U.S. Deficit Tops $1 Trillion. What's the Big Deal?

A trillion dollars just doesn't seem like a whole lot of money anymore after hearing about the hundreds of billions of dollars in bailout money that went to banks and automakers along with the Federal Reserve creating a trillion dollars or so out of thin air to buy all sorts of securities that nobody else seemed to want. The world has yet to descend into anarchy.

What's the big deal about a trillion dollar deficit nine months into the year?

The imbalance is intensifying fears about higher interest rates and inflation, and already pressuring the value of the dollar. There's also concern about trying to reverse the deficit -- by reducing government spending or raising taxes -- in the midst of a harsh recession.

The Treasury Department said Monday that the deficit in June totaled $94.3 billion, pushing the total since the budget year started in October to nearly $1.1 trillion.

The deficit has been propelled by the huge sum the government has spent to combat the recession and financial crisis, combined with a sharp decline in tax revenues. Paying for wars in Iraq and Afghanistan also is a major factor.

Trying to "reverse the deficit"?? That's a laugh.

Everyone needs to loosen up a little bit - it's only money...

Comments

[Dave Wrixon:]

The big deal is not so much as whether the US is potentially solvent or not. The answer to that is definitely potentially not.

The problem is to what extent people around the World comprehend that the US is incapable of making good on its obligations. If they generally understand the dire situation the US is in then a dollar meltdown must ensue. However, as long as Obama can work his spell, then the magic carpet will contue to fly.

Jul 14 07:33 AM

[User 353732:]

Your question is akin to asking "What does it matter if a person with serious heart disease caused by gluttony and sloth also gets a bad infection from a self inflicted wound? " ........ well, its the difference between a slow and painful nursing back to health and imminent systemic failure.

Jul 14 07:53 AM

[GregZw:]

How about sending me YOUR checkbook and credit cards!

Jul 14 08:32 AM

[Ray Winter:]

Of course you should be worried. Just review what the US's largest creditor is doing.

The Chinese are reducing their US Dollar holdings at a significant rate by purchasing every type of mineral resource they can find throughout the world and hedging their reserves by investing in the West's Mineral Extraction companies wherever they can get support.

They are also extending their 'influence' by financing huge construction projects, especially in Africa and the former Eastern Bloc countries, and all paid for in US Dollars.

Their pro-active use of their massive Dollar reserves is to ensure that when the US Dollar falls from grace as the world's reserve currency, they will not have too many left in their reserves too be badly affected and that their currency will be ready to replace it.

In my view, what is now taking place is a power shift of monumental proportions from The West to The East. Time will show if that is the case. Whatever the future for the US Dollar, they will have exchanged the majority of their dollar reserves for wealth of a different kind thus making them far less vulnerable to the US economy.

Jul 14 08:55 AM

[grey road:]

Are you for real? You're being sarcastic I must assume. When the trouble hits you will know. Nothing goes on forever my friend. Basically the disaster will be , the world will basically stop funding this debt, and the government WILL HAVE TO have a balanced budget immediately at that point. There is no easy way out of this mess and any way you cut it , no matter what Obama does or does not do is irrelavant for the most part. Its just a matter of when.

Jul 14 08:59 AM

[CautiousInv...:]

Tim, in a matter of months you will be commenting on borrowing that could approach $3 trillion by the end of the current FY ( September ) and asking the same question.

Treasury has not updated public data and has not adjusted for reduced tax receipts and, wonders of wonders, higher than budgeted expenditures.

Say what you want about the current administartion but they know how to conduct Treasury auctions and borrow.

Jul 14 09:00 AM

[Neil459:]

People going to the poor house is not funny. People losing their jobs is not funny. People losing their life's savings is not funny.

"its only money" is exactly why we are in this situation (which I hope was the point).

The dirty little secret is that the money quote from the government, if any media would print it is, "Its only money and it all belongs to the politician's. So don't you forget it!"

Jul 14 09:15 AM

[Neil459:]

Exactly, except not everyone losing their house voted for this president.

On Jul 14 11:01 AM dybydx wrote:
> neil459,
>
> ppl going to the poor house cause they racked up 2x their income
> in credit card debt is funny
>
> ppl losing their jobs cause they cause they voted for a douche president
> that lead the country to ruins is funny
>
> ppl losing their life saving cause they speculated on the stock market
> is funny
>
> its cause and consequence brotha. the funny part is that these ppl
> screwed themselves over and are still clueless as to how could such
> bad things happen to such "innocent ppl" like them.

Jul 14 12:25 PM

[seekingnorm...:]

In the old days (post WWII), the US had to lend money (soft loans) to kick start the old and beaten dog's (rest of the world) manufacturing. Otherwise, it would have no counterparty to deal with. Similarly, today - like it or not - the world will have to lend money to the US.

It's quite clear that a new order will form over the next decade or so. But that does not mean that the U$ and/or the USA is a basket case or will slip into oblivion. Why? The countries that formed the world order (that the US took over from post WWII) are still in existence and have had plenty of fun (and bad times) over the last 5-6 decades.

Jul 14 02:13 PM

[Tim Iacono:]

I'm being very sarcastic in that last comment.
Didn't know this until someone asked me but, according to The Economist (see www.economist.com/mark...), the deficit as a percent of GDP is now 13.7 percent, just behind the U.K., in first place at 13.9 percent.

Jul 14 02:14 PM

[norom:]

The "big deal" is probably the fact that there won't be a means to pay this debt off, leading to the biggest default in global economic history. We keep comparing debt to GDP like we can somehow allocate a portion of GDP to that debt. We cannot. I wish to heaven people would stop justifying debt and leverage by running comparisons to productivity which did not occure because of those specific debts and leverage.

Lets think about this for a second, consumption expenditures increased GDP the most over the years. I.e. people buy more crap on credit. Now, despite the government's attempts at loosening credit, people aren't buying into it. Debt now has shame associated with it.

Economists and writers here are good at putting numbers together but terrible at reading behavioural trends that those numbers represent. This is not math.

Jul 14 04:11 PM

[Dave Wrixon:]

Yes, but it is not deficit that matters it is debt.

Those countries including the UK and Ireland that started with relatively healthy public accounts will be able to sustain deficits for the duration of the recession without inflicting serious damage.

The US by contrast was a basket case when the trouble started. It has only got much worse since then.

Most of the UK deficit is to do with having to take over the bloody banks. But even there on paper they are only about $10 Billion down on their investment, so there is every hope that give time the taxpayer will turn a profit.


On Jul 14 02:14 PM Tim Iacono wrote:

> I'm being very sarcastic in that last comment.
> Didn't know this until someone asked me but, according to The Economist
> (see www.economist.com/mark...),
> the deficit as a percent of GDP is now 13.7 percent, just behind
> the U.K., in first place at 13.9 percent.

Jul 15 12:58 AM

[perceptions...:]

Anyone for a good comedy / thriller?

How about US Deficit, disappears while on Michael Jackson moonwalk!

Jul 15 01:36 AM

[BCY:]

I think the US can print out money endlessly without damaging its value, as long as the US can provide enough attractive things, such as industrial goods, services, agricultural products, weapons and business chances that the foreigners want to buy from the US using the dollar they have. When there are not much attractive things that the US can provide, dollar will become useless, and as a consequence, US citizens will suffer the hyperinflation, which is a cataclysmic event for US industry and consumers. Especially, the latter have not enough money to sustain their lives!

Jul 15 01:55 AM

[grey road:]

Why any government runs a deficit is a total joke to me. Why any household or person would do this is worse. What dont people understand. The only acceptable deficit is none. Unfortuenatley at this point , if you did that it would be catastrophic. You see, your leaders ... your long pathetic line of leaders , have caused this by continually running deficits , and continually telling these lies about the fed and all these ridiculous exccuses and reasons. In 10 years the country will have NO CHOICE but to have a balanced budget. Do you people know what that means? Its how you should have been always living and is exactly how it should be , but the fall is going to hurt badly...


On Jul 15 01:55 AM BCY wrote:

> I think the US can print out money endlessly without damaging its
> value, as long as the US can provide enough attractive things, such
> as industrial goods, services, agricultural products, weapons and
> business chances that the foreigners want to buy from the US using
> the dollar they have. When there are not much attractive things that
> the US can provide, dollar will become useless, and as a consequence,
> US citizens will suffer the hyperinflation, which is a cataclysmic
> event for US industry and consumers. Especially, the latter have
> not enough money to sustain their lives!

Jul 15 08:31 AM

[Dave Wrixon:]

Debt is fine if it is a Means to your End.

The problem arises when it is an End to your Means!


On Jul 15 08:31 AM grey road wrote:

> Why any government runs a deficit is a total joke to me. Why any
> household or person would do this is worse. What dont people understand.
> The only acceptable deficit is none. Unfortuenatley at this point
> , if you did that it would be catastrophic. You see, your leaders
> ... your long pathetic line of leaders , have caused this by continually
> running deficits , and continually telling these lies about the fed
> and all these ridiculous exccuses and reasons. In 10 years the country
> will have NO CHOICE but to have a balanced budget. Do you people
> know what that means? Its how you should have been always living
> and is exactly how it should be , but the fall is going to hurt badly...
>

Jul 15 12:31 PM