"Federal Budget on an Unsustainable Path"

Federal Debt Projections

As regular readers of this blog know, I have been sounding the tocsin regarding government spending since the Bailout Swindle of 2008.  Here is one of my posts in which I list other posts I have written on the subject.

Yesterday the Director of the Congressional Budget Office had a chilling post on his blog which you may view here.  He states in part:

“Under current law, the federal budget is on an unsustainable path, because federal debt will continue to grow much faster than the economy over the long run. Although great uncertainty surrounds long-term fiscal projections, rising costs for health care and the aging of the population will cause federal spending to increase rapidly under any plausible scenario for current law. Unless revenues increase just as rapidly, the rise in spending will produce growing budget deficits. Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress economic growth in the United States. Over time, accumulating debt would cause substantial harm to the economy. The following chart shows our projection of federal debt relative to GDP under the two scenarios we modeled.” 

His chart is at the top of this post.

Keeping deficits and debt from reaching these levels would require increasing revenues significantly as a share of GDP, decreasing projected spending sharply, or some combination of the two.

He concludes on this somber note:

The current recession and policy responses have little effect on long-term projections of noninterest spending and revenues. But CBO estimates that in fiscal years 2009 and 2010, the federal government will record its largest budget deficits as a share of GDP since shortly after World War II. As a result of those deficits, federal debt held by the public will soar from 41 percent of GDP at the end of fiscal year 2008 to 60 percent at the end of fiscal year 2010. This higher debt results in permanently higher spending to pay interest on that debt. Federal interest payments already amount to more than 1 percent of GDP; unless current law changes, that share would rise to 2.5 percent by 2020.

This is fiscal madness.  We have the wealth and the ability to solve this problem by spending cuts, and minor tax increases if, and only if, combined with meaningful and deep spending cuts.  What we lack is the political will.  We are destroying the future prosperity of our kids because of current political cowardice, folly and inertia.

17 Responses to "Federal Budget on an Unsustainable Path"

  • Eric Brown says:

    I read something about this last week. The CBO predicted that our national debt would equal 82% of our GDP by 2019 and insisted that the U.S. could not continue course as is with its fiscal policies.

    I think the solution to this problem is complex. But first is going to require a second glance at the way our government functions.

    I think our Congressman who work only 130-190 days out of the year max — currently making north of $170,000 — is pretty much ludicrous. I, say, lower their salaries to something more reasonable (since it is tax-payer funded) and in fact, every time, we run a budget deficit in a fiscal year, have an automatic 15% pay cut and let this happen continuously until they get things in order.

    I also don’t think Congress should be taking vacations and trips at the rate they are, on tax-payer expense. Allegedly, a U.S. Senator took his family on a vacation for four days that cost $22,000 roughly on the tax-payer’s tab. I see no reason as to why making a six-figure salary cannot pay for his own family vacation when it is expected that the ordinary American citizen making much less is expected to do the same.

    At the more obvious level, I think there should be constant renewal and evaluation of social programs. More than likely, many social programs need massive reform or need to be disbanded all together. Whereas others, I think, largely can be consolidated or passed off to state levels.

    The most obvious problem is our spending habits and our spending priorities. I think we’re funneling money to a number of things not worth the dollar.

    In terms of government revenue to deal with the problem that’s a debate over taxes and borrowing, of which, I’m sure we can all agree on the latter — don’t borrow so much money that we’ll never be able to pay it off for over a century. And, of course, the question of revenue is intimately tied up to the question of spending habits.

    We’re on a crash course…

  • Gabriel Austin says:

    Nothing like a little bit of history.
    After the Revolution in France, the country was running short of money. So the government kept printing it. So much so that the floor holding the currency collapsed.
    What we are doing is like the farmer whose up-to-date grandson persuaded him to take the gold out of his mattress and put in the bank, using checks to draw on the money.
    Came the day when the grandson told his grandfather he had run out of money. “You need money? I’ll write you a check”.
    The Chinese government does not have to invade the U.S. It has just to present the Treasury Bills.

  • j. christian says:

    This problem cuts across ideological lines. The CBO is mostly right. By now everyone should know the major culprits and the solutions, but no one wants to accept the political suicide they represent: cutting and/or delaying entitlement benefits while increasing payroll taxes, and cutting the defense budget. Other tax increases need to be on the table, although there is a ton of room for discussion about what form(s) they would take. There’s no other way around this one.

  • Donald still won’t answer the question – how much of the fiscal deterioration is due to economic factors and automatic stabilizers, to the effects of Bush-era discretionary policy (tax cuts and Iraq, both far bigger in magnitude than the stimulus), and to the Obama stimulus? If you actually run the numbers, you will see that the latter is small scale. Bottom line: the deficit a percent of GDP is highest in 60 years because the recession is the worst in 60 years. Which begs a question: are you proposing procyclical policies in the midst of a recession?

  • Blackadder says:

    Why does it matter how much of the deficit is “Bush’s fault” versus how much is “Obama’s fault”? Are the effects of the deficit different depending on the party of the person responsible for them?

  • j. christian says:

    To MM it matters, apparently. Why stop at Bush? Why not go back to Reagan while you’re at it, MM? And then maybe you can go all the way back to FDR who took the greatest liberties with the Constitution and began the project of expanding the federal government into the Leviathan it is today. And maybe along the way back here you can stop at JFK and LBJ. Don’t just pretend that our fiscal situation is the sudden product of the last Republican president.

  • Actually, j.christian, it is first and foremost the result of the recession, and second that of the Bush administration. Taking 1999 as a starting point (you can go back to Reagan if you like, but that won’t do you any favors) and you get: economy 37 percent, Bush policies 33 percent, Bush policies that Obama kept 11 percent, and new Obama policies 10 percent.

    You can fault Obama with not doing anything to stop the fiscal deterioration, but not really for building it up. But is it wise to engage in procylical fiscal tightening during a recession? I can’t think of a reputable economist who would say so.

  • As I recall, there were a fair number of economists signing letters saying that blowing a trillion dollars or so on a random spending wish list and calling it “stimulus” was not a good idea. (Others, of course, thought it was swell — including you.) That significant portions of the deficit result from carried over Bush policies or from the economy does not indicate that Obama’s wild spending spree is therefore okay or responsible. Especially as he seems intend on digging further before he’s done.

    That there were no wonderful options for those serious about fiscal responsibility in the last few elections certainly does not change the fact that Obama has had an absolutely terrible first year in office from a fiscal perspective, and shows every sign of getting worse.

  • Donald R. McClarey says:

    Tony, Obama has taken a budget on fire and dumped gasoline on it. Judging from his tanking numbers the entire country is beginning to understand this and to react to it. The days of blaming Bush for the budget are at an end as a political tactic with any utility for supporters of Obama. This situation needs to be addressed now and if the Democrats are perceived as not only not doing anything to solve this budget nightmare, but actively making the problem much worse, your party will be in the political wilderness for a generation. Tony, if I were you instead of spending time making futile “so’s your old man” defenses of Obama, I would be contacting anyone I knew with any heft in the Democrat party and telling them electoral disaster looms unless they act to address this budgetary meltdown now.

  • Art Deco says:

    MM does not site a source for his pie chart. Just out of curiousity, does the refusal to implement debt-for-equity swaps to recapitalise Fannie Mae, Freddie Mac, and the megabanks count as a Bush policy, an Obama policy, or a Bush policy retained by Obama? To which administration do you attribute Mr. Geithner’s handiwork, if that is what it can be called? (He is a discretionary terminable-at-will appointee of the Obama Administration; he was not before).

  • j. christian says:

    MM, that pie chart “analysis” is laughable. So Obama inherits policies and Bush doesn’t? Attribute everything new since 1999 to the *deficit* and none of it to the structural budget, eh? Because we didn’t need any of it, of course. And only a Republican would’ve, say, created a DHS in response to 9/11. Yeah, right.

    I think a better “analysis” would be to blame Teddy Roosevelt for the deficit. After all, the forerunner to the Commerce Dept. started under his administration, and I don’t think we need it, so let’s say 100% of its budget counts against the deficit.

    See how we can play that game endlessly?

  • get back to me when you guys learn some basic economics. start with the definition of automatic stabilizer. it’s crap like this that makes me question the very notion of democracy, and the universal franchise!

  • j. christian says:

    MM,

    I have a graduate degree in economics. How about you?

    I understand perfectly well what the cyclical component of the budget deficit is! And you’re not understanding that the very size of the federal budget is never questioned in your analysis.

  • Donald R. McClarey says:

    Tony, I suspect your disenchantment with democracy and the universal franchise will only widen after 2010. You do not want to do anything about the budget meltdown because all of your most cherished political goals require a vast incease in federal spending and the size of the federal government, the impact on the economy be hanged. Most Americans, you know, those people whose company you avoid, disagree with you.

  • Gabriel Austin says:

    A hint. Never admit to having studied economics. It is not the dismal science. It is not a science at all but a political program.

    Why is it that women are better at economics than men? Which is to say at running a household? Likewise at investments?

  • Gabriel Austin says:

    “What we lack is the political will. We are destroying the future prosperity of our kids because of current political cowardice, folly and inertia”.

    Sounds like our Catholic bishops. What was the reading yesterday from Jeremiah about neglectful shepherds?

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