Same president, same soaring deficits, same market worries?
 

Interesting commentary in The Economist...

Could we really be heading for a $6 trillion deficit?

http://www.economist.com/agenda/displaystory.cfm?story_id=3351231

We will all die in debt, that's for sure.

As a percentage of the US Economy and population I am not worried.

The amount of debt on the State and Local level is staggering, and nobody talks about it..

NYC credit rating is crap, debt service is increasing, and they want to borrow more! Who is compaining??

4.5% annual interest on a $6 trillion increase in the federal deficit implies $270 billion in annual interest payments. Consider how large that is, relative to the proposed FY05 defense budget of $402 billion! http://www.whitehouse.gov/omb/budget/fy2005/tables.html

Before most of us retire - before our younger children start their working lives - indeed, perhaps even during the term of Bush's unlucky successor - the cost of servicing the federal deficit will be creating an increasingly painful squeeze on the United States' ability to pay for even its most cherished priorities.

Here is an analysis, prepared by the Office of Management and Budget in 2/04, of the deficit situation. http://www.ombwatch.org/budget/pdf/2005_Budget_3.pdf

A few highlights:
- "From 2000 to 2004, federal revenue as a share of GDP has declined by 5.2 percentage points - which is larger than the current deficit"
- "This reduction in federal revenue has created a long-term structural deficit for the federal budget, since spending levels have not changed to the same degree"
- "The current deficit is not a result of a weak economy"
- "we are unlikely to grow our way out of massive deficits in the near term"
- "over the next 10 years the President is proposing $1.1 trillion in revenue reductions - most of which (87%) will occur after the 2005-2009 window included in the budget"
- "current massive deficits are merely difficult times before an even sharper deterioration. As the baby-boom generation reaches retirement age, the deficit will dramatically worsen under current policy"

The Republican party's ideological drive to cut taxes, while lacking the will to actually cut spending, is headed for fiscal disaster. The fact is, that the Presidents after Bush will have to raise taxes on someone (individuals or coporates), or make deep and painful cuts in spending.

I respected Kerry for coming right out and proposing a tax increase on incomes >$200K. Of course, he lost - as has every Presidential candidate who has ever said he'd raise taxes, as far as I can recall. The majority of the American electorate apparently loves living on credit cards, and wants its government to do so too.

It's no secret W is not a fiscal conservative. A lot of "his" spending is going into traditionally Democratic causes, however.

JP

Good thing you've got that amazing stretching capability, Mr Reed, because that was quite a reach to blame one of GWB's ****ups on the Democrats! I guess it's a traditional Democrat thing to spend $XXXB to blow the snot out of a 2rd world country just to 'rebuild' it in our image.

Why not? Reasons?

Federal revenue was appx 16-17% of GDP in FY04. The Federal deficit was appx 4% of GDP in FY04. Does a deficit/revenue ratio of 25% seem healthy or sustainable?

Looking at the federal deficit as a percent of the US economy doesn't give the complete picture, because the deficit isn't serviced/repaid by "the US economy", it is serviced/repaid by federal revenue. And, compared to federal revenue, the federal deficit is simply too large and growing too fast. This is not sustainable. Either federal revenue (tax) has to rise, or federal spending has to fall.

More reading, this time from the Dallas Fed http://www.dallasfed.org/research/indepth/2004/id0403.html
and the Congressional Budget Office
http://www.cbo.gov/showdoc.cfm?index=1944&sequence=0

It's only part of the picture to talk about year-to-year deficits. The Federal debt is in the $7 trillion range, Each $200-400 billion deficit year increases the overall debt and the debt service. As of 2003, interest on the Federal debt was approximately $320 billion a year. 42% of that money is paid to foreign investors...

Add to that a massive and increasing trade deficit -- $549 billion in 2003.

No wonder some have predicted a financial crisis for the US within the next few years.

State and local debt?

The only government that can run a deficit is the federal government. State and local governments must balance their budgets, by any way they can, be it reducing programs, hiking taxes or floating bond issues. Bond issues and borrowings result in moneys being paid in interest that only add to future problems since even less money is available for programs.

ALL kinds of debt, allowed to accumulate without control, is bad. Unfunded mandates to states and locals are bad. And, I really would like to see how a War, pegged at a few hundred billion has morphed into trillions of dollars worth of debt. Where did the rest of that money go? Certainly didn't come to southern Arizona. We still have local police and a pitifully small group of Border Patrol folks shovelling against the tide of people coming across the border.