in other venues. Given the internet’s propensity to allow gutter snipes to spew their garbage with impunity, it is particularly commendable that here it is done with civility.

Regarding the NY Times article, not so even handed. . . as usual.

Jun 15 04:56 PM

[a. palmer jr.:]

I think the deficit is everyone's fault. Anytime you want something from your government you're wanting money to be spent, whether it's better roads or fancy schools that we don't need (the school I used to go to now has a swimming pool, think they need that?) We all need to start living like the bankrupt people that we are, and I wish people would stop lending our government money!

Jun 15 08:09 PM

[dragonpaw:]

If you read anything in the N.Y.Times, just think that is just papered-over BS. In a nutshell,the Bushman started with a 5 + trillion$ debt, tha he inherited from Sr. b.j. He and the republicraps balloned this to $7+ trillion with his cronies after 9/11. Then the demo-goues, with Barney the "frank", Chris "dodd-ger," and the "hairy" Reid, started the Freddie Mac-Fannie Mae fiasco (with the Chaney-led Halliburton-fnanced 'war on-terror) tha dragged us into 10+ trillion.
Now we have bailed-out every charlatan &roguethat has hit wall-street ,d.c. every negligent state,city, near -state and wanna-be state that our our economy can only but implode.
Palau; grab your $200,000,000 now or you won't be able to house your 12 new US inhabitants! Let me know how I can join the newbies!

Jun 15 09:31 PM

[CLH:]

I look at the deficits as a positive. The only way to destroy socialism is through bankrupcy (USSR). CA will show us the way as their social programs are shut down which will benefit everyone. The govt. should not run pension, medical or any other social programs. Lack of money will stop these programs quickly.

Spend spend Obama and destroy your stupid programs.

Jun 16 07:58 AM

[Hot Richard:]

I challenge everyone to ask their politician to identify ONE spending program they will cut. I can't get any of them to answer.

In a country where no one says no, they say yes to everything.

I love the trick "We're going to spend $200 million to upgrade blah blah and that will save $250 million." Then they spend a billion and realize none of the savings.

Jun 16 09:32 AM

[Hot Richard:]

"Mr. Obama does not have a realistic plan for eliminating the deficit,"

I'd be careful with this statement. I believe the agreed upon plan is for hyperinflation, health care (and other massive government expansion in the name of the children and regulation and government spending as a way to stimulate), currency/pension failure, confiscatory tax policies (Patriotic!), and--most likely--a massive war. All of this followed by a changing of the guard after 8 years to the Republicans who will open the first envelope and blame the previous admin. The people will cheer and claim "USA #1".

Oh...you said "realistic". Never mind.

Jun 16 09:40 AM

[Hot Richard:]

"the school I used to go to now has a swimming pool,"

I believe you might have fallen for an old trick. When the peasants start complaining about taxes, the politicians start screaming about first cutting off police and ambulance and schools.

Trust me, there's massive pork that is exponentially larger than school/police/ambulance budgets.

Get thee a government job now or risk being the donkey for this economy.

Jun 16 09:44 AM

[jmmx:]

@ pftitti

You have quite a few good points here, but I do not agree with all.

I do agree that Ron Paul was dead right in opposing then Iraq invasion. That alone will have added over $1 Trillion to the national debt. However (and this is from someone who was vehemently opposed to the invasion long before it occurred) I do not think that it would have been either wise, nor fair to the Iraqi people, to have pulled out precipitously. I think that Obama has indeed kept his promise in pulling out in a responsible manner. The extra cost in staying another 6 months has produced a very much stronger and stable government there. While I admit that the ultimate outcome is not assured, I think that now it is much more likely to end favorably.

2-
Regarding Clinton, a lot of what you say is true, the Republican revolution did "inspire" the Dems to more fiscal responsibility. However, the Republicans adherence to fiscal conservatism never held during their own administrations.
It seems that whenever a Dem is elected president all the Repubs become born-again balance-the-budgeters. Whenever there is a Republican Pres, they are all for borrow-and-spend, borrow-and-spend.
(See: www.lafn.org/politics/... )

The problems (IMHO) began with the Reagan Voodoo economic theory that if you throw money at the rich then the rest of us will receive a few driblets from the table - the infamous trickle-down theory. The neo-conmen propaganda has resulted in several waves of disastrous deregulation mania. There was Reagan's S&L multi-billion dollar bailout, and now this. (Don't get me started on his "The Taliban are freedom fighters" insanity)

I think it is interesting to note that every time there is one of these crises takes place, that there is a great consolidation in the financial industry. (From the big banks pov, Reagan eliminated all those pesky little local banks.) This has led to incredible reduction of competition (supposedly the cornerstone of capitalism). So, in a perverse kind of way, the Republicans are fostering a kind of inverted Socialism where instead of the government regulating the industrial complex, the few big players in key industries have complete control over the consumer who gets less and less.

Like I say - in my poor misguided opinion.


On Jun 15 10:18 AM pftittl wrote:

> Excellent piece. I voted for Obama but he hasn't changed a thing.
> We're still fighting two wars we can't afford, and NO ONE other than
> Ron Paul in Congress is worth a bucket of warm spit. The reason Clinton
> was fiscally responsible was because the first Bush insisted on PAYGO
> in 1990 when he compromised with the Democrats and ensured he would
> be defeated for re-election by raising taxes. Clinton kept that and
> with decent economic growth and a break on the spendthrifts from
> both parties in Congress, we were paying down our government debt.

Jul 08 11:47 AM