Are There Any Solutions for the Grim Budget Outlook? 32 comments
-
Font Size:
-
Print
- TweetThis
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.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 32 comments:
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.
After a $10 TRILLION (or so) hit on their wealth through declines in real estate and equities, their retirements are now grossly underfunded. They must either radically reduce SPENDING, or dump real estate onto the market to get the money to keep spending (with real estate being 75% of their assets).
Meanwhile they are about to start making claims (TRILLIONS of dollars per year) on the U.S.'s "unfunded liabilities" (now approaching $100 TRILLION), mainly Social Security and Medicare.
This will either bankrupt the U.S. government in less than 10 years, OR they must radically reduce benefits. If they reduce benefits, every dollar they cut is one less dollar for seniors to SPEND.
This alone should guarantee that both the U.S. housing sector and the U.S. retail sector remain depressed for roughly a GENERATION.
Hey I agree, we might have to make retirees live a lifestyle a little more like the poor Chinese and less like the lavish American lifestyle of yesteryear.
We can mitigate the impact on seniors by additionally making the American workers also live a lifestyle more like Chinese workers. Namely we can raise taxes, refuse to raise minimum wage, and then export more goods to China and abroad, perhaps even at a discount.
My point is that we don't have to sacrifice key government spending like military. We just have to make the American household consume less and yield more to our creditors. It's not like we can't afford it. Drive an ugly old car and let some Chinese guy have the fancy new SUV for a change. At least we still get to drive a car
On Jun 26 03:44 PM Jeff Nielson wrote:
> Pdub271, there are literally too many HUGELY negative dynamics in
> the U.S. economy to reply to you comprehensively, so I'll only name
> one: retiring baby-boomers.
>
> After a $10 TRILLION (or so) hit on their wealth through declines
> in real estate and equities, their retirements are now grossly underfunded.
> They must either radically reduce SPENDING, or dump real estate onto
> the market to get the money to keep spending (with real estate being
> 75% of their assets).
>
> Meanwhile they are about to start making claims (TRILLIONS of dollars
> per year) on the U.S.'s "unfunded liabilities" (now approaching $100
> TRILLION), mainly Social Security and Medicare.
>
> This will either bankrupt the U.S. government in less than 10 years,
> OR they must radically reduce benefits. If they reduce benefits,
> every dollar they cut is one less dollar for seniors to SPEND.<br/>
>
> This alone should guarantee that both the U.S. housing sector and
> the U.S. retail sector remain depressed for roughly a GENERATION.
There are TENS OF MILLIONS more jobs going down the tubes as the retail sector contracts over the next decade.
On Jun 26 04:46 PM pdub271 wrote:
>
> Hey I agree, we might have to make retirees live a lifestyle a little
> more like the poor Chinese and less like the lavish American lifestyle
> of yesteryear.
>
> We can mitigate the impact on seniors by additionally making the
> American workers also live a lifestyle more like Chinese workers.
> Namely we can raise taxes, refuse to raise minimum wage, and then
> export more goods to China and abroad, perhaps even at a discount.
>
>
> My point is that we don't have to sacrifice key government spending
> like military. We just have to make the American household consume
> less and yield more to our creditors. It's not like we can't afford
> it. Drive an ugly old car and let some Chinese guy have the fancy
> new SUV for a change. At least we still get to drive a car
Sorry, I just don't hear anything so utterly pessimistic except from the gold fanatics, who have been saying it for years.
Time will tell, but common sense dictates that at least in the long run, we can "pay back" for years of sucking up goods by simply reversing the process. I'm not saying it'll be pleasant -- but I don't think utter collapse is inevitable
On Jun 26 07:48 PM Jeff Nielson wrote:
> You totally miss the point: reducing spending will destroy this (consumer)
> economy - but that's a given. AFTER the spending has been reduced
> (both consumer AND government) then the military spending will have
> to slashed TOO.
>
> There are TENS OF MILLIONS more jobs going down the tubes as the
> retail sector contracts over the next decade.
On Jun 26 01:17 PM Michael Young wrote:
> Fascinating theory and very enjoyable, but not sure that war with
> China is really the moral, financial and economic solution to weak
> regulation and greed - which is the real problem with the US economy.
>
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 !
Its also cheaper.
I whole heartedly agree that we need far less government workers. But not just federal. We need less State, City, County, and other government type entities. I don't even think they need to reduce headcount. Just cut out the egregious benefits packages and cut wages by 30%. I'm sure some of the slugs will rejoin the work force after that. I go down town about 3 times a year. Every time I see the same guy on smoke break. The guy must be on smoke break 90% of the time. Furthermore Florida DOT has rooms stacked with people who have like one small responsibility that they can fulfill working about 10 hours a week. This is why FDOT can grant their employees like 5-8 weeks of paid vacation a year. Their not really missed cause they weren't doing anything anyway. Those in FDOT that really do work hard, work very hard at producing things we don't need. I mean lets face it FDOT's job is building roads and maintaining our infrastructure. Does anyone at FDOT do this...No The design, construction, inspection, testing is all outsourced by contract. We don't need 90% of those who are currently employed by FDOT.
Government workers spend all kinds of time upgrading procedures, systems, programs, etc.... when what they have works good enough. As soon as they implement something....they ditch the project an opt for another implementation that will also be ditched. The cycle of do nothingness is amazing. For a group of people who do nothing they also can gripe and complain like you wouldn't believe. We need more traning!. I need a faster computer! I need a nicer office! What they really need a job doing something. Then they wouldn't have time to complain.
I truly believe that the people who are working the hardest or the blue collar workers. The less you get paid the harder you work. The guys getting paid dollars a day to harvest are crops pobably work the hardest. I ranting now. Free market economics dictates that the white collar jobs get paid more because of labor scarcity. But we have governmens on all levels creating the need for light-blue collars jobs. These are jobs that don't require any work but they do require a degree. Get your degree and have a seat. Problem is that while they produce nothing other white collar workers have to watch as their future tax burden grows while they people produce nothing but more rules. Eventually its the facist light-blue collar workers who are going to drag us all into blue collar hell. God bless those blue collar workers though. Geez you guys at least do something.
Don't get me wrong in the private sector the white collar workers work very hard. Teachers work hard too. But their are huge enclaves in government where people are hardly working.
Another problem is that we, the people will not likely see the actual data. Who knows what is really going on accounting wise? How can anyone get to the bottom of it without everyone being on the same page? The result is more politicians looking for sound bites on CNN, each flogging their sliver of truth...missing the larger point but that does not seem to be a deterrent in Washington.
There is no medicare system there either. Not as we know it. No significant social benefits either, no minimum wage nor unemployment insurance, welfare, old age pensions etc etc etc.
When you take away the entire social safety net that we all take for granted then what you have left is what exists in most developing and emerging economies around the world. Without very drastic actions we will be "them" soon enough.
Lets put this in a real perspective. I spent time in Kenya. I saw a woman get hit by a car. Later I was told she was crippled. and that is the end of the story. She went from being a productive member of society to being a beggar because of that single unfortunate event.
Except for her families support, there is no safety net at all in cases like hers. Now I don't disagree that tax hikes and budget cuts are an essential part of the medicine that we will have to take to remain solvent but I don't think you understand the real repercussions of what you are blithely saying.
We are headed for deep trouble and Jeff is spot on in his assessment that major spending cuts to the military will have to be made to head off a total financial disaster. Or, alternatively that we simply inflate the debt away, suffer through a great depression that is certain to follow a hyper-inflationary event and eventually, in time, build our way back to recovery.
But to think that simply cutting back pensioners benefits or eliminating the minimum wage is enough is to not understand the depth of this debt crisis nor how it will really start to impact every single aspect of your daily life once that ball is set in motion.
On Jun 26 03:03 PM pdub271 wrote:
> 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.<
China will eventually have (modest) social programs and a safety net for its people, and they will probably arrive at the "right" economic formula before we do. I fully understand how important it is to have some minimal level of such programs.
You didn't read my post carefully enough. We need to cut spending AND raise revenue. The best way to raise revenue long-term will be to shift from an importing country to an exporting country. Jeff is convinced we are inexorably locked into a consumer-based economy. I just don't buy it, sorry -- I believe in the ability of natural adaptation. China will start to become more consumer-based, and we will become less. Throw in a little inflation, some tax revenue, and spending cuts, and we will make it. I believe in the USA.