Government Spending

Counting Down to the Budgepocalypse

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In March, credit-rating agency Moody's warned that America's top-notch credit rating could be at risk. Thanks to the country's increasingly precarious fiscal situation, "their 'distance-to-downgrade' has in all cases substantially diminished."

After the budgepocalypse, all movies will be this bad.

But how close are we to losing our credit edge? IBD reports:

In the wake of the financial crisis and recession, Moody's Investors Service has brought new transparency to its sovereign ratings analysis—so much so that 2018 lights up as the year the U.S. could be in line for a downgrade if Congressional Budget Office projections hold.

The key data point in Moody's view is the size of federal interest payments on the public debt as a percentage of tax revenue. For the U.S., debt service of 18%-20% of federal revenue is the outer limit of AAA-territory, Moody's managing director Pierre Cailleteau confirmed in an e-mail.

Under the Obama budget, interest would top 18% of revenue in 2018 and 20% in 2020, CBO projects.

The Congressional Budget Office has been sounding warning alarms for months now. Just a few weeks ago, CBO director Doug Elmendorf gave a presentation arguing that the country is on a "worrisome" fiscal path and that making changes of the necessary magnitude is an urgent task for policymakers. 

But as Robert Samuelson pointed out yesterday morning, we're edging toward the same welfare-state trap that's killing Greece. Yes, the details of Greece's fiscal calamity mean that their situation is not perfectly analogous to our. But the broad outlines of the problem Samuelson identifies are the same: Entitlements have been woven into the system in such a way that swift cuts risk stunting growth. Yet letting spending continue on its current track is plainly unsustainable, adds to our mountain of debt, and puts the nation's credit rating at further risk.   

And what's President Obama's response? A budget that fails to hit the administration's own deficit targets and a nearly powerless commission that arguably doesn't even address the true long-term problem

I noted the impending budgepocalypse here. Veronique de Rugy examined the president's overly rosy budget assumptions here.

NEXT: A Desire Named Streetcar, Chapter XXVIII

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  1. …and there’s nothing the non-elite can do about it.

  2. Good morning heller. Why, whatever are you doing here?

    If the Infinity ad people would only write in English I would know how I too could be holding a wad of cash with a big smile on my face.

    Who dezombied the hoodie girl? Is a wardrobe change the cure? Someone stole her alt-text.

  3. The ad on the side of the browser is for http://www.pinkheartsnotpinkslips.com. “Schools throughout America are facing devastating cuts. Our children’s future hangs in the balance.” Heads must roll.

  4. Every time Reason uses the word “budgepocalypse” i read it as “budgiepocalypse,” and envision death by swarm of parakeets. What a cute way to go.

    1. Suzanne Pleshette would have disagreed.

  5. Surely you mean “nudgepocalypse.”

  6. The deflation-phobia of our elites is therefore the rational reaction of those who profit from the privileges that our present inflationist regime bestows on them, and who stand to lose more than any other group if this regime is ever reversed in a deflationary coup. Perennial inflation is based on monopoly. Deflation brings in the fresh winds of the free market. True elites would welcome deflation for precisely this reason, because they owe their leadership positions exclusively to the voluntary support of other members of society. They have nothing to fear from deflation ? a shrinking money supply ? because their leadership is grounded on the useful entrepreneurial services they provide to their fellow citizens ? services that would subsist through any changes in the money supply or in the price level.

    But large parts of our present-day elites are “false elites” or “political entrepreneurs.” These men and women owe a more or less great amount of their income and decision-making power to legal privileges that protect them from competition and which enrich them at the expense of all other people. The fortunes of many political entrepreneurs are directly or indirectly attributable to the money monopoly of the Federal Reserve System. It is only because of this monopoly that the Fed could create a near boundless expansion of the money supply. And it is this inflation that in turn has financed a near boundless expansion of the activities of the federal and state governments, and of those who rely essentially on their lobbying effort with the Fed, rather than on the quality of their products, to reach and maintain leadership positions.

    http://mises.org/daily/1254

    Oh, and, Didn’t Buffet just dump a bunch of Moody’s stock a day before they received their Wells notice?

  7. their situation is not perfectly analogous to our.

    the impending budgepocalyps here

    This is a worrisome lexical path.

  8. Western Liberals are living in denial of the repo man. You would have thought that the debate would have been settled in 1989. The failure of communism proved that you cannot plan economies. But it proved more than that. It proved that governments can’t really create wealth. They can create the conditions for wealth by enforcing the rule of law and things like that. But they can’t create wealth. They can’t go into the wealth creation business. If it could nationalized firms like the old British Layland would have made money. Soviet firms would have been the envy of the world rather than so bad that they actually subtracted rather than added value to the raw materials they consumed.

    So these big governments are a luxury of wealthy countries. The countries are wealthy in spite of not because of the big government. But good convincing a liberal of that. They think that since the sun rises when the cock crows, that must be what causes the sun to rise.

    The problem is that big government and government spending is really hard to do in small doses over a long period of time. Since the money comes from someone else, it seems free. Worse still, liberals have convinced themselves that it creates wealth. So they literally think the more you spend the more you get. Sadly that is not true. All of that is coming to and end. The government’s can’t pay for themselves.

    The problem for liberals is not tea parties. It is not even voters. It is that their entire world view is about to be shown to be completely unsustainable. It is going to be really ugly when it happens.

    1. Well put John. And while the article did reference the welfare state it didn’t pacifistically mention the other comparison to Greece which is the growing unionized public-sector (or non-wealth generating sector if you will) and their ballooning salaries, benefits, and pensions. While we’re certainly a ways off from Greece in that respect, things are definitely trending that way. How much government can the rest of us (dwindling wealth producing taxpayers) actually support?

      1. specifically. evidently I didn’t check my spellcheck.

      2. Really the Unions and the welfare state are two sides of the same coin. If you are paying someone more than they are producing the differnce is welfare. Ultimately, both the welfare recipients and the unions are a drag on the system. You can only drag so much. But as I said, once you start spending it is hard to stop.

    2. The balance in America between consumption and production has gotten too far out of whack. A modern economy needs consumers, but true wealth is created by the producers, and we now have too many of the former and not enough of the latter. Production is hard, but it is absolutely vital for a large nation to sustain growth.

    3. It is that their entire world view is about to be shown to be completely unsustainable.

      No, it’s going to be blamed on free-market libertarianism, just as the Great Depression was. And 80 years from now, every school child will know that Bush was a radical laissez-faire enthusiast, just as the schoolchildren of today are taught Hoover was.

      1. No. It is going to be much worse than that. The governments are going to go broke and default. They can blame it on whomever they want. But there won’t be any more money to run the big governments anymore.

      2. Mellon was the only one with any brains in the whole mess. And was of course vilified by the loony left of the time, and the media. But I repeat myself.

    4. The failure of communism proved that you cannot plan economies.

      You mean, like a trillion-dollar-a-year war machine currently losing two land wars in Asia trying to soulcraft two nations out of people who don’t want it?

      I mean, if we’re going to be reflective and all…

      1. If we are losing two wars in Asia and what the Taliban and the insurgency in Iraq are going through is winning a war, then I will take losing thank you very much.

      2. Yes, because their’s only two possibilities, communism or wars. Oh wait…

        1. That’s an old argument.

          Johnny GOT his Gun.

  9. Obama just needs to clunk some heads together at Moody’s to get them to change their sovereign ratings criteria. Problem SOLVED.

    1. He can always have Rep. Waxman subpoena Moody’s CEO for a hearing/show trial.

      There may be problems with that strategy, though. It didn’t work out very well when he tried it with Caterpillar and AT&T.

      1. I said SOLVED.

  10. People still listen to Moody’s?

  11. “Nice rating agency you got there. It’d be a pity if anything happened to it.”

    Et voila! Problem solved.

  12. What is it with these credit rating agencies and their insane grade inflation? As in, “struggling Spumco was downgraded again by Moody’s today to ‘AAAAA+++ Preferred Smileyface Superterrific Awesome’, equivalent to junk bond status.”

    WTF? How about some meaningful government bond grading levels, like

    A: barring the asteroid apocalypse, you’ll get your money back

    B: this government has been a safe risk in the past, but lately is going is going through a midlife crisis buying Corvettes and hair implants government pensions

    C: Uhh, maybe they can get their pal Germany to cosign the loan application

    D: Their printing press hasn’t been repossessed yet

    F: California

    1. Have you no regard for the self-esteem of these poor countries, Iowahawk?

    2. G: Washington DC
      H: EU

      1. G: Washington DC
        H: EU1980’s Soviet Union
        I: EU

        Fixed.

  13. The financial news yesterday was that Moody’s itself is about to be hit by an SEC action for playing fast and loose with its own corporate figures.

    http://www.marketwatch.com/sto…..2010-05-10

    1. And apparently, a man known only as ‘Angry of Omaha’ dumped all his Moody’s stock the previous day. By strange coincidence.

      1. “Angry of Omaha”? Hey, that’s the wheezer who’s appearances on Charlie Rose and other PBS programs convinced me that scrapping the income tax for a steeply progressive tax on ill-gotten gains wealth is a good idea.

  14. The most important mathematical expression at work here: 2018 > 2017.

    It’s all about who’s standing when the music stops.

    1. Assuming you’re talking about musical chairs, everybody’s standing when the music stops.

  15. I ain’t askeered!

    With all them smart fellers from Harverd Law Scool runnin’ thangs, they’ll figger a way out.

  16. We are totally fucked, everybody knows that, right?

  17. is on a “worrisome” fiscal path and that making changes of the necessary magnitude is an urgent task for policymakers.

    That’s a good sign we’re getting our way.

  18. Man, it’s nice to hear cogent points on the internet; and those credit rating posts were genius.

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