Tag Archives: Federal deficits

As the Madness Turns, by MN Gordon

Government debt is growing much faster than the economy, which can only lead to disaster. From MN Gordon at economicprism.com:

The first quarter of 2019 is over and done.  But before we say good riddance.  Some reflection is in order.  To this we offer two discrete metrics.  Gross domestic product and government debt.

GDP for the quarter, as estimated by the March 29 update to the New York Fed’s GDP Nowcast, grew at an annualized rate of 1.3 percent.  For perspective, annualized GDP growth of 1.3 percent is akin to getting a 1.3 percent annual raise.  Ask any working stiff, and they’ll tell you…a 1.3 percent raise is effectively nothing.

By comparison, the U.S. budget deficit for fiscal year 2019 is estimated to hit roughly $1.1 trillion.  This amounts to an approximate 5 percent increase of the current $22.2 trillionnational debt.  In other words, government debt is increasing about 3.85 times faster than nominal GDP, which is about $21 trillion.

These two metrics offer a rough perspective on the state of the economy.  Deficit spending is grossly outpacing economic growth.  Heavy treatments of fiscal stimulus are being applied.  Yet the economy’s practically running in place.  In short, the state of the economy is not well.

And as the economy slows and then slips into reverse later this year, and as Washington then applies more fiscal stimulus, these two metrics will move even further towards madness.  What’s more, the Fed is gearing up to promote this greater state of madness in any and every way possible…

Continue reading

Advertisements

US Gross National Debt Jumps by $1.27 Trillion in Fiscal 2018, Hits $21.5 Trillion, by Wolf Richter

Donald Trump may be making America many things, but less indebted is not one of them. From Wolf Richter at wolfstreet.com:

But wait — these are the Boom Times!

The US gross national debt jumped by $84 billion on September 28, the last business day of fiscal year 2018, the Treasury Department reported Monday afternoon. During the entire fiscal year 2018, the gross national debt ballooned by $1.271 trillion to a breath-taking height of $21.52 trillion.

Just six months ago, on March 16, it had pierced the $21-trillion mark. At the end of September 2017, it was still $20.2 trillion. The flat spots in the chart below, followed by the vertical spikes, are the results of the debt-ceiling grandstanding in Congress:

These trillions are whizzing by so fast they’re hard to see. What was that, we asked? Where did that go?

Continue reading

How America’s Wars Have Created Piles of Debt (And Little Strategic Benefit), by Jacob Heilbrunn

The welfare state by itself could probably put America into bankruptcy, but the warfare state has done its share. From Jacob Heilbrunn at nationalinterest.org:

America risks the return of the very fiscal and foreign policy perils that Walter Lippmann warned about almost a century ago.

When Defense Secretary James N. Mattis spoke at the 2018 Center for the National Interest Distinguished Service Award dinner in late July, he outlined a foreign policy strategy for the United States that focused on the resurgence of great-power competition. Mattis also warned that the United States could endanger itself from within. Specifically, he stated that the growing national debt amounts to a form of “inter-generational theft” that Congress must address.

The solvency of the United States and the balance between commitments and power has been an abiding theme of foreign policy realists. In his book, U.S. Foreign Policy: Shield of the Republic , the dean of American realist thinkers, Walter Lippmann, observed in 1943:

No one would seriously suppose that he had a fiscal policy if he did not consider together expenditure and revenue, outgo and income, liabilities and assets. But in foreign relations we have habitually in our minds divorced the discussion of our war aims, our peace aims, our ideals, our interests, our commitments, from the discussion of our armaments, our strategic position, our potential allies and our probable enemies. No policy could emerge from such a discussion. For what settles practical controversy is the knowledge that ends and means have to be balanced: an agreement has eventually to be reached when men admit that they must pay for what they want and that they must want only what they are willing to pay for.

In 1987, Samuel Huntington wrote an essay in Foreign Affairs called “Coping With the Lippmann Gap.” He reiterated that America was incurring commitments abroad that it was not willing to pay for at home. Such warnings have gone largely unheeded.

To continue reading: How America’s Wars Have Created Piles of Debt (And Little Strategic Benefit)

Federal Deficits Are Worse than You Think, by Mark Brandly

Here’s a surprise. The federal government and its media henchpeople tend to put the deficit in its absolute best light. From Mark Brandly at mises.org:

Voters tend to be rationally ignorant. Since a single vote does not matter, for most potential voters the cost of being politically well-informed is greater than the benefit of being knowledgeable about political affairs. Therefore it’s rational for most voters to be ignorant regarding political issues.

A main reason for the high cost of being well-informed is that government officials may not want the public to be well-informed. They purposefully conceal their schemes to reduce the opposition to their policies. A well-informed body politic would be a threat to the welfare and warfare state.

This obscurantism is on full display regarding the government budget.

Let’s start with the annual deficit. You may have noticed that the stated annual deficit is less than the increase in government debt. In order to explain this, consider a small scale example. Assume that you were $20,000 in debt at the beginning of 2017 and you earned $3,000 and spent $4,000 during the year. You borrowed $1,000 to cover this spending so your total debt increased to $21,000. A sensible reading of this situation would be that you had a $1,000 deficit in 2017 (multiply these numbers by a billion dollars to roughly approximate what is generally asserted to be the federal budget).

However, if you followed the federal government’s method, you would claim a deficit of, say, $600. According to the feds, the official deficit is less than the increase in total debt. How do they do this? Well, some of the borrowed money is simply not included in the deficit. For example, in fiscal year 2016, they claimed a deficit of $587 billion even though the total debt increased $1,422 billion and the debt held by the public (the total debt less the intragovernmental debt) increased $1,049 billion. They hide some of the deficit by simply declaring that some of the increased debt is not part of the deficit.

But this deception is of little consequence compared to the government’s claims about their spending habits.

According to the “Economic Report of the President,” government spending (outlays) over the twenty year period from Fiscal Year 1998 to FY 2017 more than doubled from $1,652.5 billion to $3,981.6 billion. In real terms, using the implicit price deflator as our measure of inflation, this was a 67% increase in spending.

To continue reading: Federal Deficits Are Worse than You Think