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THE TRUTH ABOUT THE DEFICIT: It's Not Very Big, And There's Only One Way To Close It
Yahoo News/BI ^ | 12-16-2012 | Joe Weisenthal

Posted on 12/16/2012 9:29:27 AM PST by blam

THE TRUTH ABOUT THE DEFICIT: It's Not Very Big, And There's Only One Way To Close It

By Joe Weisenthal
Deember 16, 2012

"Trillion dollar deficits as far as the eye can see."

"Hundreds of trillions in unfunded liabilities."

"Washington is broke."

"Only cranking up taxes, and slashing benefits can save us from leaving a crushing burden on future generations."

Those are the kinds of lines you hear from politicians (and even some smart people) all the time as Washington DC debates the Fiscal Cliff and so on.

But there's a couple of things you should know about the deficit.

One is that talking about this "Trillion dollar deficit hole" is basically nonsense.

As Paul Krugman points out in a recent post, the current deficit is mostly about the slump in the economy combined with the standard counter-cyclical spending, that naturally tapers off as the economy improves.

He notes two key numbers: One is that, if the economy were operating at about full potential (as measured by the CBO) the government would be collecting about $450 billion more in taxes. The other is that since the crisis, spending on "income security" (Food stamps, unemployment benefits, etc.) has jumped by about $250 billion. As such, it's probably safe to surmise, that just a return to economic normality, would entail a deficit closure of around $600 billion.

That still leaves $400 billion in deficit, but guess what, that's okay. That's less than 4% of GDP, which is the pace of nominal GDP growth. As long as your deficit isn't bigger than nominal GDP growth, your national debt isn't growing.

If you want to have a real discussion about how large/unsustainable government spending is, you don't want to use periods of economic abnormality, such as the last few years

(snipa0

(Excerpt) Read more at finance.yahoo.com ...


TOPICS: News/Current Events
KEYWORDS: debt; defecit; economy; taxes
No big thing.

Who knew?

Happy Days Are Here Again.

1 posted on 12/16/2012 9:29:37 AM PST by blam
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To: blam

He cites the half-witted Paul Krugman, so that tells you all you need to know.


2 posted on 12/16/2012 9:34:04 AM PST by Army Air Corps (Four Fried Chickens and a Coke)
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To: blam

Thanks Joe. I feel a whole lot better now. Just knowing that you are basing your argument on Krugman’s economic philosophy is so comforting. Its all good.


3 posted on 12/16/2012 9:38:50 AM PST by Georgia Girl 2 (The only purpose of a pistol is to fight your way back to the rifle you should never have dropped.)
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To: blam

Let me get this straight...

If things were different than they are, the deficit would be only $400 billion.

Therefore, it’s ok that the deficit is $1 trillion.

Sure, makes sense!


4 posted on 12/16/2012 9:39:16 AM PST by NRPM (America RIP 11/6/12)
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To: Army Air Corps
As Paul Krugman points out in a recent post...

No need to read beyond that point.

5 posted on 12/16/2012 9:43:01 AM PST by windsorknot
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To: blam

Yes, growth is the only way.

Government debt, spending and taxes remove the wealth that create growth.

LOL!: he’s saying “don’t cure the disease, just treat the sympton” and doesn’t even know it.
What an idiot.


6 posted on 12/16/2012 9:46:49 AM PST by mrsmith (Dumb sluts: Lifeblood of the Media, Backbone of the Democrat Party!)
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To: blam

Sounds like a third grader wrote this.


7 posted on 12/16/2012 9:46:49 AM PST by lacrew (Mr. Soetoro, we regret to inform you that your race card is over the credit limit.)
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To: blam

This guy needs to take a much closer at the CBO projections moving forward. They project deficits a lot bigger than $400 billion, even under an improved economy.


8 posted on 12/16/2012 9:46:49 AM PST by jpl (The government spent another half a million bucks in the time it just took you to read this tagline.)
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To: blam

LOL, there goes any respect I may have once had for Joe Weisenthal. He cites Paul Krugman?
I checked twice to see if this was some kind of parody.


9 posted on 12/16/2012 9:51:28 AM PST by Lancey Howard
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To: blam
He notes two key numbers: One is that, if the economy were operating at about full potential (as measured by the CBO) the government would be collecting about $450 billion more in taxes. The other is that since the crisis, spending on "income security" (Food stamps, unemployment benefits, etc.) has jumped by about $250 billion. As such, it's probably safe to surmise, that just a return to economic normality, would entail a deficit closure of around $600 billion.

Obamacare is stifling job growth, and is in fact causing layoffs. The tax increases are doing the same. Obama is readying a new set of regulations for this term, as well as locking natural resources, which could be providing jobs, away from development. How are we supposed to to return to "economic normality", especially when the author is seemingly defininy normality as the peak of a bubble?

The "income security" spending is directly due to Obama's policies, which show no sign of being repealed.

10 posted on 12/16/2012 9:52:22 AM PST by Vince Ferrer
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To: blam

Happy Days Are Here Again.
For Obama his first four years of cyclical spending was only 4.5 trillion and more in the second term.
If we pay a dollar a minute on a on trillion dollar debt we can have that sucker paid for in 37,0000 years.
Liberals like to keep their head in the sand that way they can get pocket picked and screwed at the same time.


11 posted on 12/16/2012 9:52:46 AM PST by Vaduz
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To: NRPM

Even if someone is gullible enough to think the deficit isn’t a problem... there’s the even bigger reality of the deficit piled onto the debt. The debt, baby. That 17 trillion-and-counting behemoth that ain’t goin’ away.


12 posted on 12/16/2012 9:53:59 AM PST by SuzyQueIN
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To: blam
So bottom line are three key points:

The deficit is not as big as you think, especially once you adjust for these abnormal economic times.

Only growth can close the deficit.

Even with no change to current law, the projections about entitlements swamping the budgets are dicey.

LOL

DEFUND socialist collectives, foreign and domestic. Socialism Is Legal Plunder - Bastiat. BIG GOVERNMENT IS CRONY SOCIALISM.

live - free - republic

13 posted on 12/16/2012 9:54:58 AM PST by PGalt
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To: blam

Here is the logic. If I must borrow forty cents on every dollar I spend, the interest rate on the amount borrowed is more than I can afford, but if I can cut down to borrowing twenty cents on every dollar, the interest rate is more manageable. I can pretend it isn’t a debt problem, so long as I can almost manage the interest on the debt. You know what happens to businesses that try this, or households. Yet when we hear governments talk this nonsense we are supposed to believe it is reasonable. It must be. Just look at the growth of the federal government during the age of Obamanism. If government is growing, everything must be okay.


14 posted on 12/16/2012 10:01:00 AM PST by pallis
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To: blam

When I clicked on the link to this thread I began smelling the Krugman stench. Guess what?

“As Paul Krugman points out in a recent post...” That’s when I stopped reading.


15 posted on 12/16/2012 10:01:20 AM PST by upchuck (America's at an awkward stage. Too late to work within the system, too early to shoot the bastards.)
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To: NRPM
If things were different than they are...

if interest on the debt were more normal, like 2% higher, the interest on the debt would add about 300 billion more to the deficit.

16 posted on 12/16/2012 10:03:15 AM PST by MulberryDraw (That which cannot be paid, won't be paid.)
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To: blam

Last I checked we’re running far greater than $1T deficits the last few years.

What the hell is this guy talking about?


17 posted on 12/16/2012 10:04:27 AM PST by Free Vulcan (Vote Republican! [You can vote Democrat when you're dead]...)
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To: Vince Ferrer
RAIL INDICATORS: The Economy Continues To Soften
18 posted on 12/16/2012 10:09:45 AM PST by blam
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To: Army Air Corps
"Paul Krugman"

Isn't Paul Krugman the guy that blames everything on Ancient Aliens?

19 posted on 12/16/2012 10:10:24 AM PST by UnwashedPeasant
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To: blam

from the article: “As such, it’s probably safe to surmise, that just a return to economic normality, would entail a deficit closure of around $600 billion.”

Okay, but the part he leaves out is that just a return to economic normality would also cause a rise in the fed funds rate from zero to at least 2 percent and maybe as high as 4 percent. A rise to the paultry 2 percent would cause the governments interest expense to rise by 340 billion so the deficit would still be 1 trillion.

This is known as the debt trap which is where greece and spain are. The debt trap is when you have so much debt that austerity can not fix it and even good times can’t fix it.


20 posted on 12/16/2012 10:10:51 AM PST by staytrue
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To: blam
The tens of trillions of unfunded promises to geezers has been fixed by Obamacare and Pelosi. The money is no longer needed.

Over a certain age? Obamacare dictates that PELOSI (Palliative End of Life Optimum Serenity Initiative) is all you get. "Just give 'em a pill."

Old people never die, they just get in the way.
Something has to be done! PELOSI!

Certain old people have a duty to die and get out of the way. Democrat Richard Lamm.

And I think he means "Or else."

21 posted on 12/16/2012 10:11:41 AM PST by WilliamofCarmichael (If modern America's Man on Horseback is out there, Get on the damn horse already!)
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To: MulberryDraw

“if interest on the debt were more normal, like 2% higher, the interest on the debt would add about 300 billion more to the deficit. “

You beat me to it.


22 posted on 12/16/2012 10:12:36 AM PST by staytrue
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To: blam

Never argue with a fool.

He will drag the discussion down to his level and then beat you with experience.


23 posted on 12/16/2012 10:24:28 AM PST by LucianOfSamasota (Tanstaafl - its not just for breakfast anymore...)
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To: MulberryDraw; staytrue
"...if interest on the debt were more normal, like 2% higher, the interest on the debt would add about 300 billion more to the deficit. "

There's (still) no way back from here.

24 posted on 12/16/2012 10:24:51 AM PST by blam
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To: blam
If you want to have a real discussion about how large/unsustainable government spending is, you don't want to use periods of economic abnormality, such as the last few years

So maybe I should base my finances on the really good years I had, as opposed to the years where money just isn't coming in... And I'll just make up the difference by living on my credit cards... The simple fact of the matter is that the government is borrowing nearly $.46 of EVERY dollar it spends. Try doing that with your personal finances.

This guy worships Krugman, who's proof that there's such a thing as too much education, and that some people should never leave their parents' basements!

It's amazing how they should see the repeated failures of their ideas, but their hubris and belief that they're smarter than anyone who's tried these ideas before, get them to believe they'll work THIS TIME!

Mark

25 posted on 12/16/2012 10:25:58 AM PST by MarkL (Do I really look like a guy with a plan?)
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To: blam

On a slightly more negative note, the possessors of excess capital are almost exclusively conservative. We are loathe to invest in a disaster like the one the liberals are creating. This means continued contraction and consolidation. Nobody is coming off welfare or food stamps or any other government program. Government revenue will shrink!


26 posted on 12/16/2012 10:59:45 AM PST by BillM (.)
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To: blam

The problem with compounding interest and unfunded liabilities is that they sneak up on you.

Sure, you can still make the monthly payments on your debt if you keep getting moderate raises every year. Its the year that you stop getting raises, or if interest rates go up up just slightly.

At that point, your interest rates take over your living income. And, add on top of that a balloon payment for your mortgage...and you are underwater, never to recover.

THAT, is where we are.

Deficits can be managed. The overall debt and unfunded liabilities are what will kill us.


27 posted on 12/16/2012 11:32:40 AM PST by Vermont Lt (We are so screwed.)
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To: blam

Krugman’s point would be valid to some extent if the recession we face is a conventional business cycle one. Two factors weigh on our ability to recovery quickly. One is our banks were leveraging 1 to 36 in derivatives along with other global banks. The derivative obligations of global banks is about 1500 trillion (world GDP is about 60 trillion). Gov spending must siphon substantial amounts of money to artificially prop up bank assets to avoid insolvency/collapse. Fed Reserve has been making secret overseas coordination with EU central banks to prevent EU collapse from the same problems because their banks have loans and deals with US banks that can be affected if the EU banks collapse. By Krugman’s belief, the amount of money spent by the US gov to stimulated by economy should have effect.
The other factor that was not present in past recoveries is the low cost of China. If US corporations get stimulus money after they had downsize their workers, nothing says they have to hire Americans with the stimulus money. Under the guise of recession, they fired US workers and upon receipt of stimulus money they hire lower cost Chinese workers. Just look at GM,the green energy companies and etc who took US money and expanded their overseas Chinese factories.
The only thing that will save America is fracking oil/NG for export, coal exports, timber exports and food. The BRICS need cheap energy and food as they develop. That means the Dems and GOP need to adjust their attitudes. GOP cannot advocate Cold War policies on China and the Dems cannot advocate anti lumber, anti fossil fuel, anti coal policies. We need markets and export products. There is one caveat. Both parties need to rein in US corporations from selling our tech advantages in these fields. Right now as we speak the US is trying to teach China how to frack for oil/NG!!!! We want China as a market not another trained competitor.


28 posted on 12/16/2012 11:37:52 AM PST by Fee
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To: blam
As Paul Krugman points out...

Krugman is the biggest economic idiot on the planet. What kind of idiot do you have to be to use Krugman as a crutch to your argument...intergalactic?

29 posted on 12/16/2012 11:38:09 AM PST by SampleMan (Feral Humans are the refuse of socialism.)
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To: MulberryDraw

“if interest on the debt were more normal, like 2% higher, the interest on the debt would add about 300 billion more to the deficit.”

And this is the elephant that no one is talking about. This is why they are so focussed on bonds.


30 posted on 12/16/2012 11:43:23 AM PST by JCBreckenridge (Texas is a state of mind. - John Steinbeck :))
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To: blam

so the 120 trillion in unfunded liabilities.. I wonder if that is a Joe Biden big eff’n deal....

Probably not.


31 posted on 12/16/2012 12:17:41 PM PST by cableguymn (The founding fathers would be shooting by now..)
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To: blam
These people either don't care, or they want destruction, or are too ignorant to see that they are doing this to our dollar as Mugabe did to the Zimbabwe dollar.


32 posted on 12/16/2012 12:19:38 PM PST by FreeAtlanta (bahits.com)
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To: blam

Unfortunately, for this loser, they’re talking about .8-1.2% economic growth for “as far as the eye can see,” too. So there isn’t any way to “grow” ourselves out of the deficit.


33 posted on 12/16/2012 12:45:36 PM PST by Little Ray (Get back to work. Your urban masters need their EBTs refilled.)
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To: MulberryDraw

“if interest on the debt were more normal, like 2% higher, the interest on the debt would add about 300 billion more to the deficit.”

If we were honest about the portion of our GDP that is “false” because of unsustainable government spending, then the portion of debt to GDP would be far higher.


34 posted on 12/16/2012 1:23:39 PM PST by RFEngineer
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