Tag Archives: Deficits

America is Bankrupt and Republicans Couldn’t Care Less, by Doug Bandow

Posted on January 23, 2018 | 1 comment

There hasn’t been a trace of fiscal responsibility from the Republican-controlled presidency, the Republican-controlled House, or the Republican-controlled Senate. From Doug Bandow at theamericanconservative.com:

These poseurs of fiscal responsibility are about to drive up debt to its highest levels since World War II

Credit: langdu/Shutterstock

The United States is effectively bankrupt, but that doesn’t matter to the GOP. Once evangelists of fiscal responsibility and scourges of deficit spending, Republicans today glory in spilling red ink. The national debt is now $20.6 trillion, greater than the annual GDP of about $19.5 trillion. Alas, with Republicans at the helm, deficits are set to continue racing upwards, apparently without end.

This flood of red ink will increase. Last year the Congressional Budget Office figured the U.S. was going to again run trillion dollar deficits around 2022. An extra $10 trillion would be added to the deficit over the following decade.

But under Republican fiscal “stewardship,” analysts now believe the deficit could hit a trillion dollars next year. Why? Congress relaxed the sequester, eliminating its modest pressure for fiscal responsibility, and approved disaster relief, without making any corresponding spending cuts. Legislators also inflated military outlays, even though much of the Pentagon budget constitutes defense welfare, subsidies for prosperous and populous allies.

Even after the most optimistic accounting for the impact of increased economic growth, the tax bill will still add $500 billion to $1 trillion to the deficit over the coming decade. (In fact, those estimates probably understate the final cost since Congress is likely to extend provisions set to sunset in order to meet Senate budget rules.) If the president and Congress come up with an infrastructure bill, even more red ink will flow. The Committee for a Responsible Federal Budget predicts deficits of $1.05 trillion and $1.1 trillion in 2019 and 2020, respectively.

Welcome to modern Republican budgeting. Complained Congressman Walter Jones, the North Carolina Republican who has become a GOP dissident of sorts: “At the time I joined, the Republican Party was very outspoken about the debt of the nation. …I look at where we are as a nation now, and the Republican Party doesn’t stand for less government and less spending. It spends like no tomorrow.” Congressman Justin Amash, Republican of Michigan, was equally critical, telling Reason’s Matt Welch: “It’s looking as bad as any time I’ve seen I’ve been in Congress.” Legislators, Amash says, continue “to move in the wrong direction.”

To continue reading: America is Bankrupt and Republicans Couldn’t Care Less

 

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As Good as it Gets, by Robert Gore

Posted on December 23, 2017 | 37 comments

What a difference eleven months make.

Shortly after Donald Trump was inaugurated he fired Michael Flynn.

What’s become the conventional subtext is that the intelligence agencies have launched a “soft coup” against Trump, he has been significantly weakened, and the Deep State has scored a major victory.

“Plot Holes,” SLL, 2/26/17

Rejecting that subtext, SLL developed in “Plot Holes” and later articles a series of interrelated hypotheses. We posited that Trump was smarter and the Deep State weaker and more incompetent than generally reckoned. Also, that the Deep State’s animus towards Trump was based chiefly on fear of exposure and prosecution for its long history of corruption and criminality, not policy differences, notably concerning Russia. Finally, we suggested Trump is chiefly motivated by a drive for power. These hypotheses yielded testable predictions.

As predicted, the Russiagate investigation, based as it is on nothing, is now recognized as a monumental blunder. It forced the Deep State into the open and revealed its prosecutorial forbearance towards Hillary Clinton, its effort to help her and hinder Trump during the election, and its attempt to depose Trump afterwards. The FBI has been exposed as the antithesis of a concept implied by the word investigation: impartiality. Holdovers from the Obama Justice Department have been compromised.

The tables are turned. As the Russiagate investigation fades, Trump is left with investigatory gold mines: Uranium One, Fusion GPS, FBI and Department of Justice political meddling and obstruction of justice, Hillary Clinton’s emails, and the Clinton foundation. Trump could fire Robert Mueller with only a minor political uproar, but Mueller’s making a fool of himself to Trump’s political benefit. Why stop him?

As for those gold mines, Trump will decide if the threat of an investigation or an actual investigation best satisfies his leverage and power calculations and proceed accordingly. There has been no general swamp draining, nor will there be. Trump uses investigatory threats as a Machiavellian tactic to extract what he wants from compromised political actors in useful positions. The Clintons and James Comey, no longer in power and thus, no longer useful, are the most likely to be investigated and prosecuted.

In foreign policy, recognizing Jerusalem as the capital of Israel emphasizes Trump’s pronounced tilt toward Israel. Acquiescing to Saudi Arabia’s hapless war against Yemen and Mohammed Bin Salman’s recent purge confirms his support of that regime. In return, Israel and Saudi Arabia have sat still for Trump’s discontinuance of the US policy of supporting Islamic extremists to further regime changes (see “Powerball, Part Two”). This has meant accepting a de facto victory for the Russian-Shia alliance in Syria. US support for the Middle East’s Sunni bloc and Israel as Russian backs the Shiite bloc may lead to a standoff that brings a reduction in violence in that troubled region. It has already begun to reduce refugee flows from the area to Europe.

This is not to say that Trump’s rhetorical broadsides against Iran will stop, but the claims that the US is on the verge of war are overblown. Such a conflict would lead to a Middle East conflagration and the third officially recognized world war.

Trump’s blasts against North Korea are more problematic. His task there is more difficult than Iran; North Korea has nuclear weaponry purportedly able to strike most of the US. Trump has two options: a military strike designed to wipe out North Korea’s nuclear arsenal and Kim Jong-un’s regime, or negotiations that ratify the status quo, with Russia and China applying continuing pressure to enforce Kim’s compliance. At this point Trump may not know what he’s going to do, other than more verbal shots at North Korea and continuing displays of military strength in the region.

Trump has started no new wars. His administration has rolled back some regulations and he just won a legislative victory on tax reform. That may give him enough of a headwind to readdress Obamacare, which has neither been repealed nor replaced. He has his enemies on their back feet. Only fringe elements are still talking about impeachment. The government’s statistics indicate growth is running at above 3 percent, better than trend Obama growth, and the stock indexes keep making new records.

In 2017 SLL made contrarian, optimistic predictions for the president and pessimistic predictions for the economy and stock market (see “Hard Core Doom Porn”) We’ve been more right on the former than the latter…so far. For 2018, we’re with the minority who see clouds and thunderstorms, not silver linings. This is about as good as it gets for Trump.

Deft—by this analysis—as Trump has been, his biggest challenge lies ahead. The government is bankrupt, and demographics will push it ever-deeper in the hole. The global economy is struggling under monstrous and unsupportable debt. Fiat money something-for-nothing has a sell-by date, sooner or later the stock market and economy will head south. Historically, there’s been a tight correlation between stocks, the economy, and presidential popularity.

“Is Trump Winning?” SLL, 8/6/17

Debt has been Trump’s siren song his entire career, and more than once he’s crashed on the rocks. Big triumphs have been followed by big disasters, hubris undoubtedly playing a role.

Stock market and cryptocurrency pyrotechnics have obscured an incipient bear trend in a much more important market, bonds, which in the US apparently topped out in July 2016. Falling bond prices mean rising interest rates. The world has never been more indebted; a global bear market in bonds would be toxic to equity markets and economies (and perhaps cryptocurrencies). Tellingly, high yield bond prices are diverging from rising stock prices, indicating increasing credit stress. According to David Stockman, tax reform will increase the government’s borrowing to $1.25 trillion in fiscal year 2019. Rising rates would add more to the government’s interest bill, and hit indebted businesses and individuals as well. They would offer relief to savers long abused by the Fed’s interest rate suppression tactics, but savers are a much smaller group than borrowers, and they spend less.

Rising debt and ever-expanding government are in large part responsible for a long-term decline in trend economic growth rates across the developed world. Much of what growth there has been was funded with debt. If you buy $100 dollars worth of good or services on credit you have not increased your income, your personal “gross domestic product.” If the government does the same, it registers as an increase in the gross domestic product. Back out such debt-funded “growth” and it’s unclear if there’s been any growth at all since 2009.

In the US, real incomes have stagnated since the turn of the century. Rising equity markets and falling growth rates mean that corporate valuations are in the stratosphere. Joined with off-the-chart measures of optimism and declining central bank support, equity markets are poised for a fall. That it hasn’t happened yet doesn’t mean it won’t. It’s never “different this time.” Given the leverage and speculation embedded in the market, the fall could be breathtaking, a quick drop of 50 percent or more.

As noted, falling stock markets and economies generally take the popularity of incumbent politicians with them. Trump, the most polarizing political figure since Franklin Roosevelt, is not all that popular to begin with. The Deep State that has ruled this country since World War II is down; it would be unwise to count it out. It will certainly capitalize on financial and economic turmoil to launch a counterattack against Trump.

Next year’s silver lining may be that it marks peak government. Governments have coopted much of the world’s resources and put a gigantic lien on its future production. In a severe economic contraction, the wherewithal from taxes and credit markets that would allow them to grow even bigger—and thus more intrusive and repressive—simply won’t be there.

A financial and political focal point will be pension and medical funds. Many such funds are visibly under stress. Widespread insolvency is inevitable, especially if equity and credit markets head south. The resultant fear and fury will be uncontrollable, obliterating today’s widespread, quasi-religious faith in government and its works. The upheaval would make present discord look like a picnic in the park.

It would be unwise to rely on anything but one’s own resources, family, and friends during the coming turmoil. It would be wise to shore up those defenses, and soon.

This will probably be my last article of the year. I will be on vacation December 26-30. Thank you to SLL’s great readers. 2017 was another year of increasing readership and exposure for SLL. Merry Christmas and Happy New Year. Looking forward to a great 2018.

Robert

A Great Christmas Present!

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The Coming Fiscal Derailment—Why FY 2019 Will Sink The Casino, by David Stockman

Posted on December 20, 2017 | 4 comments

David Stockman dopes out the tax reform bill. His conclusion: humungous deficits for as far as the eye can see. From Stockman at davidstockmanscontracorner.com:

Since last November 8th the Russell 2000 has risen by 30% and the net Federal debt has expanded by an astounding $1.0 trillion dollars.

In a rational world operating with honest financial markets those two results would not be found in even remotely the same zip code; and especially not in month #102 of a tired economic expansion and at the inception of an epochal pivot by the Fed to QT (quantitative tightening) on a scale never before imagined.

And we do mean exactly those words. By next April the Fed will be shrinking its balance sheet at $360 billion annual rate and by $600 billion per year as of next October.

Altogether, the Fed’s balance is scheduled to contract by upwards $2 trillion by the end of 2020. And it’s apparently on a path that is so locked-in—-barring a recession—that Janet Yellen affirmed in her swan song that the Fed’s giant bond dumping program (euphemistically called “portfolio runoff”) would no longer even be mentioned in its post-meeting statements.

So the net of it is this: The Fed will sell more bonds in the next 3-4 years than had been accumulated by all of the central banks of the world in all of recorded history as of 1995!

That prospect alone might give a rational stock market at least some cause to pause. After all, the Fed’s $2 trillion bond selling campaign (likely to be joined by the ECB in 2019 when a German replaces wild-man Draghi) is on automatic pilot unless there is a recession.

So stock prices are either going to be battered by slumping profits if the business cycle hasn’t actually been abolished; or, in the alternative, rising bond yields will sharply inflate the carry cost of $12.5 trillion of US non-financial business debt (e.g. a 200 basis point increase in rates would lower pre-tax business profits by $250 billion or 15%) even as PE multiples shrink and stock buybacks are sharply curtailed.

And that’s not all, as the late night TV man says. There is literally a fiscal red ink eruption heading straight at the Fed’s balance sheet shrinkage campaign that will rattle the rafters in the casino.

As detailed below, Uncle Sam’s borrowing requirements are likely to hit $1.25 trillion or more than 6% of GDP in FY 2019 owing to the fact that the tax bill is so heavily front-loaded and the GOP’s wild spending spree for defense, disasters and much else.

To continue reading: The Coming Fiscal Derailment—Why FY 2019 Will Sink The Casino

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The US Government Lost Nearly $1 Trillion In FY2017. Again by Simon Black

Posted on October 7, 2017 | 1 comment

The headline is a bit misleading. To lose money you have to have it to begin with. The government didn’t lose money is had, it simply went deeper into debt. Nevertheless, this is a good article. From Simon Black at sovereignman.com:

There was a time, centuries ago, that France was the dominant superpower in the world.

They had it all. Overseas colonies. An enormous military. Social welfare programs like public hospitals and beautiful monuments.

Most of it was financed by debt.

France, like most superpowers before (and after), felt entitled to overspend as much as they wanted.

And their debts started to grow. And grow.

By the eve of the French revolution in 1788, the national debt of France was so large that the government had to spend 50% of tax revenue just to pay interest to its lenders.

Yet despite being in such dire financial straits the French government was still unable to cut spending.

All of France’s generous social welfare programs, plus its expansive military, were all considered untouchable.

So the spending continued. In 1788, in fact, the French government overspent its tax revenue by 20%, increasing the debt even more.

Unsurprisingly revolution came the very next year.

There are presently a handful of countries in the world today in similar financial condition– places like Greece, which are so bankrupt they cannot even afford to pay for basic public services.

But the country that has the most unsustainable public finances, by far, is the United States.

The US government’s ‘Fiscal Year’ runs from October 1st through September 30th. So FY2017 just ended last Friday.

During that period, according to the Department of Treasury’s financial statements, the US government took in $2.95 trillion in federal tax deposits.

And on top of that, the government generated additional revenue through fees and ‘investments’, including $62 billion in interest received on student loans, and $16 billion from Department of Justice programs like Civil Asset Forfeiture (where they simply steal property from private citizens).

So in total, government revenue exceeded $3 trillion.

That sounds like an enormous amount of money. And it is. That’s more than the combined GDPs of the poorest 130 countries in the world.

But the US government managed to spend WAY more than that– the budget for the last fiscal year was $4.1 trillion.

So to make up the shortfall they added $671 billion to the national debt– and this number would have been even larger had it not been for the debt ceiling fiasco.

Plus they whittled down their cash balance by $194 billion.

So in total, the federal government’s cash deficit was $865 billion for the last fiscal year.

To continue reading: The US Government Lost Nearly $1 Trillion In FY2017. Again

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Of course Donald Trump’s tax cuts are in trouble, by Brett Arends

Posted on April 3, 2017 | Leave a comment

There’s No Fooling the numbers. From Brett Arends on a guest post at theburningplatform.com:

Older Americans don’t want benefits slashed — and they vote

Wall Street has been betting that Donald Trump will get his big tax cut plan through Congress — which would be supposedly good for stocks and the people who own them.

But those tax cuts were always a long shot — even before the health-care debacle.

The political pundits can jawbone all they want. But the logic is painfully simple:

1. Even with tax rates as they are, the U.S. budget is heavily in deficit and the national debt is predicted to keep spiraling upwards — as the Congressional Budget Office has confirmed.

2. Tax cuts will increase that deficit still further. (No, tax cuts do not “pay for themselves,” unless maybe you are cutting them from those ridiculous 70%-90% levels seen after World War II. Cutting taxes today might in theory stimulate enough extra growth to clawback some of their cost, but they will not generate a net gain.

3. Republicans cannot credibly push a plan that increases the deficits, because most of them — including Donald Trump — ran on a platform of saying the deficit, and the spiraling national debt, is a disaster.

4. Therefore, if Republicans want to pass the tax cuts, they will need to cut federal spending.

5. Trump is already pushing to raise spending on defense and infrastructure, making the challenge even greater.

It is impossible to cut spending overall without cutting Social Security and Medicare as well as Medicaid.

6. Mathematically, it is impossible to cut spending overall without cutting Social Security and Medicare as well as Medicaid. Along with debt interest, which cannot be cut, they already take up 58% of the budget and that figure is rising. Throw in defense and veterans and we’re talking about 77% of the budget now, and an estimated 83% in 10 years.

To continue reading: Of course Donald Trump’s tax cuts are in trouble

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No Fooling, by Robert Gore

Posted on April 1, 2017 | 23 comments

DOUBLING TIME = 72/rate of interest

Math can be a real bitch.

The numbers behind this story come from the Wall Street Journal, “National Debt Is Projected To Nearly Double in 30 Years,” (paywall) 3/30/17. For a Zero Hedge summary, see “CBO Warns Of Fiscal Catastrophe As A Result Of Exponential Debt Growth In The U.S.”

The Congressional Budget Office (CBO) released figures this week on the government’s deficits and the national debt that are downright scary. Unfortunately, they’re not nearly scary enough. The assumptions the CBO incorporates are optimistic and will almost certainly be undercut by reality.

The headline projection was the national debt will almost double in 30 years. Using the rule of 72, T=72/r, where T is the time in years required for principle to double and r is the annual interest rate compounded, a 30-year doubling time implies the debt is growing at 2.4 percent annually (30=72/2.4). However, the national debt almost doubled during George W. Bush’s two terms, and almost doubled again during Barack Obama’s two terms. That implies a T of a little more than 8 years. To be conservative (because debt almost doubled but not quite), round the T up to 9 years. Plug that into the rule of 72, and you have the debt growing at 8 percent per year (9=72/8), or over 3.3 times the rate the CBO is assuming. Scary as that 30-year doubling sounds, simply extrapolating the reality of the last 16 years projects another doubling in not 30, but 9 years, or a year longer than Donald Trump’s potential two terms.

But wait, there’s more. The CBO assumes the 10-year Treasury rate will be 1.5 percent after inflation over the long term, but last year that rate was 1.9 percent and the year before, 2.2 percent. Ask yourself, with exploding debt and an increasing supply of Treasury bills, notes and bonds, are real rates (the interest rate after inflation) likely to go higher or lower? The CBO says lower; SLL says higher. The CBO also assumes that potential GDP will grow at 1.9 percent per year over the long term, although it grew an estimated 1.6 percent last year. Ask yourself, with debt service consuming an ever larger share of the GDP (see next paragraph), will that help or hamper economic growth? The CBO says it will help; SLL says it will hamper. Finally, the CBO assumes that net interest costs will average 2.1 percent of the GDP over the next decade, although last year they were 2.5 percent. Again, ask yourself, will a rising national debt lead to more or less debt service cost relative to the GDP? The CBO says less; SLL says more.

Even the too rosy CBO numbers paint a grim picture. It projects that debt service’s share of total federal spending will triple, from the present 7 percent to 21 percent, over the next 30 years. In the same time frame, the national debt as a percent of the GDP will increase from 77 to 150 percent.

President Trump wants to spend “yugely” on infrastructure, increase the military’s budget, cut taxes, and not touch entitlement spending. This is all pure fantasy; it’s simply not going to happen. Something’s got to give, and it will probably start in the bond market. Indeed, it probably already has; the 10-year Treasury rate reached generational lows last July  and interest rates have been in an irregular uptrend since. So if you read the Zero Hedge CBO post and are feeling glum, cheer down; you’re not feeling glum enough. Unfortunately, this is not an April Fools gag.

NO FOOLING, GREAT NOVELS!

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CBO Warns Of Fiscal Catastrophe As A Result Of Exponential Debt Growth In The U.S., by Tyler Durden

Posted on April 1, 2017 | 4 comments

The CBO’s numbers are grim, but as SLL argues in the next post, “No Fooling,” they’re not grim enough. From Tyler Durden at zerohedge.com:

In a just released report from the CBO looking at the long-term US budget outlook, the budget office forecasts that both government debt and deficits are expected to soar in the coming 30 years, with debt/GDP expected to hit 150% by 2047 if the current government spending picture remains unchanged.

The CBO’s revision from the last, 2016 projection, shows a marked deterioration in both total debt and budget deficits, with the former increasing by 5% to 146%, while the latter rising by almost 1% from 8.8% of GDP to 9.6% by 2017.

In addition to the booming debts, the office expects the deficit to more than triple from the projected 2.9% of GDP in 2017 to 9.8% in 2047. The deficit at the end of fiscal year 2016 stood at $587 billion.

A comaprison of government spending and revenues in 2017 vs 2047 shows the following picture:

The CBO also mentions rising rates as another key reason for the increasing debt burden. The Federal Reserve has kept rates low since the financial crisis but is on track to gradually hike rates in the coming year.

On the growth side, the CBO expects 2% or less GDP growth over the next three decades, far below the number proposed by the Trump administration.

The budget office breaks down the primary causes of projected growth in US spending as follows: not surprisingly, it is all about unsustainable social security and health care program outlays.

The CBO’s troubling conclusion:

Greater Chance of a Fiscal Crisis. A large and continuously growing federal debt would increase the chance of a fiscal crisis in the United States. Specifically, investors might become less willing to finance federal borrowing unless they were compensated with high returns. If so, interest rates on federal debt would rise abruptly, dramatically increasing the cost of government borrowing. That increase would reduce the market value of outstanding government securities, and investors could lose money. The resulting losses for mutual funds, pension funds, insurance companies, banks, and other holders of government debt might be large enough to cause some financial institutions to fail, creating a fiscal crisis. An additional result would be a higher cost for private-sector borrowing because uncertainty about the government’s responses could reduce confidence in the viability of private-sector enterprises.

It is impossible for anyone to accurately predict whether or when such a fiscal crisis might occur in the United States. In particular, the debt-to-GDP ratio has no identifiable tipping point to indicate that a crisis is likely or imminent. All else being equal, however, the larger a government’s debt, the greater the risk of a fiscal crisis.

The likelihood of such a crisis also depends on conditions in the economy. If investors expect continued growth, they are generally less concerned about the government’s debt burden. Conversely, substantial debt can reinforce more generalized concern about an economy. Thus, fiscal crises around the world often have begun during recessions and, in turn, have exacerbated them.

If a fiscal crisis occurred in the United States, policymakers would have only limited—and unattractive—options for responding. The government would need to undertake some combination of three approaches: restructure the debt (that is, seek to modify the contractual terms of existing obligations), use monetary policy to raise inflation above expectations, or adopt large and abrupt spending cuts or tax increases.

Then again, as the past 8 years have shown, only debt cures more debt, so expect nothing to change.

Also, we find it just a little confusing why the CBO never warned of an imminent “fiscal crisis” over the past 8 years when total US debt doubled, increasing by $10 trillion under the previous administration.

http://www.zerohedge.com/news/2017-03-30/cbo-warns-coming-fiscal-crisis-result-exponential-us-debt-growth

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Get ready for America’s new $29 trillion debt, by Simon Black

Posted on July 30, 2016 | 1 comment

The ideas that debt must someday be repaid, and that it can’t keep growing faster than the underlying income that will service it, are quaint notions that have no relevance it this day of brilliant central bankers and economic planners. From Simon Black at sovereignman.com:

According to Jacques Necker, everything was just fine.

The year was 1781, and Necker, France’s finance minister, had just published a report called Compte Rendu au Roi, an accounting of French public finances.

Necker’s report showed that, despite extraordinary public services and military spending, France had a net credit position of +10 million livres.

In other words, the country was in perfect fiscal health.

It turns out that Necker had cooked the books.

Rather than being 10 million on the positive side, France had racked up 520 million livres worth of debt and could no longer afford to pay interest.

France had spent decades accumulating prodigious debts. They built monuments, parks, and splendid cities that still inspire awe today.

They explored the world and expanded their empire. They engaged in almost constant military conquest in far-away lands.

This all came at great cost. But it never seemed to matter.

The French government knew they were the world’s dominant superpower, and they overspent their national income as if it were their divine privilege to do so.

As William Olphus describes in his book Immoderate Greatness: Why Civilizations Fail, the French “tended to see the natural world as cornucopian– that is, as a banquet on which they were free to gorge without limit.”

Nearly all superpowers see the world in this way. ‘We’re #1 therefore we no longer have to be fiscally prudent.’

Sir John Glubb, having seen his own British Empire fade as the world’s superpower throughout the 20th century, wrote The Fate of Empires in 1978.

Glubb argues that great civilizations start with an Age of Pioneers– those who work hard and build wealth.

It then progress rapidly through an Age of Commercial Expansion, Affluence, and Intellect, before decaying in an Age of Decadence in which the entire society feels entitled to a level of wealth that they neither earned nor can longer afford.

Even when faced with obvious fiscal realities, they make no changes.

Only when a crisis erupts does the society demand action. And of course, at that point, it’s too late.

Such was the case of France in the late 1700s– a situation so desperate that the finance minister resorted to all-out lies in order to conceal their true condition.

Most of the West is in this position today– summed up by Jean-Claude Junker’s (former President of the European Council) explanation of the Greek debt crisis in 2011: “When it gets serious, you have to lie.”

Over in the United States, the Congressional Budget Office (CBO) recently published its own projections for America’s grim public finances.

Bear in mind that US debt is already $19+ trillion and climbing. The CBO sees at least another $10 trillion in debt in the coming years, and projects that the US budget deficit will increase every single year.

The evidence is already so clear.

Military retirement spending rose by 8.7% last year. Medicare costs were up 10%. Certain government employee benefit programs rose by 17%.

Overall mandatory outlays rose on average by 6.6%, three times faster than US GDP.

So essentially the US government’s spending growth is far outpacing US economic growth.

It doesn’t take a rocket scientist to see how dangerous this is.

To continue reading: Get ready for America’s new $29 trillion debt

 

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More Frogs Boiling—–Why Trillion Dollar Deficits Are Coming Back Soon, by David Stockman

Posted on May 12, 2016 | Leave a comment

Just what America needs, 13-figure deficits! From David Stockman at davidstockmanscontracorner.com:

Yesterday I noted that the frogs of Wall Street linger in the boiling pot because they are under the delusion that stocks are cheap based on the sell-side hockey sticks that always show $135 per share of S&P earnings and a 15X multiple in the next year ahead. Besides that, should anything go awry with the economy, Washington purportedly stands ready to bail-out the stock market with a new round of fiscal stimulus after the election.

The latter delusion brings to mind what might be called the “CBO hockey stick”, which is a fiscal fantasy so unhinged from reality as to make the Wall Street stock analysts look like models of sobriety by comparison. To wit, CBO’s latest 10-year budget projection assumes that the US economy will hit full employment next year, and remain there with nary a bump or recession in sight through September 2026, at least.

Well, now. Don’t bother to say Rosy Scenario move over because the arithmetic of CBO’s fantasy speaks for itself. That is, it is advising Washington to relax——we are heading for 207 straight months without a recession. And not in the next world, but this.

Since that’s roughly double the longest expansion on record its worthwhile to recall what’s changed since that one-of-a-kind expansion started in March 1991. For starters, the China export tsunami had not even commenced. Nor had the US economy been hollowed out by the massive off-shoring of breadwinner jobs that has resulted from the Fed’s bubble finance policies of the last two decades.

Thus, what had been nearly 25 million goods-producing jobs at the start of the 119 month-long 1990s expansion has been reduced to only 19.5 million today.

Even when you throw in the ostensible growing number of full-time, full-pay jobs in the white collar professions and service industries, the story is similar. There has been no growth of breadwinner jobs since the 1990’s expansion ended in the dotcom bust at the turn of the century.

Likewise, the Fed’s balance sheet was only 8% of its current $4.5 trillion girth, meaning a lot of dry powder remained. And among many other more favorable things, the Federal debt was 40% of GDP, not 100%, and total credit outstanding in the US was $15 trillion or 180% of GDP, not $63 trillion and 350%.

But here’s the thing. Even under CBOs fairy tale assumptions, it projects that by 2026 the deficit will be back up to $1.3 trillion and 5% of GDP under current policy. And the cumulative addition to the public debt over the next 10-years will be $9.3 trillion, bringing the gross Federal debt to nearly $28 trillion.

Yes, that’s where we would be after 207 months without a recession and full-employment as far as the eye can see. Its also why there are a lot more frogs in the boiling water than just some sell-side stock peddlers on Wall Street.

To continue reading: More Frogs Boiling—–Why Trillion Dollar Deficits Are Coming Back Soon

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These 2 Charts Show The Next Recession Will Blow Out The US Budget, by Tyler Durden

Posted on April 10, 2016 | 1 comment

From John Mauldin at mauldineconomics.com:

The weakest recovery in modern history has stretched on for 69 months.
By 2017, it will be the third-longest recovery without a recession since the Great Depression. By 2018, it will be the second longest.

Only during the halcyon economic days of the 1960s have we seen a longer recovery; but that record, too, will be eclipsed sometime in 2019—if we don’t see a recession first.

And note that we were growing at well over 3% in the 1960s, not the anemic 2% we have averaged during this recovery and certainly not the positively puny 1.5% we have endured lately.

Global growth is slowing down.

Given the limited number of arrows left in the Federal Reserve’s monetary policy quiver, the US is going to have a difficult time dealing with the fallout from a recession.

Even worse, a number of factors are coming together that will require serious crisis management.

The US’ fiscal reality

Next year, the US national debt will top $20 trillion. The deficit is running close to $500 billion, and the Congressional Budget Office projects that figure to rise.

Add another $3 trillion or so in state and local debt. As you may imagine, the interest on that debt is beginning to add up, even at the extraordinarily low rates we have today.

Sometime in 2019, entitlement spending, defense, and interest will consume all the tax revenues collected by the US government. That means all spending for everything else will have to be borrowed.

The CBO projects the deficit will rise to over $1 trillion by 2023. By that point, entitlement spending and net interest will be consuming almost all tax revenues, and we will be borrowing to pay for our defense.

Let’s look at the following chart, which comes from CBO data:

By 2019, the deficit is projected to be $738 billion. There are only three ways to reduce that deficit: cut spending, raise taxes, or authorize the Federal Reserve to monetize the debt.

At the numbers we are now talking about, getting rid of fraud and wasted government expenditures is a rounding error. Let’s say you could find $100 billion here or there. You are still a long, long way from a balanced budget.

But implicit in the CBO projections is the assumption that we will not have a recession in the next 10 years. Plus, the CBO assumes growth above what we’ve seen in the last year or so.

What a budget might look like if we have a recession

I asked my associate Patrick Watson to go back and look at the last recession and determine the level of revenue lost, and then to assume the same percentage revenue loss for the next recession.

We randomly decided that we would hypothesize our next recession to occur in 2018. Whether it happens in 2017 or 2019, the relative numbers are the same.
Here’s a chart of what a recession in 2018 would do.

Entitlement spending and interest would greatly exceed revenue.

The deficit would balloon to $1.3 trillion. And if the recovery occurs along the lines of our last (ongoing) recovery, we will not see deficits below $1 trillion over the following 10 years—unless we reduce spending or raise revenues.

The situation is merely hopeless, but not critical. Next week, I’m going to outline some of the policies that I think have the potential to save the US budget.

I can guarantee you that some of my proposals will annoy almost everyone, but that is the nature of a compromise—nobody gets everything they want.

http://www.mauldineconomics.com/editorial/these-2-charts-show-the-next-recession-will-blow-out-the-us-budget

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