Budget Deficit in Free-Fall

War spending keeps climbing with no way to pay for it. You know, Enron looked like it was really well off financially when they were holding lavish parties while in the background they had been cooking their books.

 

Lets also be fair and admit that that number doesn't include "prospective legislation", including military spending in Iraq. Thats not improvements over last years projections - last year totaled 248 billion (thats actual, not estimated). This years projection, not including stuff like Iraq or potential tax changes (for example, that health care tax refund thing Bush talked about), may look good on the surface, but i think we'll see a completely different picture by the end of the year.

 

<div class='quotetop'>QUOTE(Dragonfly @ Jan 24 2007, 05:18 PM) [snapback]380270[/snapback]</div>

Yep. $1.2 trillion dollars to date spent on Iraq.

 

<div class='quotetop'>QUOTE(dbermanmd @ Jan, 01:23 PM) [snapback]380275[/snapback]</div>

You can't seem to get it. If you borrow a ton of money, you can party it up and it looks like everything's great. But at some point, somebody has to pay for this disaster. Who do you think should pay for it?

 

<div class='quotetop'>QUOTE(dbermanmd @ Jan 24 2007, 04:27 PM) [snapback]380279[/snapback]</div>

It's been proven, repeatedly, that directing money to the military industrial complex is *not* the best way to energize the civilian economy. Are you suggesting otherwise?

Also, if the economy is going ganbusters, why are the savings rates for Americans at an all time low...?
Why is the number of folks declaring bankruptcy climbing again...?
Why are people taking so much equity out of their homes?

I don't think that, individually, our personal financial situations are at all reflective of the prosperity which you suggest. Why do you think there is such a disparity between the two?

 

<div class='quotetop'>QUOTE(dbermanmd @ Jan 24 2007, 03:27 PM) [snapback]380279[/snapback]</div>

Seriously, admit when you're wrong.

The 76 billion difference you pointed out isn't a difference from previous projections for the same period - it's a difference from the actual spending last year.

War time expenditures, regardless of where they go, still add to the deficit. remember, deficit doesn't equal economy or even GDP. it's a measure of the money the government takes in versus what it gives out. and the deficit is expected to increase by more than 25 billion due to the war. Not my words, but those of the CBO.

I will certainly give credit where credit is due... but i won't give credit based on predictions that acknowledge that they are leaving a large portion out of their outlook.

 

<div class='quotetop'>QUOTE(eagle33199 @ Jan, 01:31 PM) [snapback]380284[/snapback]</div>

Ha ha! That'll be the day!

 

<div class='quotetop'>QUOTE(dbermanmd @ Jan 24 2007, 04:41 PM) [snapback]380290[/snapback]</div>

$8,684,050,227,501.00 is the present national debt.
Over 3 times the federal budget.
Every individual ,business and corporation has a debt of 3 times their annual taxes .This debt has been almost entirely borrowed during the reign of Republican presidents.Meanwhile interest is accruing.

 

<div class='quotetop'>QUOTE(dbermanmd @ Jan 24 2007, 04:13 PM) [snapback]380266[/snapback]</div>

Well, this is clearly bait, by a partisan who cares nothing for the facts, but as an economist, I feel some obligation to set the facts straight.

Easiest one first. The current unemployment rate of 4.5% for December 2006 is "at all-time low" only for those with Alzheimers, that is, those who cannot recall that the monthly unemployment numbers fell below this level for extended periods in 2001 ... and in 2000 ... and in 1999 .. and in 1998. That's easily verified at the Bureau of Labor Statistics website. I won't bother to give the URL because apparently it's not worth your while to check your facts anyway. Nor will I bother to talk about the composition of recent employment growth, which has been almost entirely in low-wage jobs.

Second, the current budget situation looks good, but again only to those with severe memory impairment. The CBO, whose numbers you appear to trust, predicted a $5 trillion 10-year suplus just after Mr. Bush took office. That was largely due to the fiscal probity of the prior administration. W then made three promises, based on that CBO projection: have the largest tax cut in history, fully fund social security and Medicare into the forseeable future, and put us on a path to paying of the entire federal debt (not deficit, but all accumulated debt) in 10 years.

Subsequently, W and the Congress managed to turn that projected $5T surplus into a projected $3B deficit over a 10 year period. That's an $8T swing in the financial position of the Federal Government. And of course, the promises other than the tax cut were best characterized as lies. I guess we've heard so many lies since then that people have forgotten the early economic history of this administration. But the fact of the matter is that W has frittered away our last opportunity to prepare financially for the retirement of the baby boom, which nominally begins in 2010. His proposed social security reform, as Paul Krugman so aptly put it, amounted to saying that 2 + 2 = 5. As for paying down the existing federal debt, so that we would have the financial strength to finance the oncoming negative cash flow due to baby boom retirement -- well, I guess that somehow never happened. The upshot is that a predicably large negative federal cash flow from payments to retirees is about to start, and W and company have simply blown our last opportunity to get ready for that, an opportunity that chance and the prior administration handed him.

So, I should celebrate an $8T negative swing in the financial position of the federal government, because ... this year's deficit (ignoring offbudget items like the war) was $100M smaller?

I mean, yeah, it's good to see the wiggles in the budget gap move in our favor, but it's not cause for a major celebration. At least not in the historical context of where the fiscal position of the country was headed before W got his hands on it.

And for that much fiscal stimulus, we have gotten essentially nothing in return. If you'd care to look at growth in GDP/capita, total employment, or any other aggregate measures other than corporate profits, economic peformance during the Bush administration has been mediocre. Corporate profits, by contrast, are up. That's good, but, again, that's not exactly party time for the average shmo.

Third, corporate profits brings up the stock market. I believe the Dow first topped 11,000 in the fall of 1999., though I am too lazy to look that up to verify. Since that time, there have been two hugley favorable tax law changes, reducing taxation on capital income (as opposed to wages) by reduction in the capital gains tax, and eliminating the "double taxation" of dividend income. Given all of that, the current new high circa 12,500, 7 years later, is mediocre at best. If you'd held the Dow from 1999 high to 2007 (high-ish), including dividend income, I believe the total pre-tax nominal return would have amounted to a little under 4 percent per year. About as good as a T-bill. Which is pretty amazing, given the size of the reductions on taxation of capital income. Further, if you invest outside the dollar, as I do, holding gold or foreign currencies, the stock market has been a major loser, when valued in (say) Euros or ounces of gold.

In short, if we're taking about "new highs" in the stock market, then, well, this "new high" has produced investment returns (in dollars) equivalent to the prior high plus the T-bill rate. Again, you don't get a big whoo-hoo out of me for that. Particularly because bets on the decline and fall of the dollar (gold, foreign currency) have done substantially better. That's never a good sign. Recall that when the prior President left office, a dollar was worth nearly 1.3 Euros, and gold was well under $400/oz. These asset prices have moved more or less in lockstep, reflecting, in my opinion, assessment of the decline in the financial position of the US, as outlined above. (Though, of course, anybody who pretends to know why speculative asset prices change is kidding himself.)

So, yeah, the economic situation is OK right now, compared to what it might be, but I don't think a sober observer would be too sanguine about it. Fundamentally, we've financed the entire economic expansion with a growth in debt and and (to me) almost unbelievable reduction in credit quality. Coupled with an absolute unwillingness to face hard economic choices for funding the known and predictable obligations we will incur as the baby boom retires. Combine that picture with a stubbornly negative personal savings rate, and a trade deficit that's 5+% of GDP, and I see a President and a Nation that are happy spending money and liquidating assets, unwilling to face any economic responsibility, and are simply willing to continue to steal from the future via borrowing until such time as that no longer works. As W said, our main obligation as citizens, in light of the events of 911, is to continue shopping. And we have. That's why I own gold, and that's why, as a fiscal conservative, the best I'd say about the current situation is that yes, it could be worse.

 

<div class='quotetop'>QUOTE(dbermanmd @ Jan 24 2007, 01:27 PM) [snapback]380279[/snapback]</div>

No matter how often you repeat this lie, does not make it true.

The bill originally failed when the Republicans insisted on inserting a line item veto provision into it (somehow that was not a priority when the Republicans controlled congress).

A compromise bill passed the next day.

 

<div class='quotetop'>QUOTE(dbermanmd @ Jan 24 2007, 01:23 PM) [snapback]380275[/snapback]</div>

This is what New Hampshire Republican Senator Judd Gregg had to say on the subject in his interview on American Public Media's Marketplace:

 

<div class='quotetop'>QUOTE(dbermanmd @ Jan 24 2007, 04:13 PM) [snapback]380266[/snapback]</div>

It's slowly creeping up you mean. Has it caught up to its high? The charts speak for themselves.

Uh, it always has. Except the first disastrous years Bush II was in office.

Of course, the National Debt is increasing, too (yeah, that always has, too - but it's a much larger percent of the GDP than when a good president (ie, Clinton) was in office).

Meanwhile, back here on Earth, the unemployment rate looks pretty high to me.

Here's a graphic depiction - note the presidents when it was highest (Nixon, Ford, Reagan, Bush I, Bush II) and lowest (Truman, Johnson, Clinton).

When you account for inflation, they're down.

Speaking of which, inflation is going up, too.

Is there ANY way Bush II isn't screwing up the economy?!?

 

And thus, ladies and gentlemen, the difference between a conservative and everyone else. The conservative tastes the frosting on the cake and says 'mmmmm', the rest of us taste the cake and realize it is made of s**t with frosting on top, and we say 'yech'.

 

<div class='quotetop'>QUOTE(dbermanmd @ Jan 24 2007, 03:01 PM) [snapback]380329[/snapback]</div>

Excuse me. The Republicans refused to give Bush the line item veto (that is what the Gregg Amendment was all about), why should the Democrats?

You are muddying the water by implying that the Gregg Amendment had to do with stopping the "off-budget" funding of the Iraq war.

ABC News

 

<div class='quotetop'>QUOTE(chogan @ Jan 24 2007, 05:37 PM) [snapback]380314[/snapback]</div>

I too have been investing in gold for the last several years. But how would an individual investor invest in foreign currencies? Are there mutual funds that do this?