The Federal Budget And Why The US Is In Trouble

[Westernskies]

Taxes will be going up. If nothing else, that GWB tax break will expire.

It already expired on Dec. 31, 2010. Check the executive signature on the legislation renewing it...

 

[rescueme]

..even "trivial" amounts...quit rationalizing fiscal irresponsibility in small doses.

Yes, if you can't handle the "small numbers", what are you going to do with the ones that really count? ...

 

[FIREd]

It should be easier to control your expenses when your are spending your own money. You worked long hours to earn it and you understand the value of it. Nonetheless, given the number of people who are overextended financially, many people still can't get their own spending under control.

So how much control can you expect people to have over their spending when the money they spend is in fact money they confiscate from other people and when they have the power to confiscate some more whenever they need to?

 

[Independent]

Is independence on foreign oil really so important? If I think of this in the micro-economic sense, the ERD household is dependent on all sorts of 'foreign' (to our household) resources. We are not self-sufficient. We trade our resources ($ and/or labor) for other resources, many of which we could not do without. Yet, this does not seem like a problem at all, and it has been sustainable for as long as I've been alive, and I don't see an end to it, nor do I desire an end to it (I don't plan on learning how to do my own surgery, or build a car myself).

In fact (I think samclem has pointed this out before) , getting these resources at the lowest cost to us is exactly what we should do. Foreign oil must be cheaper than domestic oil, so why not buy it from the cheaper sources? It's the same make/buy decision I make with every single purchase (grow my own food, buy it?, etc).

And to be consistent, I'm against subsidies. So yes, oil needs to stand on its own for this to be meaningful. Let the oil companies buy their own protection, if that is what it takes to deliver 'foreign' oil.

-ERD50

I think the sequence goes like this:
1) From a macro view, any sudden change is bad for the economy. Sudden changes always generate pain because we can't adjust quickly enough.
2) Oil is so important to our economy, that sudden changes in the price of oil can have big costs beyond the simple price difference. (a slow increase in the price of oil wouldn't be a big deal)
3) Because of (2), every administration since Eisenhower has tried to stabilize prices by stabilizing the mid-east. That has meant trying to get friendly governments that provide stable supplies.
4) Step (3) means military threats and intervention. Maybe half our military spending (or $300 billion in today's terms) since the 1970's has been directed at stable oil prices, or the after effects of large sums flowing to dictators.

So that amount of military spending is a subsidy which the oil companies can't directly purchase in the open market. The result (IMO) is that we should have been taxing crude oil at about $1 per gallon for the last 30 years just to pay for this subsidy.

If we had done that, Americans would have chosen more fuel efficient cars, houses closer to workplaces, alternate energy sources, etc. We'd still be looking at long term increases in the price of energy, but the situation would be more manageable. And we might have saved some lives, too.

 

[dex]

It's okay by me. I see a lot of huffing and puffing about how disastrous it will be unless we balance the federal budget, and occasionally I insert into a thread a plaintive request for some evidence that we can't just keep the deficits going forever. There seems to be unanimity that we can't, but none of you seems to be able to say exactly why.

Look for articles for the relationship between USA debt and the US$ being a reserve currency. Also, the relationship between the US$, international trade, pricing and US debt. That should be a good start.


You might find this interesting.
http://www.petersoninstitute.org/publications/papers/niarchos-ferguson-2010.pdf

 

[novaman]

If we want to balance the budget by cutting spending, we need to cut Medicare and Defense and (eventually) Social Security.

Agreed- But at this point I can't fathom it ever happening. Look at all the ballyhooing over the proposed defunding of Planned Parenthood to save a few billion and how it was going to affect women's healthcare.

 

[sheehs1]

As you know, no direct answer is possible, but FWIW The Tax Foundation - How Much Did the Bush Tax Cuts Cost in Forgone Revenue?

Thanks for the link Midpack. I've read...but want to go thru it again....

 

[eridanus]

IMO, the problem is that, to many people (John and Jane Q and politicos alike) , these sacred cows are "trivial" to the budget. (only a few BILLION each... ) The mindset is that these "trivial" numbers are OK, since they individually represent only a small % of the total budget. So, we continue to spend those billions we don't need and add new sacred cows each year. DOE, TSA, etc...do we really need all the government we are paying for? We need to change that mindset, and get back to basic financial responsibility, and quit spending money we don't have- even "trivial" amounts...quit rationalizing fiscal irresponsibility in small doses.

I think the "it's trivial" argument applies to health care, too. "That only saves us 2.5%, so why bother?" Those small expenses do add up. That's not to ignore the 3 elephants in the room, of course.

 

[NW-Bound]

...quit rationalizing fiscal irresponsibility in small doses.

Yes, if you can't handle the "small numbers", what are you going to do with the ones that really count? ...

I have to agree with that. But look how drawn out and painful the process has been.

Being a pessimist as I always have been, I am afraid that Bill Gross's prediction in the article I cited earlier will play out in a fatalistic manner.

 

[sheehs1]

Well, when Joe and Jane Blow have to park in a long line waiting for their turn to fill up their cars and to pay what Europeans have been paying all these years, they get really, really mad and demand the heads of oil executives, politicians, heck, any and everybody.

"Vroom, vroom"... It's the American way, don't cha know?

Anyone want to venture a guess....at why Congress has not voted on a mandate for natural gas modifications for engines? Is it not doable or realistic?

To hear the CEO of Chesapeake Energy talk...it has been what has held back the price of natural gas and we supposedly have untold supplies of natural gas. So...could it be as simple or as greedy as those that own the oil wells or are invested in ...oil profits?

 

[GregLee]

I think it is.

Yes, obviously you think that household budgets and national budgets work pretty much the same. But, you know, it isn't obvious. Not long ago, kyounge1956 initiated an explicit discussion of this.

If the federal (or any) government paid their "bills" in the same manner, there would be no problem.

This is begging the question. You're trying to show that there is a problem.

However, they are not. The money has to come from somebody (you, me, in reduction of services and possible increases in taxes) or from current and future generations.

You're not coming to grips with the question. Why does the money have to come from somebody? That's what I'm asking.

 

[NW-Bound]

Anyone want to venture a guess....at why Congress has not voted on a mandate for natural gas modifications for engines? Is it not doable or realistic?

Some years ago, the AZ legislature passed a law to incentivize the nat gas conversion for autos, so they could run on either fuel. It turned into a fiasco when it was discovered that the law maker who pushed for it had some connection to the nat gas industry to get some kickback. Also, you can imagine the public outcry when it was revealed that many of these "green" cars were purchased with a little propane tank the size of a BBQ grill tank, which would give a minuscule range. It was obvious that the car owners never intended to run theirs on propane at all, and only put that on in order to get the subsidy worth tens of thousand dollars.

There are other posters who have more automotive knowledge than I do, and I hope they will give you more technical details, but I suspect that if it is economical relative to gasoline, it should not need a subsidy. Car owners would vote with their wallets.

Why does the money have to come from somebody?

No. We can just continue to print it!

Dang! I sold my little bit of gold too soon last year.

 

[dex]

I think the "it's trivial" argument applies to health care, too. "That only saves us 2.5%, so why bother?" Those small expenses do add up. That's not to ignore the 3 elephants in the room, of course.

Cut as you will. The USA is like a family who has credit card debt and got a card with a 0% teaser rate. The credit card company will be raising their rates. The only question will is when will it begin. The ECB raised its rates by 1/4%. The dollar fell some more. The USA likes that for exports. How much of a drop will other countries accept?

American Thinker: America Slouching Towards Fiscal Armageddon

[FONT=times new roman,times]This year the US will spend $200 billion in interest payments on the debt. Thanks to historically low interest rates this figure is lower than normal. Once interest rates start to rise -- and rise they will as inflation is quickly spreading throughout our economy and the world -- we will face an extra $100 billion in interest payments per year for every one (1) percent increase in interest rates. The [/FONT][FONT=times new roman,times]Wall Street Journal[/FONT][FONT=times new roman,times] predicts that without any changes, the interest on the nation's debt will reach $900 billion annually in another 10 years. According to their forecast, those yearly interest payments will be 17% greater than our annual Medicare costs and 82% larger than "the cost of all non-security discretionary spending programs combined."[/FONT]

 

[Dranoel]

I think this exercise is instructive and could help with this deficit discussion. If the interactive does not work, there is link on the page for the PDF. I ended about 60/40 spending cuts/tax revenue.

 

[NW-Bound]

I have tried to not be so pessimistic, but it is hard. Here's another example of something that was inevitable, yet everybody knew it was coming.

In the late 90s, and throughout the early 2000s, there were much discussions in the media and financial magazines such as Business Week about how GM was loaded down with pension and medical costs for its retirees. It was not a surprise, was it? Was anything meaningful done to head off that day of reckoning?

Nope. It just had to end badly, as it of course later did.

 

[GregLee]

Look for articles for the relationship between USA debt and the US$ being a reserve currency. Also, the relationship between the US$, international trade, pricing and US debt. That should be a good start.


You might find this interesting.
http://www.petersoninstitute.org/publications/papers/niarchos-ferguson-2010.pdf

I read over the Niall Ferguson lecture, and I don't see anything there that approaches a demonstration that USA deficits are unsustainable. I find, for instance, in the comparison of our "problem" to that of Greece, this:

The credibility of a government as a borrower is bound up with a number of things. But one of them is the stability of its domestic politics, because of course without domestic political stability, it’s very hard to raise taxation and, therefore, it’s very hard to pay the interest on your debt.

The obvious point here is that the USA has a very stable political system, and it can, if need be, increase taxes to pay the interest on its debt. Everyone knows this, so why would anyone lose confidence in Treasuries? Ferguson notes

At the moment the view persists that US treasuries are a safe haven, the safe haven for investors.

Well, no wonder. And, anyhow, if the Chinese were to decide that, after all, they would prefer not to hold US debt, what would be the consequences for their own economy? Not nice, I think.

As for other reading suggestion you made, well, I am just not prepared to roam the Web looking for things that might substantiate your views. If you think you can make the case, just make it.

 

[dex]

I have tried to not be so pessimistic, but it is hard. Here's another example of something that was inevitable, yet everybody knew it was coming.

In the late 90s, and throughout the early 2000s, there were much discussions in the media and financial magazines such as Business Week about how GM was loaded down with pension and medical costs for its retirees. It was not a surprise, was it? Was anything meaningful done to head off that day of reckoning?

Nope. It just had to end badly, as it of course later did.

I don't know of any country that turned things around from where we are now. Two nations that did show promise for a short while were Italy under Mussolini and Germany under Hitler. They had the people and business supporting them.

The way I see this playing out is that there will be some reforms that require some hardship and picture perfect scenario to work. People get tired of the hardship and vote in spenders and perfection hits a bump that bursts the hope bubble.

 

[dex]

I read over the Niall Ferguson lecture, and I don't see anything there that approaches a demonstration that USA deficits are unsustainable.

Hey, all I said is that you might find it interesting. Why go on about it? If you didn't find it interesting; no harm, no foul.
I liked his historical perspective.

As for other reading suggestion you made, well, I am just not prepared to roam the Web looking for things that might substantiate your views. If you think you can make the case, just make it.

I'm shocked , shocked I say, and surprised!

(Not really, I knew from your post you weren't really interested in the evidence you asked about.)

 

[Zoocat]

Yes, obviously you think that household budgets and national budgets work pretty much the same. But, you know, it isn't obvious. Not long ago, kyounge1956 initiated an explicit discussion of this.

This is begging the question. You're trying to show that there is[/FONT][/COLOR] a problem.

You're not coming to grips with the question. Why does the money have to come from somebody? That's what I'm asking.

Not sure I understand what you're asking, but I'll give it a shot.

Surely you're aware that our government borrows a large percentage of what it spends every year. I've read 40 cents of every dollar is borrowed. China, Japan, and Middle Eastern soverign wealth funds had been lending us the money until recently. The FED has been buying most of the short term treasuries this year. That process is supposed to end in June.

So, if our government must borrow, then it must attract lenders. Since our former borrowers are not too interested in lending at those wonderfully attractive rates (1%) , the FED will likely be raising rates at some point in the near future. No one knows how high rates will have to rise.

If interest on the current debt rises, a larger percentage of the federal budget will be paid to service new debt. That leaves less and less for other stuff. And that means that, unless our government spends less and/or raises revenue, the deficit will grow larger.

As for raising taxes to pay the interest, we have seen how difficult it is for congress to pass a budget bill for six months. The Republican Party is not anxious to raise any taxes. Our lenders can obviously see this and it doesn't make a good impression.

 

[GregLee]

If interest on the current debt rises, a larger percentage of the federal budget will be paid to service new debt. That leaves less and less for other stuff.

Does that really follow? It would follow if the size of the federal budget remained constant. But of course we know that it doesn't remain constant.

 

[Zoocat]

Does that really follow? It would follow if the size of the federal budget remained constant. But of course we know that it doesn't remain constant.

You're right. It doesn't necessarily follow. I was trying to simplify it. The budget could get larger with emergency expenditures or windfall revenues or smaller because of, who knows? It's all speculation for everyone. There's no easy answer.

 

[NW-Bound]

Does that really follow? It would follow if the size of the federal budget remained constant. But of course we know that it doesn't remain constant.

You, you mean that it can even .... shrink?

 

[Zoocat]

You, you mean that it can even .... shrink?

Anything is possible.

 

[Purron]

I really don't know why our esteemed woman forum members are obsessed with shrinkage. You were speaking from personal experience perhaps, but I really do not think the gummint's budget is so susceptible to such aging effects.

Yeah, I agree with you. That was a pretty silly post. I deleted it.

 

[haha]

Agreed- But at this point I can't fathom it ever happening. Look at all the ballyhooing over the proposed defunding of Planned Parenthood to save a few billion and how it was going to affect women's healthcare.

Glad you mentioned that. Planned Parenthood, when externalities are considered, is likely one of the few federal programs that not only pays for itself but returns a society wide profit.

Ha