The Federal Budget And Why The US Is In Trouble

[GregLee]

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Originally Posted by rescueme 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.

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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.

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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]

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Originally Posted by sheehs1 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.

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Originally Posted by GregLee 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]

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Originally Posted by eridanus 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

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 Wall Street Journal 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."

[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]

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Originally Posted by dex 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/pub...guson-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:

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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

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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]

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Originally Posted by 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.

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]

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Originally Posted by GregLee 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.

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Originally Posted by GregLee 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]

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Originally Posted by GregLee 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]

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Originally Posted by Oldbabe 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]

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Originally Posted by GregLee 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]

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Originally Posted by GregLee 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]

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Originally Posted by NW-Bound You, you mean that it can even .... shrink?

Anything is possible.

[Purron]

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Originally Posted by NW-Bound 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]

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Originally Posted by novaman 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

[Westernskies]

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Originally Posted by haha 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

+1

[beowulf]

SS may be 22% of the budget, but for now and at least the next 7 years or so, the money that has already been collected and is in the SS trust fund plus each year's revenue is adequate to pay for all benefits. The fact that the government spent that money on something else and now has to pull the money out of general revenues is not the fault of the people who contributed. According to the SS Trustee's 2010 report, in 2018 the DI part of the fund will be exhausted and the main portion will run out in 2036. From 2037 until 2084, income from the SS tax will fund 75% of annual benefits. For SS, the bottom line is that the only reason it's such a large percent of the budget is that it was spent - but not on SS. How is it fair to cut SS when the money for it was already collected and should be available?

Medicare is a bit more complex, but here is a quote from the same report:
"The projected date of HI Trust Fund exhaustion is 2029, 12 years later than in last year’s report, at which time dedicated revenues would be sufficient to pay 85 percent of HI costs. The share of HI expenditures that can be financed with HI dedicated revenues is projected to decline slowly to 76 percent in 2045 and then to rise slowly, reaching 89 percent in 2084."

Given the fact that the money has been paid in for these benefits and has been spent by politicians, how is it fair or reasonable to cut these benefits until money from general revenues is actually needed? What is happening now is that the IOUs given to SS and Medicare are coming due and it appears on the budget. But NO actual money for these programs would have been needed from general revenues had the money not been stolen by politicians of both parties.

I am tired of hearing misinformation that gives the impression that both funds are broke and our FITs are paying for them - that's only the case because our elected thieves stole the money .

[brewer12345]

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Originally Posted by NW-Bound 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.

The economics of fuelling cars with nat gas is quite attractive, at least at current nat gas and oil prices. The problem is that the infrastructure does not currently exist, although the technology is available. I was poking around at a company that specializes in exactly this sort of equipment, and if you go look at their latest investor presentation they lay out the cost comparison very nicely: http://www.corporate-ir.net/Media_Fi...esentation.pdf

Retrofitting vehicles to do this is possible, although it wold be easier to d via OEM installation. Whether the existing natural gas delivery infrastructure is up to the task of millions of vehicles runng on nat gas, I could not say.

I would also point out that unless there is a radical change in the supply and cost of US natural gas, it is highly likely that the US will begin exporting LNG in increasingly large quantities in the next few years. If you look at the trend of coal exports since 2005, I expect we will see a similar trajectory.

[NW-Bound]

I do not follow the production of nat gas closely, but remember that in the past there have been some shortages and high prices.

In the early 2000s, a company called Calpine had a plan to build smaller electric producing plants throughout the nation. Their role was to produce power during peak periods to supplement larger plants, and being close to or even sitting among city centers, they had to run on clean burning nat gas.

Calpine went bankrupt. There were many factors, but the higher price of nat gas then was a factor. I also remember some winters when Easterners were complaining of the higher cost for heating with nat gas. I do not know why is it abundant now.

[haha]

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Originally Posted by NW-Bound I do not follow the production of nat gas closely, but remember that in the past there have been some shortages and high prices. In the early 2000s,a company called Calpine had a plan to build smaller electric producing plants throughout the nation. Their role was to produce power during peak periods to supplement larger plants, and being close to or even sitting among city centers, they had to run on clean burning nat gas. Calpine went bankrupt. There were many factors, but the higher price of nat gas then was a factor. I also remember some winters when Easterners were complaining of the higher cost for heating with nat gas. I do not know why is it abundant now.

Part of the shortage back then was Enron and manipulation.

But more importantly, a whole new source of gas supply opened up by using two new production techniques-horizontal drilling, and hydro-fracturing. This allowed gas from very tight formerly unproductive shale formations to be produced. If you want to read about it, read about George Mitchell in the Barnett Shale around Ft. Worth. His vision got it all started.

Mitchell is an incredible innovator and businessman. In addition to Mitchell Energy which made it to FOrtune 500 stateus before merging with Devon, he also built the Woodlands, an upscale community near Houston.

Ha