Are There Any Solutions for the Grim Budget Outlook? 32 comments
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As President Obama has said, the budget really is something to lose sleep over.
Current deficits are enormous due to the weak economy, fiscal stimulus, and the costs of fighting the financial crisis. But the long-run outlook is even scarier, with Medicare, Medicaid, and Social Security pushing spending up much faster than tax revenues. The result is a tsunami of debt.
How much debt?
Well, the folks at the Congressional Budget Office have just released their latest projections of the long-run budget situation. Here is the key graph:
If current trends continue, CBO projects that the level of debt, relative to the size of our economy, will grow to unprecedented levels — and keep going. Within a few decades, the ratio of debt-to-GDP could surpass the peak of World War II.
That level of debt is not sustainable. As CBO notes:
Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress income growth in the United States. Over time, the accumulation of debt would seriously harm the economy. Alternatively, if spending grew as projected and taxes were raised in tandem, tax rates would have to reach levels never seen in the United States. High tax rates would slow the growth of the economy, making the spending burden harder to bear.
What’s the solution? Well, CBO can’t be overly specific — its job is to present the facts, not draw policy conclusions — but here’s the advice:
Policymakers could mitigate the economic damage from rapidly rising debt by putting the nation of a sustainable fiscal course, which would require some combination of lower spending and higher revenues than the amounts now projected. Making such changes sooner rather than later would lessen the risks that current fiscal policy poses to the economy.
In short, we need to address this problem as soon as possible. Waiting only lets the problem fester, increasing the risk to our economy.
Note: CBO considers two long-run scenarios. In the “extended-baseline scenario,” CBO takes the current law as given, even if there’s reason to believe that Congress will make changes. In the “alternative fiscal scenario,” CBO tries to capture what today’s underlying fiscal policy actually is; this combines current law with assumptions about changes to the law are likely. The second scenario leads to faster-growing debt because policymakers are assumed to do things that worsen the deficit: e.g., extend tax provisions that expire at the end of 2010 and prevent dramatic cuts to physician payment rates in Medicare.
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it would be prudent to purchase some gold and silver and what staples your judgement tells you. if you are rural make friends of your neighbors, read up on gardening, do a little hunting.
if you live in a city---ouch.
I find it amazing that since the introduction of computers the number of people directly employed in government and state administrative functions has drammatically increased. Maybe its because the computers actually make them far less productive !
1. Weaker dollar - fix trade deficit.
2. Moderate inflation - erode value of budget deficit and government debt.
3. Credit regulation - prevent the creation of excess money supply wasted on zero real economic growth consumption and financial transactions.
4. Replace Fed, BoE and ECB officials with a committee of SA commentators to ensure common sense is introduced on future policy decisions.
To start with, $2 trillion per year of U.S. GDP is nothing but statistical "padding". Take away that fluff, and the debt-to-GDP ratios are 25% worse than reported.
The massive U.S. deficit is STRUCTURAL not cyclical. This means without radical spending cuts (i.e. bye-bye military) it is not even THEORETICALLY possible to balance the budget.
The only possible outcomes for the U.S. are national default, or hyperinflation and THEN national default.
Folks wake up and take back your government.
On Jun 26 09:25 AM Ray Winter wrote:
> The quickest way to cut the national debt is to reduce the numbers
> employed by Government and State by 30% and to halt their gold-plated
> persion arrangements.
>
> I find it amazing that since the introduction of computers the number
> of people directly employed in government and state administrative
> functions has drammatically increased. Maybe its because the computers
> actually make them far less productive !
The cure? Michael Young is correct: We will have a weaker dollar and moderate inflation.
"Hard Medicine" in the form of raising Taxes across the board.
Aswell as a year over year sequential cut in Goverment spending
regardless of the pain! Denmark implemented this policy some time
back,so it can be done.America must take back its own destiny
again, and not survive on the" Largesse " of Foreign Goverments!
Unfortunately this is the course we have set ourselves on.
Germany took care of hyperinflation by building weapons and going to war, and eventually their problems were solved.
Do we really have to pay back our debts to China? Not if we are at war with them.
If this doesn't happen, the government will have to confiscate private investments, 401K's, savings, or tax them at the death tax rate of 50% "for the good of the nation" just like the bank and insurance company and auto industry bailouts and refutation of contracts and share and bonholder rights.
Don't forget that FDR confiscated privately held gold, closed the banks, and instituted the biggest move toward socialism in our history for "the good of the nation".
en.wikipedia.org/wiki/...
On Jun 26 09:25 AM Ray Winter wrote:
> The quickest way to cut the national debt is to reduce the numbers
> employed by Government and State by 30% and to halt their gold-plated
> persion arrangements.
>
> I find it amazing that since the introduction of computers the number
> of people directly employed in government and state administrative
> functions has drammatically increased. Maybe its because the computers
> actually make them far less productive !
“We will have to finance our own military spending,” Hudson warned, “and the only way to do this will be to sharply cut back wage rates. The class war is back in business. Wall Street understands that. This is why it had Bush and Obama give it $10 trillion in a huge rip-off so it can have enough money to survive.”
The desperate effort to borrow our way out of financial collapse has promoted a level of state intervention unseen since World War II. It has also led us into uncharted territory.
“We have in effect had to declare war to get us out of the hole created by our economic system,” Lanchester wrote in the London Review of Books. “There is no model or precedent for this, and no way to argue that it’s all right really, because under such-and-such a model of capitalism ... there is no such model. It isn’t supposed to work like this, and there is no road-map for what’s happened.”
On Jun 26 12:46 PM conceptwizard wrote:
> To fund our permanent war economy, we have been flooding the world
> with dollars. The foreign recipients turn the dollars over to their
> central banks for local currency. The central banks then have a problem.
> If a central bank does not spend the money in the United States then
> the exchange rate against the dollar will go up. This will penalize
> exporters. This has allowed America to print money without restraint
> to buy imports and foreign companies, fund our military expansion
> and ensure that foreign nations like China continue to buy our treasury
> bonds. This cycle appears now to be over. Once the dollar cannot
> flood central banks and no one buys our treasury bonds, our empire
> collapses. The profligate spending on the military, some $1 trillion
> when everything is counted, will be unsustainable.
>
> “We will have to finance our own military spending,” Hudson warned,
> “and the only way to do this will be to sharply cut back wage rates.
> The class war is back in business. Wall Street understands that.
> This is why it had Bush and Obama give it $10 trillion in a huge
> rip-off so it can have enough money to survive.”
>
> The desperate effort to borrow our way out of financial collapse
> has promoted a level of state intervention unseen since World War
> II. It has also led us into uncharted territory.
>
> “We have in effect had to declare war to get us out of the hole created
> by our economic system,” Lanchester wrote in the London Review of
> Books. “There is no model or precedent for this, and no way to argue
> that it’s all right really, because under such-and-such a model of
> capitalism ... there is no such model. It isn’t supposed to work
> like this, and there is no road-map for what’s happened.”
On Jun 26 11:49 AM ebworthen wrote:
> The real answer is a lot of dead people. War, rioting, inner city
> collapse, etc.
>
> Unfortunately this is the course we have set ourselves on.
>
> Germany took care of hyperinflation by building weapons and going
> to war, and eventually their problems were solved.
>
> Do we really have to pay back our debts to China? Not if we are at
> war with them.
>
> If this doesn't happen, the government will have to confiscate private
> investments, 401K's, savings, or tax them at the death tax rate of
> 50% "for the good of the nation" just like the bank and insurance
> company and auto industry bailouts and refutation of contracts and
> share and bonholder rights.
>
> Don't forget that FDR confiscated privately held gold, closed the
> banks, and instituted the biggest move toward socialism in our history
> for "the good of the nation".
On Jun 26 08:09 AM Henry Hartman wrote:
> Donald--what are the reports assumptions for the debt service contribution
> to the deficit projections? Couldn't there be a tipping point,
> possibly fairly soon, where rising rates on new and rolled over debt
> push the deficit onto an exponential track that essentially forces
> default?
That was one area that Thatcher never got sorted out. You can give credit to Labour for that one.
On Jun 26 10:43 AM Leftfield wrote:
> Ray Winter: Computers have been a boon to paperpushers everywhere.
> Pity us who have no front office to handle it. But, the increased
> employee count in government after the "need" has long past is standard
> procedure. British Navy had more office staff long after it ceased
> to be global than it did in WWII. Similar is the case with the Bureau
> of Indian Affairs, I believe. Examples are endless. But, Obama's
> found a few hundred millions of waste out of trillions, all is well.
> means without
> radical spending cuts (i.e. bye-bye military) it is not even
> THEORETICALLY possible to balance the budget.
Oh come on, you're defining a really small box and then not thinking outside it. Explain to me why we can't raise taxes (including on the poor), AND some cut spending -- and then still have a somewhat adequate military on our way to balancing the budget.
It will be painful to be sure, but take a look at what Chinese workers earn, and the high taxes they pay. Yet they are productive and there is no catastrophic national debt.
On Jun 26 10:23 AM Jeff Nielson wrote:
> As Dave Wrixon stated, the "point of no return" is already past.
>
>
> To start with, $2 trillion per year of U.S. GDP is nothing but statistical
> "padding". Take away that fluff, and the debt-to-GDP ratios are 25%
> worse than reported.
>
> The massive U.S. deficit is STRUCTURAL not cyclical. This means without
> radical spending cuts (i.e. bye-bye military) it is not even THEORETICALLY
> possible to balance the budget.
>
> The only possible outcomes for the U.S. are national default, or
> hyperinflation and THEN national default.