Tag: Deficit

Five Minutes to Midnight: Announcing the “Federal Government Debt Default Clock”

 

Beyond the troubling debt-ceiling standoffs we witness every few years looms a far more dire threat: a true US government default, which economists warn could lead to a collapse of confidence in the American economy, a run on the dollar, and perhaps even a global economic meltdown. How close are we to such a catastrophic federal default?

To answer this question, a group of private-sector economists and fiscal policy experts has formed a citizens’ committee, called the Default Clock Committee, to maintain an objective, fact-based Federal Government Default Clock. The Clock is designed to help the public to see and track the nearness of the danger.

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A Less Cynical View on Why the GOP Now Seems Fine with Big Deficits

 

Since late December, Republicans in Washington have signed onto tax cuts and spending increases that could, over a decade, add several trillion dollars to the national debt and some 20 percentage points to the federal debt-GDP ratio. As such, this Bloomberg Businessweek headline seems warranted: “Doesn’t Anyone Care About Deficits Anymore?”

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The Potential Downside and Upside in Washington’s New Stimulus Experiment

 

So are we really going to do this? Is the United States, the world’s most important economy, really going to thoughtlessly stumble into a novel experiment in fiscal policy? Massive fiscal stimulus at this point in the business cycle?

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It’s a tradition dating back to the Founding Fathers: the American government financing safeguards, be it retirement (Social Security), health benefits (Medicare), or rewards for military service in the form of federal entitlements. In an age of debt and deficits, when will lawmakers address entitlement reform? John Cogan, Hoover’s Leonard and Shirley Ely Senior Fellow and author of a new book on the long history of federal entitlements, assesses where the Trump administration goes from here.

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The Problem No One in DC Wants to Talk About

 

While the Beltway class hyperventilates over the latest political gaffe and jockeys for position in the 2018 midterms, there’s one subject they studiously avoid: our nearly $20 trillion debt. I wrote about it for USA Today, but my chart above shows the facts better than any op-ed can.

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Senator James Lankford (R- OK) has issued an urgent plea to the Trump administration: start taking the national deficit seriously or else the nation could slip into irrevocable fiscal failure down the line.

In a revealing conversation on this week’s OppCast, Lankford lamented that the national debt was almost entirely absent as a talking point during the whole of the presidential campaign.

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This Chart Shows Just How Hard a Balanced Budget Will Be

 

As a candidate, Donald Trump said he favored a balanced budget “relatively soon.” Then again, he also said, “I love debt. I love playing with it.” Just how much Trump loves or hates federal debt will be revealed in the coming months. Congress, too. Congressional Republicans have typically offered annual budget resolutions that would eliminate the budget deficit within a decade by reducing spending growth.

The same this time around? Goldman Sachs raises some issues:

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Does Anyone Still Think the US National Debt Matters?

 

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The federal debt-GDP ratio was 74% last year and will be a bit higher this year. Overall it’s twice what it was pre-Great Recession. The CBO baseline forecast puts that debt figure at 86% — and rising — in 2026. Add maybe 20 percentage points or so if Donald Trump is elected, according to analysis by the Committee for a Responsible Federal Budget.

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Three Cheers for Infrastructure Spending!

 

240673_road_construction_ahead_c898a8e8-fbe8-47ea-b492-4497f91421f4-prvOne of Hillary Clinton’s campaign proposals is for additional infrastructure spending to the tune of $250 billion over five years. According to the Clinton campaign, this program would be paid for by “business tax reform. It’s not clear what “business tax reform” entails, but it sounds to me like higher taxes on corporations and high income earners. Clinton claims this would create tens of thousands of jobs, stimulate the economy and fix a failing infrastructure.

Anyone who’s been paying attention during the Obama years should not be surprised by this proposal. It has been a recurring theme throughout his term in office. Infrastructure spending was a major component of the 2009 Stimulus Bill accounting for $105 billion of “shovel-ready” public works projects in the approximately $900 stimulus package. Obama and congressional Democrats have continued to call for additional infrastructure spending as a stimulus despite the fact that the 2009 stimulus failed in its stated goals of 1) keeping the unemployment rate below 8% (I believe it peaked at a tick above 10%), and 2) in providing economic stimulus (GDP growth has bounced around between 1% and 2% through the Obama years). Even Obama eventually did admit that there were no “shovel-ready” projects.

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Entitlement Reform and the GOP: Goodbye to All That?

 

shutterstock_215312209_SocialSecurityNot much talk about the national debt during this GOP primary season. Oh, there’s the obligatory — passing — reference to it during speeches and debates, but little more. Indeed, GOP tax plans would make the debt much worse by trillions over the next decade and beyond.

Now maybe one reason there’s less debt talk is that budget deficits are way down, and the long-term fiscal outlook improved. On the latter front, the WSJ’s Grep Ip highlights a new study — co-authored by former CBO boss Doug Elmendorf — that forecasts the US debt-GDP ratio won’t hit 100 percent until 2032 vs. the CBO’s 2009 forecast of 2023. (Thank low interest rates and slower healthcare inflation for that.)

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On Getting Serious

 

I spent yesterday afternoon debating spending and the deficit with some fellow local Republicans. My view on the subject is really quite simple: Cut it all. There is no program, no department, so sacred that it shouldn’t be cut in some fashion.

That said, we have to talk about the Big Three: Social Security, Medicare, and the military. These three spending categories together represented 74 percent of federal spending in 2015, according to these guys. If you are going to do something about the $500 billion in overspending, you have to do something in these three areas. Period. It’s just math.

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The US Debt Situation Is as Good as It’s Going to Get

 

011916CBO1This may be as good as it gets regarding the US debt situation. This from the CBO:

In 2016, the federal budget deficit will increase, in relation to the size of the economy, for the first time since 2009, according to the Congressional Budget Office’s estimates. If current laws generally remained unchanged, the deficit would grow over the next 10 years, and by 2026 it would be considerably larger than its average over the past 50 years, CBO projects. Debt held by the public would also grow significantly from its already high level.

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Want to Prevent a Debt Crisis? Here’s What Real-World, Center-Right Reform Looks Like.

 

011416debt_2Democrats have big spending plans. Republicans have big tax cut plans. Debt and deficits? No one much talks about those things any more, apparently. But they should. Sure, as Wall Street Journal reporter Nick Timiraos notes, the “U.S. budget deficit ended last year at its lowest level since 2007, marking the sixth straight annual drop.” The federal budget gap deficit ended 2015 at $478 billion, or around 2.6% of GDP. Timiraos explains why we no longer have the trillion dollar deficits of the Great Recession years:

After the financial crisis, the U.S. government in 2009 ran deficits not seen since World War II as revenues fell sharply and stimulus flowed. Deficits began to recede in 2010 as the stimulus faded and revenues stabilized. Congress cut spending further after Republicans took control of the House in 2011. Government spending started to rise two years ago, but deficits continued falling because of strong receipts to the Treasury, in part from tax increases that took effect in 2013. Outlays last year rose 5%, roughly the same pace as the year before. Revenues were up 6%, versus a 10% gain in 2014.

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SS and Medicare: The Truth Stinks

 

When the subject of debt and deficits comes up in polite conversation — with its progenitor, entitlements — and I respond, I often feel like the dog who passed gas under the Thanksgiving dinner table. Sometimes, weakness shows and the “we all paid in” defense is presented with resounding harrumphs exchanged in agreement. If it gets this far, there is the assurance that the trust fund, while depleted, remains to cover our obligations. When I proceed to point out that this piggybank is filled with IOUs, not cash (and even if it were filled with appreciating assets, it contains far less than what will be needed to cover the actuarial obligation) I am summarily labeled as an un-American, naysaying, and unbelieving apostate. Who am I to denigrate the “full faith and promise of the USA?” To preserve the peace, I relent and agree to be muzzled.

The underlying and accepted conceit here is quite simple: wealth must find its origin in the bowels of Washington, DC. The corollary conceit is that the free marketplace perverts wealth and provides the means for its corruption. Thus, Washington not only creates wealth out of sheer political will, but it must counter the corrupting influence of the free market.

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Thought experiment on deficits and recessions.

 

I just read an article by a Keynesian economist arguing that voters and politicians shouldn’t be afraid of running deficits if it means avoiding recessions, and it got me pondering. I said to myself, “self, wouldn’t it be just as easy to say that voters and politicians shouldn’t be afraid of (short-term) recessions if it […]

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Has Congress Gone Deaf on Deficits?

 

bl18deficit_JPG_552642fIn Applied Economics, one of his many great books, economist Dr. Thomas Sowell explains the incentives politicians face when making decisions:

Elected officials’ top priority is usually getting re-elected, and their time horizon seldom extends beyond the next election. Laws and policies that will produce politically beneficial effects before the next election are usually preferred to policies that will produce even better results some time after the next election.

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Athens on the Potomac

 

U.S. Debt ChartFinancial experts in New York, London, and Brussels have tut-tutted Greece’s economic travails as Athens considers its future with the European Union. Why did they borrow so much money? How can they ever pay it back? Do they think that much debt is sustainable?

Instead of pointing fingers at the innumerates running Athens, they should consider our own situation. Jason Russell of the Washington Examiner shows how America’s debt projections look suspiciously like Greece’s recent history.

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Barack Obama’s Career Bedeviled by Financial Struggles

 

Obama DancingWASHINGTON — For years, President Barack Obama struggled under the weight of national debt, unsustainable entitlements, and a trillion-dollar stimulus borrowed against the value of his country totaling hundreds of billions of dollars. But in 2012, financial salvation seemed to have arrived: A large Asian government offered him another series of loans.

In that year’s campaign speeches, Mr. Obama, a Chicago Democrat, spoke of his prudent plan for using the cash to reduce deficits, expressing relief that the nation was on a “path to recovery.”

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