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 ...
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."
“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.
Never argue with a fool.
He will drag the discussion down to his level and then beat you with experience.
There's (still) no way back from here.
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
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!
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.
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.
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?
“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.
so the 120 trillion in unfunded liabilities.. I wonder if that is a Joe Biden big eff’n deal....
Probably not.
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.
“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.
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