Debt and Deficits

The Trillion-Dollar Deficit Question

The bottom line is that we have a spending problem that should be addressed by reforming Social Security, Medicare, and Medicaid.

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Obama
MICHAEL REYNOLDS/EPA/Newscom

Have you noticed that for a few months, President Barack Obama has stopped bragging about how the federal budget deficit is shrinking? That's because it's not. For the first time since 2009, the deficit has gone up rather than down.

The Congressional Budget Office recently released its budget review for September 2016. It shows that in fiscal 2016, which ended Sept. 30, the deficit grew by $149 billion, from $439 billion to $588 billion. It now stands at 3.2 percent of gross domestic product, up from 2.5 percent last year. It's also the first increase in the deficit as a share of GDP since 2009.

This year's deficit growth has nothing to do with a loss in revenue. Almost all of the $149 billion added to the deficit came from additional spending. The estimated spending increase was $168 billion, and the estimated revenue increase was $19 billion. The CBO notes that $41 billion of that spending was the result of payments that should have been made in fiscal 2017 but weren't because Oct. 1 fell on a weekend. That being said, CBO adds, it did not make much difference. "If not for that shift, the deficit in 2016 would have been about $547 billion, or 3.0 percent of GDP—still considerably higher than the deficit recorded for 2015."

Putting the deficit figure in perspective is interesting. A $588 billion deficit is more than we spend on the Department of Defense for the year ($564 billion, excluding war funding) and only slightly less than we spend on health care for non-poor Americans' Medicare ($595 billion). If you add Social Security and Medicaid to the Medicare amount, we spent $1.87 trillion on the three largest mandatory programs, which explains why I always stress that these programs drive our future debt.

We are steadily heading back toward a trillion-dollar deficit. CBO projects a deficit of $954 billion by 2022, assuming Congress sticks to the current law and maintains the budget caps, which are supposed to make their comeback in fiscal 2018. But unlike the trillion-dollar deficits we experienced during the Great Recession, this red ink is here to stay—and grow. Of course, the fact that the economy will keep growing at a meek, though steady, 1.9 percent per year will contribute to these worrying trends.

Why should we care? First, these numbers show that the government is constantly growing and expanding its size and scope, a move that will lead to future tax increases or slower economic growth. Second, having higher deficits also means having higher public debt. Federal debt is already high relative to its historical levels. But if current policies remain in effect, the debt held by the public will grow from almost 77 percent of GDP at the end of this year to 150 percent by 2046.

In the long term, if unaddressed, it will have a damaging impact on American families. Higher sustained debt also makes it harder for the government to respond to real emergencies, such as natural disasters and acts of terrorism.

It's frustrating because we know exactly what needs to be done to get off this unsustainable cycle of spending, larger deficits and higher debt levels. Behind the trend is the rising spending on Social Security, Medicare, Medicaid, and net interest. These programs account for a large share of past deficits and will account for an even larger share of future ones. The only solution as such is to reform these programs.

Some will tell you that no reform can be achieved without significant tax increases. However, there are serious side effects from raising taxes in terms of labor productivity and economic growth. It's also very questionable whether Uncle Sam could raise much more revenue with higher tax rates under the current system.

The bottom line is that we have a spending problem that should be addressed by reforming these programs. The good news is that over the years, scholars in different institutions have come up with many plans on how to do just that; the solution is already out there. The bad news is that we're in this situation because of a lack of political power to get us off a path that leads to financial chaos. How we change those dynamics is the trillion-dollar question.

COPYRIGHT 2016 CREATORS.COM

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  1. What percentage of the pleasant domestic product is it?

    1. With or without government spending included?

      1. Start working at home with Google! It’s by-far the best job I’ve had. Last Wednesday I got a brand new BMW since getting a check for $6474 this – 4 weeks past. I began this 8-months ago and immediately was bringing home at least $77 per hour. I work through this link,

        go? to tech tab for work detail,,,,,,, http://www.highpay90.com

    2. It is not pleasant, it is gross.

    1. “There is a great deal of ruin in a nation.”

    2. Another reason to thin the ranks of the progressives, through attrition. Then there will be less idiots like AmSoc, Tony, and PB to mindlessly approve of him. This is it’s own reward.

    3. Like the unemployment numbers, Obama’s approval rating is skewed for his benefit. I estimate that you just drop the first digit of Obama’s approval numbers and add it to the unemployment number and things would be more accurate.

      Approval 55%——->5%
      USA Unemployment 5%——>55%

      1. Like the deficit, the official unemployment numbers are bullshit. LFPR was between 66% and 67% consistently from 1989 to 2009. It’s been below 63% since 2014.

  2. Just wait until interest rates rise again, as they have to at some point. I expect that the government will use inflation to deal with the debt, basically stealing hard working people’s savings.

    1. Just wait until interest rates rise again, as they have to at some point.

      Why? There’s nothing stopping the Fed from keeping the rate at effectively zero, or even going negative.

      1. What happens when the bond markets push rates higher regardless of what policy makers want?

    2. That’s absolutely what will happen.

    3. This is the death-spiral for fiat credibility – when/how inflation shows up there can’t be a Volcker like in the 80’s, because jacking overnight up to 4%, forget 10%, bankrupts today’s Federal government.

      1. Low interest rates are going to be the norm until they’re not, and then all bets are off.

        They’ll kick the can as long as they can, which will be longer than anyone can reasonably expect.

      2. bankrupts today’s Federal government.

        A reset button, if you will?

  3. The bottom line is that we have a spending problem that should be addressed by reforming these programs.

    Sounds like the perfect time to provide free college.

    1. Not “free college”, “debt free college”, because that sounds better to focus groups.

    2. The free college talk really pisses me off. 10 years ago, I graduated high school. I made a decision to not take on a crippling amount of debt to earn a degree that might or might not be worth it. I went to work nights at an electric motor manufacturing plant, went to trade school during the day (on the company dime as part of a maintenance apprenticeship program) , learned how to weld, how to program industrial computers, practical electrical theory, how to pull wire, basics of automation, etc. I worked my ass off for 2 years. 50-60 hours a week ar the plant, and another 30 or so at school. Fast forward to today and I have a pretty good job as an electrician at a steel mill making close to 100k a year working 60+ hours a week.

      I think I made a really sound financial decision out of high school. I’ll be 30 in a fee months and my house is 6 years from paid for. My land that I run a dozen or so cows on is completely paid for. A shit load of people my age ran up a huge amount of debt getting worthless degrees and are now skilless, in debt, and not meaningfully employed. A lot of people made poor financial decisions by going to college and now, since they can’t pay back the loans that they voluntarily took, they want my taxes to pay for their stupididity. It infuriates me.

      1. But man did they pick up a lot of unrealistic progressive pap on those college campuses that they then try to bring back into the real world, and that is why the left loves the whole free college nonsense. These are the new reeducation camps, and they even make you pay for the reeducation abuse..

      2. What the hell kind of American are you? It’s people like you who give free shit a bad name!!!

        1. It’s people like me who pay for the free shit. I’m looking directly at you, affordable care act.

      3. What you did was being “future time oriented” which is racist, Hitler.

      4. On the bright side, as they continue to cram more people into college who don’t have the brain or work ethic to actually use it, skilled trade school graduates will simultaneously get more rare and (because of their actual work ethic) more apparently productive, making your status as one of the youngest pre-Hillary trade school grads pretty lucrative for you among people who want results, not good feels.

    3. Fuck them. I had to pay for my college education. I’m not paying for theirs too.

      1. You greedy bastage!

  4. Arithmetic is not our friend in this matter.

    1. Arithmetic is cisheteronormative racist.

      1. Arithmetic discriminates against fractions and numbers are a male construct.

        1. Arithmetic discriminates against fractions

          ???

          Yeah, I know, I can’t believe that is the part I picked out to be confused about.

    1. Can I hit him again?

      1. You don’t need our permission. Give ‘er torque.

  5. The bottom line is that we have a spending problem that should be addressed by reforming Social Security, Medicare, and Medicaid.

    And this is how my college loans get paid off?

      1. You just made an enemy for life Paul. I expected whisky and I got douche bags.

  6. You say that as if Empires could go bankrupt.

    1. A contrary opinion

      http://www.pragcap.com/answeri…..onal-debt/

      1. What’s fascinating is that he gets really, really close to looking at the right place to come up with an answer and then skitters off on an irrelevant tangent:

        Debt is someone else’s asset. So, to “pay back” the national debt is to reduce non-government’s assets by that much. In a credit based monetary system there is no such thing as aggregate debt repayment.

        So… what happens when people decide that a government bond is not an asset worth purchasing? What happens when the government has bonds to sell but not enough buyers?

        If the government keeps borrowing money, eventually they will hit the point where they can’t find a new lender to purchase their bonds; the capital available to purchase government bonds is quite finite, after all.

        1. Bingo

          Dollars have two built in advantages. No real competitor and the petrodollar system. Simply put, the US dollar is the best looking turd in the punchbowl. There is nothing to say that those two conditions cannot change.

          1. tarran, I agree with your assessment. A bankruptcy of the U.S. Government would take the form of inflation and/or foreign currency crisis. It’s not a bankruptcy like Greece. It would be our own form of horrible.
            I do like Roche because he gets a lot of things right. But like everyone he makes mistakes.

            1. Why wouldn’t it be a bankruptcy like Greece? Or Detroit, or various towns in California?

        2. Debt is someone else’s asset.

          Yarp. At some point, someone will decide that “asset” is worthless, and purchasing more of those assets is a dangerous game of chicken.

      2. Boy, the French could have used this guy about 1790! One or two articles by him and the whole Ancien Regime wouldn’t have crumbled, leading to The Terror, and eventually the 19th century Hitler known as Napoleon. No sirree bob! I mean, by all means debt is so great. So what if the government then banishes interest rates, the price mechanism for money, to carry all that burden? So what if the ability to make investment decisions are impossible within the business cycle? So what if those who depended on debt based investing for their “sinking funds” are now left holding an empty bag, and the only options are to create bubbles in the real estate market and/or shovel the majority to Wall Street, dismantling any rationality of investing there?

        I guess I have a different definition of pragmatic.

      3. In other words, don’t think of the children. The government should keep borrowing today, and tomorrow, and every day after that. Being a government means you can borrow forever.

        Really…

        So why do governments declare bankruptcy?

  7. “Some will tell you that no reform can be achieved without significant tax increases.”

    I will tell you that no reform can be achieved, period. To enact reform, we would actually have to elect an adult that will tell us what we NEED to hear, not what we WANT to hear. And I ascertain that that person cannot be elected in a Democracy (or in this case, Democratic Republic). Just remember the fallout after Jimmy sat the nation down and gave us a heart-to-heart talk. Did not bode well for him.

    1. Of course, Carter was not talking about debt, and was not the adult in the room. He was just an idiot. A bit like FDR who just thought we had hit peak development.

      1. FDR got handed a prohibition-ruined economy by his Republican predecessor, kinda like that nice Kenyan boy 75 years later.

  8. Deficit’s are stupid that’s why as president I will pass a law that says we have no deficit. [applause]

  9. To me, the most interesting question is how high will the deficit be when the next recession hits? If memory serves, the annual deficit at the depth of the Great Recession was well over $1 trillion, maybe closer to $1.5 trillion. So I figure the next recession will easily see an annual deficit crest $2 trillion. Which seems mind-boggling. But then again, the Fed will probably launch the next era of quantitative easing to “fight” the recession, so they’ll just monetize as much of the deficit as is politically convenient.

  10. Well, the good news has been embedded here (need excel) for the last decade and a half, hasn’t it? I mean, gross federal debt as a % of GDP has only doubled in that time and usury has been banished from existence. It’s all part of the optimism stuff we get from portions of the “Reason Staff”. We’re living longer and there’s more trees over yonder, so the ever expanding banishment of ECONOMIC liberty? Meh, eggs and omelets. Gotta keep our eye on the water level lest over fifty years we suddenly drown. It’s about the clear and present priorities. Near total fiscal collectivism swarming us right now simply doesn’t hold a candle a theoretical possibility water levels might rise four inches in half a century.

    Mmmmkay?

    Now where’s my violin? Anyone else smell smoke?

    Caaaaaaaaaaarrrrrrrrbooooonnnnnnn!

    1. “Smoke weed and have gay butt sex today, for in the long run we are all dead.”

  11. “Have you noticed that for a few months, President Barack Obama has stopped bragging about how the federal budget deficit is shrinking? That’s because it’s not….”

    Ha! You think lying would stop this POS? The joke’s on you; he lies like most people breathe. Constantly.

    1. Exactly. They have already been lying about it for years now. Anyone remember that recovery that was just around the corner that we have been told about for the last 8 years? He doesn’t say anything now anymorebecause it is campaign season, and him telling this lie again might get the proles to look at what’s really going on, which then could cost the arch-criminal the election (even if they rig it).

  12. By the way, that $588 billion number is complete and total complete horseshit, because the publicly held debt increased by more than $1.1 trillion during FY ’16.

    A little bit of number fudging is one thing, but THAT much number fudging? Obama, please.

    1. We’re just one good accounting trick away from (the appearance of) fiscal solvency!

  13. On 1/1/1835, the debt was down to 33k.

    No one wants to talk about that policy of Andrew Jackson.

    1. Wasn’t it eliminated in the 1950s, too?

      Somehow the left is nostalgic for the tax rates and labor policies of that time period, but not the regulatory or monetary policies.

      1. Wasn’t it eliminated in the 1950s, too?

        Jackson’s the only one who ever eliminated the national debt, for a brief time in January 1835.

        Somehow the left is nostalgic for the tax rates and labor policies of that time period, but not the regulatory or monetary policies.

        I always kill off the “Eisenhower had 90% tax rates!!” talk by telling these jokers I’m more than happy to go back to Eisenhower-era tax rates if they’re willing to go back to Eisenhower-era budgets–no Great Society programs or their multiple bastard regulatory children from Nixon to Obama, and 50% or more of all federal spending going to the Department of Defense (which had sparked Ike’s M-I Complex concerns). After a copious amount of sputtering on their part (if they don’t tuck tail and retreat altogether), I then point out that they’re obviously only willing to enact policies that they like and aren’t willing to compromise, so they’re in no position to bitch about Republican obstructionism and I’m under no obligation to agree to anything they propose. Makes for great trolling.

        1. No one was paying any 90% tax rate in that era anyway.

          There were a lot more tax shelters and deductions in the tax code back then than there is now.

          It is the effective tax rate that people actually paid after availing themselves of those tax shelters and deductions that counts – not what the top end marginal tax rate was.

          The leftists yapping about those tax rates are either to stupid to know that or are just being dishonest about the reality of taxes in that era.

  14. Only slightly OT: Here is some interesting math I did last night to prove amsoc wrong.

    Unsurprisingly, you can’t come close to eliminating a $500 billion deficit with a personal income tax hike on the top 1% or even the top 3% (those households making more than $250,000 a year). Even if you could somehow confiscate every penny made over $250,000 in this country without all of the obvious and predictable knock-on effects of doing so (i.e., nobody would make more than $250,000 if they didn’t get to keep any of it), you would only cover about 3/4 of the deficit. It would take a tax hike of about 12% on every penny over $60,000 to cover the deficit. Double that to cover the change in debt, which is about twice the deficit.

    Despite all the lefty cries of income inequality, the vast majority of personal income goes to “the 99%” not “the 1%”. Even the bottom 75% has more total personal income than the top 25%. Multiplication is a bitch.

    1. Within the past year, I added up the wealth of the top 400 Americans per Forbes and divided by everybody else in the country. Even IF all their wealth was liquid and did no damage being confiscated from where it currently resides, it would be about $9,000 per person. Not quite the boon the idiots think it is. No, the “from each according to their ability, to each according to their need” we already practice, much less all the other bright ideas lurking in progressive brains (left OR right), doesn’t add up – today. We are precisely at the point where the Ponzi schemes are about to go tits up, and the fun begins when 200,000,000 participants in our game of musical chairs start jostling for the 100,000,000 chairs available. We shouldn’t let people shooting each other over cutting in line at Walmart be ANY sort of bellwether as to how the game will turn out. it’s not like WE’RE ever going to go Venezuelan, right?

      Right?

      No, we’re too civilized for such brutality. What is this, the 1930’s/40’s?

      Oh yeah, Caaaarrrrrbooooonnnn!

  15. Oh please. I could piss a bigger deficit than that.

  16. “Have you noticed that for a few months, President Barack Obama has stopped bragging about how the federal budget deficit is shrinking?”

    He had no legitimate reason to brag about it going down to begin with because he had nothing to do with causing it to go down.

    1. The lie that Obama “inherited” Bush’s deficits keeps getting repeated by Obama apologists. But Obama was a Senator before he was President and he voted for all of that spending. He “inherited” his own mess.

      1. He’ll claim it was the Bush tax cuts that caused it. Standard go-to for Democrats.

  17. “The problem is, is that the way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion for the first 42 presidents – #43 added $4 trillion by his lonesome, so that we now have over $9 trillion of debt that we are going to have to pay back — $30,000 for every man, woman and child. That’s irresponsible. It’s unpatriotic.”

    -Barack Obama
    July 3, 2008
    Fargo, ND

    1. That quote just keeps on giving!

  18. What is all this recent flutter about the deficit and debt? To the US power class, treasury debt does not matter. Perhaps the scale of the government’s command over resources might be a concern as a possible threat to the golden goose. But to these sociopaths the debt per se does not matter, because it will be repaid in future debased dollars. (In effect, they agree with Milton Friedman regarding the relative importance of spending versus debt.) Won’t this be an “inflation tax”? Yes, but spread over all users both of ever-debasing dollars and of all currencies (de)based on dollar reserves. Of the approximately US$ 14 trillion dollars in debt (ignore the interagency bs), over US$ 6 trilion is owned explicitly by central banks – over 2 by the Fed and about 4 in other “foreign official” holdings (could be even more). Is competitive debasement long-term sustainable? Probably not, because US debt held by foreign central banks represent a form of tribute paid by the subjects of foreign satrapies to the Empire. If competitive debasement ends, the US debt will nevertheless continue to be repaid in continually-debased dollars, although eventually the inflation tax will be concentrated on US consumers. The political class would then have to make a collective decision regarding regular taxes versus the inflation tax, or even ? wishful thinking ? reducing the scope of government spending. But sociopaths spending other people’s money don’t think that far ahead.

  19. But Obama was a Senator before he was President and he voted for all of that spending.

    And had the sand to make hay over not increasing the debt ceiling in 2013 during a supposed economic recovery, after getting free pub for criticizing the same thing as a Senator during a supposed economic recovery.

    What really galls me are the idiots who argue that this is “typical politician stuff” and then in the next breath proclaim what a transformational President he is. When I point out that he’s as transformational as his policies, they don’t take too kindly to that.

  20. No fighter jetz?! This is reason, isn’t it? There’s no place here to talk about what’s really driving the deficit. Now where’s the next toilet or trumptard article?

  21. Vero, George Waffen Bush crushed the economy with prohibitionist asset-forfeiture looting just like Herbert Hoover before him. Geithner’s “Stress Test” hides the way prohibition sparked the crash but describes in detail the deals whereby men with guns shake down taxpayers with additional asset forfeiture–this time to cover TARP and re-subsidize Fannie and Freddy back into the grow house business. It is incredible beyond belief that Reason writers cannot see what Adam Smith described as the effect of unproductive hands on the wealth of nations.

  22. Liliana . if you think Lawrence `s blog is incredible, I just purchased a new Honda after earning $5741 this – 4 weeks past and also 10 grand lass month . it’s by-far the most-comfortable job I have ever done . I started this four months/ago and almost immediately began to make minimum $85… p/h .

    see this……………. http://www.BuzzNews10.com

  23. until I looked at the paycheck saying $4730 , I did not believe that…my… brother woz like actualy bringing in money part time from there computar. . there friend brother started doing this for less than 7 months and resently paid for the morgage on there home and bought a new Cadillac …….

    …….. http://www.jobprofit9.com

  24. Ellie . true that Susan `s blurb is good… I just purchased a gorgeous Fiat Panda sincee geting a check for $8891 this-last/4 weeks and also ten grand last-month . this is actually the most financialy rewarding Ive had . I started this 9-months ago and right away was bringin in at least $87, per-hour .

    see……………. http://www.BuzzNews10.com

  25. Ellie . true that Susan `s blurb is good… I just purchased a gorgeous Fiat Panda sincee geting a check for $8891 this-last/4 weeks and also ten grand last-month . this is actually the most financialy rewarding Ive had . I started this 9-months ago and right away was bringin in at least $87, per-hour .

    see……………. http://www.BuzzNews10.com

  26. until I looked at the paycheck saying $4730 , I did not believe that…my… brother woz like actualy bringing in money part time from there computar. . there friend brother started doing this for less than 7 months and resently paid for the morgage on there home and bought a new Cadillac …….

    …….. http://www.jobprofit9.com

  27. Liliana . if you think Lawrence `s blog is incredible, I just purchased a new Honda after earning $5741 this – 4 weeks past and also 10 grand lass month . it’s by-far the most-comfortable job I have ever done . I started this four months/ago and almost immediately began to make minimum $85… p/h .

    see this……………. http://www.BuzzNews10.com

  28. until I looked at the paycheck saying $4730 , I did not believe that…my… brother woz like actualy bringing in money part time from there computar. . there friend brother started doing this for less than 7 months and resently paid for the morgage on there home and bought a new Cadillac …….

    …….. http://www.jobprofit9.com

  29. until I looked at the paycheck saying $4730 , I did not believe that…my… brother woz like actualy bringing in money part time from there computar. . there friend brother started doing this for less than 7 months and resently paid for the morgage on there home and bought a new Cadillac …….

    …….. http://www.jobprofit9.com

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