Deficit spending hits all time highs - and interest spending with it
Buried in this little gem is the fact that spending on the debt is now the fourth largest single line item on the budget - only slightly behind defense spending. This should terrify anyone who believes in basic economics and it should shame every Republican (including the President) who signed it.
This is a literally ticking time-bomb. It's just ticking up - not down so the actual explosion part is a little harder to react to.
This is a literally ticking time-bomb. It's just ticking up - not down so the actual explosion part is a little harder to react to.
I pay about $800/month toward social security. I'll never get any of it back after d-day. There's a personal example. Why not charge me $1500/month? If we're going to be farcical let's really get with it...$2000/month? F' it.
We've all read Atlas Shrugged. When we're sitting in the mountains watching the distant sky darken with smoke this probably will have been the fuse...
My theory and experience is what makes it difficult for me to understand one of my sons that is on the fence as to turning left or right (and he's just over 50). Even that is a decision he’ll have to make for himself, I can only make suggestions on occasion. The evidence is right in front of his face, I just hope he can see it and exercise what he sees. Wife and I decided to work really hard on spending our money now so the majority of it goes away right around the time we go away. We do this, and tell the kids, so as not to ruin any of our children by allowing them to sit back and depend on their inheritances. And as far as the grandkids, they will only learn and earn from what their parents try to teach them They're kind of brats anyway.
Wife and I do help with a little support of a grandniece that at the age of 16 lost her mother to alcohol, and is now just completing her senior year at the University of Washington to become a forensic scientist. We’re already looking forward to graduate school, as her drive and effort have kept her on the dean’s list, and she’s pushing for magna cum laude. Sorry, but I had to brag a little, she is such a beautiful young lady, and having to put up with all those liberal leftists at the U of W, she's still got her head on straight. Beside she may have to do our autopsies someday.
The 2020s Will Be the Decade of Deficit Doomsday: https://reason.com/2020/01/10/in-the-...
This is a looming problem that we won't address until it becomes a mini-crisis. People on this site were saying it would become a major crisis back when the deficit was 450B. Now it's almost 1T, so assuming it wasn't just politics, I can only imagine how dire they see it now.
It's easy to fix, but almost impossible to find the political will to fix it before a mini-crisis occurs. I was happy it was an issue in last night's debate, but I take it with a grain of salt b/c whichever party is out of power has an incentive to focus on the deficit because it's undermines the spending agenda of the party in power. Maybe we need a solid Democratic president and a solid Republican majority in Congress who wants to undermine the president's agenda, like in the 90s when they balanced the budget.
Neither party has a goal of fiscal responsibility and they haven't had such a goal since 1913.
The only things that are likely to fix the deficit now are default or armed rebellion. Neither is easy.
https://www.galtsgulchonline.com/post...
"Neither party has a goal of fiscal responsibility"
Which is why probably no one will address the problem until it becomes a mini-crisis.
"The only things that are likely to fix the deficit now are default or armed rebellion. "
Armed rebellion absolutely will not work. The borrowing and spending are not something carried out by rulers over the objections of the people. If you look at the finances of many average citizens, you find the same debt to income ratios. The political process is accurately realizing the will of the people. If you ask the average citizen if the gov't should do something about various problems, e.g. the economic cycle, prescription drug prices, the war in Syria, college tuition, etc; many people say yes. If they had to take detailed non-partisan classes on the philosophy behind the American Revolution and on macro-economic theory, they might have a different view. Ewv got me thinking this way. Without that foundation in philosophy, it's hard for a piece of paper to force people to limit government.
We have been on this path since 1914 Jekyl Island
The Rothschild banking Cabal have been bleeding our country ever since. The kiss of the $’s death came from the murder of JFK 1965 coins were not silver any longer. Nixon/Halderman/Bush took us off of the gold standard. During this whole period the banking industry consolidated and abandoned sound banking principals. Now one big bank can take down the whole system.
Government borrowing drives up the debt, not government spending.
The solution to our debt problem is simple: Stop issuing debt-based money. Begin issuing pure “unbacked” fiat money to fund the deficit, rather than going further into debt. The inflationary impact of unbacked dollars is no worse than the inflationary impact of the same amount of debt-backed dollars. Issuing unbacked dollars will halt the increase in the national debt and its crushing $600+ billion in annual interest. Paying off part of the maturing debt each year and rolling over the rest will eventually bring the national debt (and its taxpayer-financed interest payments) down to zero.
While one can argue that the two are technically separate, the argument they are unrelated falls rather flat. When one implements deficit spending, they incur borrowing to pay for it. It's a cause-effect pairing that's basic to accounting: credits and debits. (Please note that I'm not saying the government isn't engaging in "creative" accounting with the Federal Reserve.)
While I agree that a fiat-based monetary system would be a step in the right direction - a huge one - I'm struggling to follow your scenario. I'm not sure I understand what you mean by "unbacked" money. Money has value because it represents something - it has some "backing." One can't pay off debts with money which doesn't represent real value (unless you're the Federal government who cheats). I'd appreciate a more thorough explanation.
#1 While admittedly their solution is hypothetical, they choose to downplay the possibility of hyperinflation but offer no true disassociation between the circumstances.
#2 They argue not that their solution is immune to the same problems, only that since the current ones are going to kill us that this can't be worse. False dichotomy.
#3 Honestly I pretty much stopped reading after I saw yet another dodge here. They make the same cardinal mistake of attempting to divorce deficit spending from the resulting debt. You can't spend money you don't have. https://vimeo.com/199334296
I work with accounting systems all day long and for every credit to one account there is a debit to another. I can't see what account they are trying to debit in order to generate the credit necessary to offset the "debt" account. This proposal is very nice in its goals and objectives, but the very source of the "money" itself doesn't pass the smell test.
Please correct me if I'm reading this wrong. Its a nice idea. I just can't get the accounting to work and to me that's pretty important.
I don't think debit/credit accounting necessarily applies to the creation of new money, regardless of whether that money is backed by gold or thin air.
This "paper" does not satisfy my concerns. It dismisses or avoids valid criticisms and I'm not willing to give it any more of my time.
(I would also add that if the author(s) wants to be taken seriously, using wordpress to host the site doesn't contribute much.)
"If unbacked fiat money has no 'real value', then fiat money backed by a bond redeemable only in that same fiat money can have no 'real value' either. How can a promise to pay in a currency that has no 'real value' realistically serve as backing for the currency itself?
Although inferior to a gold-based currency, fiat money does in fact have real value. The U.S. dollar’s value derives from the fact that it is the official medium of exchange and unit of account within a large, productive and reasonably stable economy. It does not derive from the fact that $20 trillion in U.S. government IOU’s are 'backing' the nation’s currency."
I'm not arguing with you, CBJ. (Nor do I have the time for an extended harangue over semantics. ;^)
I think the banking cartel has arranged this situation with government (politician looters) and Wall St looters as accomplices to steal from everyone else, both foreign and domestic. The income tax was created (unconstitutionally) at the same time as the Federal central bank by design - to enslave all producers as security for the federal debt. The banking cartel does create debt from nothing and profit greatly from doing so. It should be stopped, but I don't see that happening unless the people rise in armed revolution.
https://www.treasurydirect.gov/govt/r...
There are two problems with this statement - one in the supposition and one in the conclusion.
Suppositional problem: Fiat money has a backing - it's just an ephemeral one: the good will of the people and belief in the currency itself. The problem is that a fiat currency faces intrinsic and catastrophic problems if that belief is challenged such as by a run on the banks, etc. A commodity-based currency still has a non-ephemeral backing (based on scarcity) which may be reverted to if the government destroys the faith in the currency itself.
Conclusionary problem: issuing more fiat-based debt has only ever had one consequence: inflation. Why? Because it undermines the good will in the fiat money in the first place by diminishing its rarity. We've actually been doing this for the past 50 years in order to undermine the value of our own debt. The Fed has been "managing" this ongoing inflation in concert with Congress in order to promote the reckless spending of our government - and because it makes those in charge of the Fed rich.
The only thing I can see in this paper is another method of exacerbating our existing problem through monetary manipulation. The only way out of this problem is to STOP spending more money than we bring in. Fancy accounting is going to end up for our nation just like it ended up for Enron. No thanks.
This is not to say fiat is superior to gold – it isn’t. But being overly dismissive of fiat is as unrealistic as being overly dismissive of gold, as most “mainstream” economists are.
All I’m claiming is that “unbacked” fiat is superior to “debt-backed” fiat. The “fiat-based debt” that you object to disappears if we quit issuing bonds to “back” our fiat currency. There will still be inflation if the government “prints” too much money, but taxpayers will no longer be on the hook for ever-rising interest payments on an unsustainable national debt.
Yes, we've never had a run on the banks while on a fiat standard so any speculation about what would happen is precisely that. The significant difference is that with a backed currency, a standard still exists for establishing market values - you're just shifting the market currency. With a fiat-based currency, you're destroying the market entirely.
"But being overly dismissive of fiat is as unrealistic as being overly dismissive of gold, as most “mainstream” economists are."
Not sure where that came from. I'm dismissive of there being any significant difference between "debt-backed" and "non-backed" fiat currencies - especially since as freedom points out, the debt is invented from thin air as well by the Federal Reserve.
"All I’m claiming is that “unbacked” fiat is superior to “debt-backed” fiat."
I know that's what you are claiming and you've linked to a paper you think proposes a stable mechanism for magically wiping away our debt. To me, its just more smoke and mirrors. There's only one way one gets out of debt - whether that be an individual or a nation - you pay it off by cutting spending back under your income.
Re: “A run on the banks happens when people are concerned about being able to recover their value from those in whom it is placed in trust. It is as much about the money itself as it is whomever is managing it.” Can you back up this assertion with evidence? Every major bank run I can think of was due to people scrambling to get their money out of banks before the banks’ cash was depleted. The runs were never about the value of the cash itself.
Multiple ways which destroy their respective economies, yes. The method you are proposing does nothing to alleviate this. The authors acknowledge it in the criticisms section and yet avoid answering the question or differentiating themselves from the previous examples.
"The runs were never about the value of the cash itself."
And that's why you think this method can work: you don't equate money with value.
Re: “The method you are proposing does nothing to alleviate this.” It does a whole lot to alleviate this, by halting the rise in the national debt and by gradually freeing taxpayers from the national debt’s crippling interest payments.
And you didn’t answer my question from your previous post.
Of course I'd also repeal the 16th Amendment and declare unConstitutional all federal welfare benefits and shut those programs down as per the Ninth and Tenth Amendments.
Not sure if you saw this, but it illustrates my point: https://www.judicialwatch.org/corrupt...
My limited understanding of Keynesian economic theory is that a government spends money it doesn't have to prime the economic pump, but then
recover it through taxation--unfortunately they don't follow through with the recovery.
This sounds like "selling short" in the stock market except in the market one MUST cover the short one way or another. Am I correct?
https://www.galtsgulchonline.com/post...
How does that effect the economy? People lose jobs, spend less, and more people lose jobs. All cause lower tax collection, lower demand for services and goods, and higher unemployment payments.
Result: less govt revenues and more spending = higher deficits.
Government doesn't drive a booming economy but the cuts in spending have a direct and indirect effect on private business.
Would it result in a balanced budget eventually? Possibly, but that depends on what is cut and how long hungry people are willing to wait for results. (Especially with 200 million people who have been "educated" to feel they should never have any discomfort or have to sacrifice anything.) Cuts must be in areas that are non-productive, even counter-productive. The biggest non-productive or counter-productive things are social security, medicare/medicaid (the fastest growing item causing deficits), and the IRS (which causes trillions in wasted counter-productive efforts.) None of these will be cut by any congress or POTUS. Military spending is the the next largest non-productive item and it won't be cut very much or for very long either.
The banking cartel has a vested interest in deficits continuing, too, and their political pull is unsurpassed.
In Hazlitt's day the effects of government spending were much, much lower than today. In the short run the economy would be crippled and the political fallout would be that cuts would not last long enough for long term improvement.
I can't see how anything short of default, collapse, or armed rebellion is likely.
( I don't disagree that cuts must happen, but I think it requires sacrifices and too few are willing to make sacrifices for it to happen in any controlled fashion.)
Second, the Heritage Foundation every year puts out a report on the wasteful activities of government and duplicated programs. https://www.heritage.org/debt/comment.... The initial price tag is $262 BILLION per year. That's money coming out of the pockets of taxpayers which is going to serve no useful purpose whatsoever. This is money which can be saved even before we have a moral debate about what else needs to be done. That's just eliminating duplicate programs. Those aren't even reformative changes like what is necessary for Social Security, Medicare, or Medicaid (all of which I would transition to private accounts).
You asked where I'd cut. That would be for starters.
"People lose jobs, spend less, and more people lose jobs."
You insist that the scenario MUST be that we cut spending without laying off government workers. It's a false choice. It's a completely unworkable and quite frankly idiotic demand. We MUST shrink the size of the Federal workforce and focus on activities which are actually necessary and Constitutional - rather than watching porn or using one's office as a political weapon against one's adversaries. That will necessarily mean "forcibly transitioning" people to the civilian workforce. But to argue that we can cut government spending without shrinking the Federal workforce is disingenuous.
Government has been growing out of control for decades. What we have right now is a government like the front yard of my house when I first bought it. The weeds were literally up to my thigh, and I'm 6'4" tall. It took me almost 16 hours (actual time over three days) to mow the lawn the first time, and I put nearly 40 30-gallon bags of weeds out for collection. (They weren't very happy and made me put out a few every week.) I then had spray the whole thing down with weed killer then overseed to get it to grow back in where I had pulled the large weeds. It took two years to get things under control but now - with a little maintenance - it looks great. The same principle must be taken to the Federal government. And it will very likely take a couple of years to accomplish.
I've answered your question with specifics. Time to answer mine. Please back up your arguments that cutting government spending is going to cause the domino effect you propose - especially in the current market where unemployment is at a 60-year low and businesses are begging for workers. Cite specifics and provide links. (What you're arguing is Keynesian economic policy, which Hazlitt debunks specifically under the heading: the Broken Window Fallacy.)
The second question I would ask is quite simply: what is the alternative? Wait and have everyone - all ~360 million of us - floating in the porcelain spiral of doom? There is no real-life Gulch one can hide in and avoid this. If we don't fix this mess, we'll all suffer when it breaks. We're in the Roaring Twenties again. I fully expect the whole thing to come crashing down, only it will be far worse this time than a century ago.
"It's easy - you don't allow Congress to spend as much as they want."
I simply want you to explain what an how you EASILY cut government spending, what you cut and what the result is.
How will you FORCE con-gress to cut spending? They will not do it voluntarily.
You have provided a link for proposed spending cuts. None of the cuts consider the effect on the economy in the short term or the political difficulty in actually making the cuts.
I asked you for specifics because you said it was easy. Nothing about it is easy. The economy in the short term will be devastated if you balance the budget without someone making sacrifices. Who will do that voluntarily? Much of the "savings" will reduce private sector revenues and productive people will lose jobs in the short term. That is much more likely than government workers being let go (average pay of about $80,000/yr.)
(In the past, analyses pointed out that credit would be easier without competition from government deficit funding. I can't see how this is valid now. I don't think banks will make credit more available to small businesses that really need it (and cutting the profits of banking looters- not a chance), and credit for big business is easier now than ever before-unless I completely misunderstand the analytic reasoning. )
Bottom line is you and I both know it isn't easy. If it was easy it would have been done rationally in the late 80's when the Cold War ended and there was a real opportunity to cut defense costs and the deficit was much smaller.
There is no call for you to insult me. Yes, calling me a Keynesian is an insult.
I know you have read my posts in the past. Nothing I have ever posted indicates approval of Keynesian policies. However, I do recognize economic and political reality.
We have a population that has been "educated" to never expect any need to sacrifice regardless of economic reality. Millions of adults won't even give up their right to buy a new $1000 iphone every year.
Young people don't even consider whether taking out $200,000 in loans for a college education is financially wise or not. We have a nation of fools with little ability to think rationally or to analyze whether the evening news is true or not.
I agree that something should be done. It should have been done 30 years ago when the effect would have been easier to do politically and the economy was stronger with much less private debt service (and 50 million fewer immigrants.) I think it's too late and there is no way out short of default, collapse, and/or armed revolt.
Yes, it will be much worse this time because people are much more dependent. They can't fathom not having the internet for an hour. I can imagine their shock when there isn't enough to eat. It will be much much much worse.
Buy ammunition. Buy seeds. Learn to grow food. Buy vitamin supplements in bulk. Drill a deep well for water. Get a generator and a large below ground fuel tank. Buy books for reference when the internet is not working or power fails. Get out of the city. Keep all your purchases private- pay cash whenever possible. The NSA is listening and they are not benign.
"I asked you for specifics because you said it was easy. Nothing about it is easy."
If replacing my use of "easy" with "simple" clarifies, I offer such an amendment (nods to Lucky). You are welcome to disagree with that assessment. But the original question was posed to me. If you want to ask if I think Congress has the will to implement my opinion, I would be happy to answer that question (No) but that is not the question you asked.
"The economy in the short term will be devastated if you balance the budget without someone making sacrifices."
You're welcome to speculate, but such a hypothetical is going to remain unpersuasive to me until you can be specific ("devastated" is an ambiguous term) and provide sources. It's also going to be a tough sell given that we already agree that the alternative is without any doubt worse.
For a contrary example to your scenario, I would point out that Estonia, Latvia, and Lithuania had to go through a similarly radical restructuring when they obtained their freedom from the USSR. Those respective nations had to undergo significant austerity efforts and reformation in order to put their house in order and provide for a stable future. Were those times of austerity uncomfortable for them? Undoubtedly. But the end results speak for themselves. I recognize that it is not a precise parallel, but I consider it germane in the critical aspects: representative government facing an economic crisis due to a bloated bureaucracy which recognizes a need for reform and adoption of free-market principles.
"There is no call for you to insult me. Yes, calling me a Keynesian is an insult."
Please re-read my comments. I said you were arguing Keynesian economic policies, I did not call you a Keynesian. (I agree that being called a Keynesian should be viewed as repugnant to the thinking person.) But if you argue that we can not cut federal spending because it would disrupt the economy, you are arguing that government is the key to a sound economy. I pointed to Hazlitt's explanation of the broken window fallacy as a rebuttal. You can either get angry or you can address the fundamental flaw in your proposition.
Will there be some disruption if a government agency is shut down/defunded? Sure. I never implied otherwise. I simply didn't take it to the extreme you did.
You asserted a hypothetical with no possible alternative outcome than doomsday - a straw man argument. I specifically used my analogy of the lawn to indicate that it would take time, effort, and planning to accomplish (and a recovery period) the necessary revitalization. If you would prefer, I could switch to a medical analogy of a patient with a malignant tumor.
I think our primary disagreement is on the extent of the discomfort such changes would initiate - matters of opinion rather than of substance as we are dealing with a hypothetical in the first place. But I note with finality that we agree in an eventuality of economic crisis if no other action is taken.
Easy- not difficult to do, beginners can learn it quickly, not much if any training needed.
I agree that politically it's difficult to find a solution, but mathematically it's very simple. It's just like how it would be mathematically simple for me to exercise just a few calories more than I take in.
Modest spending cuts, tax increases and spending growth cuts would solve it. Or we could just freeze all spending increases. As GDP grows, tax receipts grow, and the deficit shrinks. We should be doing some modest combination of these right now while the economy is strong.
The biggest problem is spending - as is pointed out in the article. And "modest" cuts aren't going to do it. We have to get a budget that is at very minimum ZERO deficit. That means cutting spending by at least a third and more likely half. And what makes this incredibly difficult is that most of the budget is so-called non-discretionary funding (all the welfare programs) which require new laws to phase out those programs.
Tax increases only serve to stifle the economy - and tax revenues. We've seen it every single time its been done. From Carter to Bush to Clinton to Obama. All of them raised taxes and we saw the economy stumble (or stagger along) as a result. Only Reagan and Trump have had the good sense to cut taxes. (And when I point to the Presidents, it is because they have worked with the House to pass those tax bills - for good or for evil.)
Freezing spending increases would work, but only AFTER establishing a zero deficit budget in the first place. Freezing spending when you have a $1.4 TRILLION deficit isn't really going to get us anywhere before we're bankrupt.
"We should be doing some modest combination of these right now while the economy is strong."
Yes, but I'm skeptical. The Republicans controlled the House, the Senate, and the White House in 2017 and 2018 and didn't get it done. You can be sure it isn't going to pass a Democratic House or a Democratic White House. Not one Democratically-controlled House has passed anything resembling spending reform - ever.
Therefore, the government will never cut its own spending.
I wholeheartedly agree. It's like how I would be healthier if I just decided to take in a balanced diet of reasonable portions, went easy on the bad habits, and exercised equal to what I ate, and then LIVED BY IT. It would simple. I am actually trying to do that. We the people should do the same in personal finance and gov't spending.
Exactly. That is why I was asking the question b/c it is political to balance the budget.
Cutting spending? God Almighty! The Dems will never do it and the GOP is frozen in fear how it is going to affect their re-elections chances if they go for it.
You and I want that, but we don't have to have it. A rate of growth equal to the growth rate of GDP is sustainable (not desirable).
"Tax increases only serve to stifle the economy"
I do not want tax increases, but I don't agree that tax increases stifle the economy significantly. Suppose taxes are 30% of GDP. If we increase them to 35%, GDP growth may go down a little, but not that much. Revenues (discounting the first year where people use accounting tricks to move money into the low-tax year) will increase nearly (35-30)/30= 16%. This is not a reason to accept tax increases. The higher ratio of gov't spending to total GDP lowers the structural (i.e. long-term, not cyclical) growth rate. Over time that has a huge impact.
"Freezing spending when you have a $1.4 TRILLION deficit isn't really going to get us anywhere before we're bankrupt."
Yes. I think the numbers work out that you must decrease spending or increase taxes.
"Yes, but I'm skeptical. The Republicans controlled the House, the Senate, and the White House in 2017 and 2018 and didn't get it done. You can be sure it isn't going to pass a Democratic House or a Democratic White House. "
I too am skeptical they will take action. I think the Republicans are the party of large, intrusive, debt-financed government. They took over government and increased spending and more than doubled the deficit. I have no expectation of them getting us back to Obama-era deficits in the $400B range. I have very low expectations of current Democrats, many of whom are openly socialists and supported by people who say deficits don't matter, of getting back to Obama-era deficits. And as you say, we have to get to near zero, not $400B, to avoid a crisis. So I agree with you that politicians will not act until a crisis is happening.
What you are talking about is an expansion of government to correspond with an expansion of the economy. An expanding deficit has been our problem for nearly a century now. The presence of a deficit indicates an unwillingness to pay for things as we go. Just because an economy is expanding doesn't give us license to expand our spending even beyond what we're doing now.
"I do not want tax increases, but I don't agree that tax increases stifle the economy significantly."
The data don't support your argument. The facts are that tax increases always bring in less money than their burden. The people who advocate for tax increases forget that taxes are a broken window fallacy - you are simply diverting money way from what people would prefer to put their money into and into something that is a proverbial sinkhole with no profit. On the other hand, tax cuts can stimulate the economy and can drive higher total tax receipts simply due to higher transaction volume.
If you want examples, one can look at the massive tax increases in the 1970's vs the tax cuts under Reagan. One can also look at the tax hikes and regulation spikes under Bush/Obama vs the tax cuts under Trump. (It should also be noted here that the true culprits of tax policy are the House of Representatives. Reagan was an anomaly due to his landslide victory.)
Exactly. It’s sustainable, but not desirable.
“On the other hand, tax cuts can stimulate the economy and can drive higher total tax receipts simply due to higher transaction volume.”
This is analogous to a company changing its bonus incentive for shipping product at the end of the month. If you examine the two months, you may find twice the number of units shipped the month with the higher incentive. Some of that is because the bonus gave people an incentive to work harder. But some of it is building up inventory that all ships after the increase. Or if it’s a decrease, people racing to ship before the decrease. The person arguing that incentives increase production may be correct, but you can’t just look at the period around when the incentive suddenly increased.
This analogy is different from taxes because a bonus is compensation for work while taxes are taking money people earned. It’s also different in that higher taxes means higher gov’t spending, which can mean lower long-term growth. The difference is slight but adds up over time.
All of this means we have good reason to keep taxes as low as possible. But raising/lowering taxes raise/lower revenue, so the idea that new taxes don’t generate more revenue or cutting taxes doesn’t lower revenue is NOT one of those good reasons.