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 ...
Who knew?
Happy Days Are Here Again.
He cites the half-witted Paul Krugman, so that tells you all you need to know.
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.
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!
No need to read beyond that point.
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.
Sounds like a third grader wrote this.
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.
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.
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.
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.
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.
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
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.
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.
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.
Last I checked we’re running far greater than $1T deficits the last few years.
What the hell is this guy talking about?
Isn't Paul Krugman the guy that blames everything on Ancient Aliens?
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.
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