$1.4 Trillion Federal Budget Deficit: Where Do We Go from Here?

Source: Washington Post

As you can see, the red ink (deficits) is flowing in Washington, DC.

In a way though, this record budget deficit is a little less bad than it could have been. As you can see from the next chart, also from the Washington Post, earlier this year the deficit was projected to be even larger, more in the range of $1.75 - 1.85 trillion.

Source: Washington Post

But, where do we go from here? As I read through this piece from the Washington Post, I was not reassured that anyone in Washington, DC actually has a handle on this. Or, at least, the WaPo reporters could not find anyone who really has a plan [emphasis added]:

Record-High Deficit May Dash Big Plans (Washington Post, October 17, 2009, Lori Montgomery and Neil Irwin)

The federal budget deficit soared to a record $1.4 trillion in the fiscal year that ended in September, a chasm of red ink unequaled in the postwar era that threatens to complicate the most ambitious goals of the Obama administration…

…At about 10 percent of the overall economy, the gap between federal spending and tax collections is the largest on record since the end of World War II, and bigger in nominal terms than the past four years of deficits combined. Next year is unlikely to be much better, budget analysts say. And Obama’s current policies would drive the budget gap into the trillion-dollar range for much of the next decade.

This is the type of record we really don’t want. And, I think we need to get past the partisan sniping. Neither the Republicans nor the Democrats can claim any glory when it comes to spending control. Politicians seldom get criticized for spending our money, so they keep right on doing it. We can assign blame to different players and parties, but that still begs the question: ‘What the heck do we do?’

The WaPo article continues:

…A combination of factors combined to produce the $1.4 trillion gap. A deep recession caused tax revenue to plummet by more than $400 billion this year, while the government’s economic rescue efforts swelled federal spending. In all, the government spent $3.5 trillion in fiscal 2009, while taking in only $2.1 trillion in taxes, the Treasury Department said. Among the outlays: $113 billion in stimulus cash, $154 billion for the bank bailout and nearly $96 billion in capital payments to Fannie Mae and Freddie Mac, the troubled mortgage insurance giants that the government took over last year.

…”In the short term the deficit is not our primary problem,” said Heather Boushey, a senior economist at the left-leaning Center for American Progress. “The unemployment rate is near 10 percent, and the key thing is to get the economy growing, which will increase tax revenues. But in the long term we do need to think about the deficit problem and do something about it.”

Economists universally agree that the nation cannot run such massive deficits indefinitely. The question now facing Obama, budget experts said, is how to bring spending and revenue more closely into balance in the years ahead, after the economy fully recovers…

We cannot run such massive deficits indefinitely on that much there is agreement. But, where is the plan for how we bring spending and revenues more closely into balance? If there is one, I have not seen it.

Comments

[Dave Wrixon:]

Well, you could start with a truly independent audit to determine how big the problem really is!

Oct 18 05:06 AM

[Michael Clark:]

My thesis is that the depression started in 2001. The chart above, and the NDX (Nasdaq) chart show this to be the case. I guess a lot depends upon your definition of depression. The symbolic act of this Great Depression probably was the attack on the Twin Towers. That symbolic act of castration is one of the most literal in all of history.

It is (masculine) power (creativity and fertilization) and the power of reason to control phenomena which declines during the Night-Cycle Dark Age.

Oct 18 06:40 AM

[The Geoffster:]

"The best way to destroy the capitalist system is to debauch the currency. "
-Lenin

Oct 18 03:44 PM

[Mad Hedge F...:]

zio For the last six months there has been a great big whopping contradiction in the markets. The stock market has been discounting a return to the “Roaring Twenties,” while the bond market has been anticipating another “Great Depression.” After yesterday’s publication of the Labor Department’s September nonfarm payroll number showing the loss of another 263,000 jobs, it looks like the bond market now has the upper hand. This takes the unemployment rate up 0.1% to 9.8%, and total job losses for this recession to 7 million. The really disturbing aspect of this number is that 57,000 teachers were fired, as states chop budgets to the bone. This is really eating our seed corn by the bushel full. Of course, I have been banging pots and pans, setting off distress flares, and yanking the fire alarm, trying to alert readers that this kind of disappointment was coming (click here for “Risk Reversals Can Be Such a Bitch” and here for “Stocks Offer No Value”). Shares have dropped 5% from last week’s peak, as the bond market soared, the ten year yield reaching nosebleed territory of 3.05%. The dollar maintained its flight to safety status, which to me is one of the great ironies of all time. It’s like that reprobate, alcoholic uncle with the bad teeth, who, when your car breaks down in the middle of a downpour in a bad neighborhood, will always let you crash on his sofa. Let’s call him your Uncle Sam. You have to hand it to PIMCO’s inveterate card counter, Bill Gross, who says this is all about transitioning to a “new” normal of 1%-2% real GDP growth. That’s why he was loading the boat with bond yields at 4%, a “ballsey” move at the time, which now smells like roses. I guess that’s why they call him the “Bond King.”

Oct 19 11:40 AM