This is the second part of a series on the US
Federal Budget Deficit. How much is the total
Debt? What are the short and long-term effects?
What is the solution?
The Congressional Budget Office (CBO) has
projected federal deficit numbers into the future. They
expect the deficit to be $1.1T in 2012 and then move
sharply lower to $530B in 2014. This would lower it to
only 3.2% of GDP in 2014. This assumes current
stimulus and recovery policies are discontinued as is
currently scheduled in law. These CBO figures seem
extremely optimistic. Their revenue projections
assume a 14.7% increase in revenues in 2012, a
20.9% increase in 2013, and 11.4% in 2014. And
they assume expenses will increase on 2.4% per
year. I believe a narrowing of the deficit is possible
but I don’t believe the CBO forecast will be achieved.
I think it will be considerably off on both revenue and
expense.
It is true that most aspects of TARP and the Stimulus
program have or will end soon. This will decrease
federal spending significantly unless parts of it are
continued by additional legislation. However, I think
the CBO forecast underestimates the growth in the
mandatory expenses (Social Security, Medicare, etc.)
during this period. It also must be assuming above
average growth in GDP (6-8%). That could be the only
way you’ll get 15% tax revenue growth, even if tax
rates go up.
What is the effect of all of the debt? Does this
borrowing now crowd out future investment? Are we
saddling future generations with insurmountable debt?
Yes and yes. First, we need to pay back the money.
Any interest paid on past debt is money that cannot
be used for current needs of the country, and this will
only get worse for future generations with more debt.
Second, if the US government continues to go into
further debt, and to pay its debts through monetary
easing, it risks further erosion of the dollar and higher
inflation. Both of these decrease the standard of
living of its citizens in the near and long term.
Is any of this spending an “investment” in the future?
How do you put a value the of an education purchased
today by borrowed money. Is that better than saving
the money, not having the benefit of the education, but
not having the economic benefit of a more productive
citizen? How much of money spent on new roads and
bridges is an investment in the future vs. a burden on
a future generation’s finances. Of course, current
borrowing for current consumption is almost totally the
latter.
Like remodeling a house, some expenditures pay off
in higher overall value, and some don’t. And if you go
bankrupt while spending the money, then you are
destroying much of the value that was added.
One can have a philosophical debate about the merit
of public spending on science and education, and
many other things. You can debate how much
spending is too much. It may be difficult to judge
where the line is, but I believe we are spending too
much now. I’m not one looking to cut the budget just
to put more money back in my pocket. But I believe it
nay be nearing a crisis level, where the question is will
the US economy collapse under the weight of it.
Ultimately, it is inevitable that current government
spending and benefits must be cut and/or taxes must
increase. There are no other options.
Click here for additional facts concerning the Federal
Budget Deficit / Debt.
Click here to go back to Part One of The US Federal
Deficit / Debt Crisis.
Back to Top
_________________________________________
Federal Budget Deficit. How much is the total
Debt? What are the short and long-term effects?
What is the solution?
The Congressional Budget Office (CBO) has
projected federal deficit numbers into the future. They
expect the deficit to be $1.1T in 2012 and then move
sharply lower to $530B in 2014. This would lower it to
only 3.2% of GDP in 2014. This assumes current
stimulus and recovery policies are discontinued as is
currently scheduled in law. These CBO figures seem
extremely optimistic. Their revenue projections
assume a 14.7% increase in revenues in 2012, a
20.9% increase in 2013, and 11.4% in 2014. And
they assume expenses will increase on 2.4% per
year. I believe a narrowing of the deficit is possible
but I don’t believe the CBO forecast will be achieved.
I think it will be considerably off on both revenue and
expense.
It is true that most aspects of TARP and the Stimulus
program have or will end soon. This will decrease
federal spending significantly unless parts of it are
continued by additional legislation. However, I think
the CBO forecast underestimates the growth in the
mandatory expenses (Social Security, Medicare, etc.)
during this period. It also must be assuming above
average growth in GDP (6-8%). That could be the only
way you’ll get 15% tax revenue growth, even if tax
rates go up.
What is the effect of all of the debt? Does this
borrowing now crowd out future investment? Are we
saddling future generations with insurmountable debt?
Yes and yes. First, we need to pay back the money.
Any interest paid on past debt is money that cannot
be used for current needs of the country, and this will
only get worse for future generations with more debt.
Second, if the US government continues to go into
further debt, and to pay its debts through monetary
easing, it risks further erosion of the dollar and higher
inflation. Both of these decrease the standard of
living of its citizens in the near and long term.
Is any of this spending an “investment” in the future?
How do you put a value the of an education purchased
today by borrowed money. Is that better than saving
the money, not having the benefit of the education, but
not having the economic benefit of a more productive
citizen? How much of money spent on new roads and
bridges is an investment in the future vs. a burden on
a future generation’s finances. Of course, current
borrowing for current consumption is almost totally the
latter.
Like remodeling a house, some expenditures pay off
in higher overall value, and some don’t. And if you go
bankrupt while spending the money, then you are
destroying much of the value that was added.
One can have a philosophical debate about the merit
of public spending on science and education, and
many other things. You can debate how much
spending is too much. It may be difficult to judge
where the line is, but I believe we are spending too
much now. I’m not one looking to cut the budget just
to put more money back in my pocket. But I believe it
nay be nearing a crisis level, where the question is will
the US economy collapse under the weight of it.
Ultimately, it is inevitable that current government
spending and benefits must be cut and/or taxes must
increase. There are no other options.
Click here for additional facts concerning the Federal
Budget Deficit / Debt.
Click here to go back to Part One of The US Federal
Deficit / Debt Crisis.
Back to Top
_________________________________________
| The US Federal Deficit / Debt Crisis. How Much is the Debt and What Can We Do About It? Conclusion. |
 |  |  |  |  |  |  |  |
Have Questions? Our consultants are available to help you
with any financial question. We can also provide in-depth
consultation concerning any financial issue facing you. We
can help. Please contact: Best-Financial-Advice.com
with any financial question. We can also provide in-depth
consultation concerning any financial issue facing you. We
can help. Please contact: Best-Financial-Advice.com
 |  |  |  |  |
Have Questions? Our consultants are available to help
in-depth consultation concerning any financial issue
facing you. We can help. Please contact:
Best-Financial-Advice.com
in-depth consultation concerning any financial issue
facing you. We can help. Please contact:
Best-Financial-Advice.com
Have Questions? Our consultants are available to help you with
any financial question. We can also provide in-depth
consultation concerning any financial issue facing you. We can
help. Please contact: Best-Financial-Advice.com
any financial question. We can also provide in-depth
consultation concerning any financial issue facing you. We can
help. Please contact: Best-Financial-Advice.com
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