Question About the Deficit

According to today's news from the CBO:

Over the next decade, the CBO expects shortfalls to begin declining after 2004, posting a cumulative deficit of $1.397 trillion between 2004 and 2013.

http://cbs.marketwatch.com/news/story.asp?guid=%7BD4F4B094%2D88E3%2D4CC1%2D807E%2DB21A9D16CB5E%7D&siteid=mktw

So, the CBO is expecting shortfalls to begin declining after 2004. What on earth makes them to expect the deficit decline after 2004? The deficit right now is already $480 billion, and they're expecting a cumulative deficit of only $1.397 trillion between 2004 and 2013??? We only have $918 billion more to go to reach their own projection. Using their projection, they expect annual budget deficits of only $100 billion between now and 2013??!!

So, here's my question. What is the CBO smoking?

They recently revised their estimates for productivity up.

and more. Aren't you just thrilled?

Do you honestly think that they'll let the tax cuts expire? You cannot assume such things. Judging by the political climate, the tax cuts will remain in place.

given that most of the US debt is owed to foreign countries and some of those same countries are making noises to shift to the euro, what will that do to the debt? Won't that make paying even any interest on the debt skyrocket? Does the CBO have an analysis of that very possible scenario?

I'm no expert on this, but your concern doesn't seem to be warranted.

It would cause interest rates on newly issued government debt & mortgages to skyrocket.

I don't have the exact numbers offhand, but a lot of that debt is to things like the Social Security Trust Fund, which is required to invest only in Treasury backed securities. Or used to be, anyway. Who knows-- Shrub may have given to his hedge fund friends like he did a Texas retirement fund.

Anyway, a vast amount is domestic, particularly the short-term Treasuries. Most of it, I think, but I'd have to check, which I can't be arsed to do at the moment.

Now, about that foreign debt, though. What that foreign investment is doing is paying for the current account deficit, which is getting enormous and is completely out of hand. Without hundreds of billions a year coming in, we have no way to pay for our imports except to send gold overseas. So, we export Treasury bills and bonds instead of products or selling gold reserves.

Should that investment dry up, as it might, we are, quite simply, doomed.

Another wrinkle--

One of the most important, but unstated and largely unreported, reasons for going into Iraq was that Iraq had changed it's oil sales from dollars to Euros. This caused us vast amounts of money in the conversion when we bought Iraqi oil, and made Iraq richer on the conversions. Other OPEC nations were thinking of doing the same thing, since the overall EU economy seems more stable than ours. They also tend to import more from the EU than us, and that would reduce their expenses.

Well, it looks like it's gonna be petrodollars, and not petroeuros for some time to come. And it's only costing us how many billions a month to maintain the status quo?

"Follow the money..."

apparantly you underestimate just how devistating this has been to tax revenues. Even without the tax cuts or the war, we would have gone deficit owing to loss of tax revenue.

The tax cuts are perhaps 50b a year the war we'll call 100b. We'll say I'm 30b off and call it 180b on those two. That leaves us 300b in the holefrom somewhere else.

Once we hit normal operating flow, all that gets better. And if the tax cuts are allowed to lapse then we go surplus to the tune of about 50b.

The economy is still teetering on the edge of disaster, with not just high unemployment but rising STRUCTURAL unemployment. The jobs that have migrated overseas aren't coming back. Only the debt-driven war expenditures and a hollow credit bubble due to low interest rates have kept everything from crashing around our ears already.

The prototypical scene is the family who took out a big mortgage, built a McMansion, & counted on 2 Yuppie incomes to pay the mortgage. Then they discover that one of their high-tech, high-pay jobs has been outsourced to India for a quarter what they were earning. They lose their health insurance with the job. Things get tough. Gas prices go up, driving food prices likewise. Property taxes go up as local gov't tries to replace missing Federal funds. Then somebody gets sick. Income loss & medical expenses follow. They try to sell out for what they owe on the mortgage, but no buyers. Interest rates have gone up, driven by the immense federal debt & by their bank having to cover their bets on a lot of low-interest loans gone bad.

The only way out--bankruptcy.

That same couple is no longer paying thousands of dollars in local, state, and federal income and sales taxes, which puts these governments into deficits, which mean layoffs of government workers. Additionally, that couple is no longer eating out at restaurants, taking expensive vacations, nor buying new clothes every season, which means that workers in the travel, hospitality, and retail industries will lose their jobs.

a week or so ago, that it has fallen back into recession which it just got out of a year ago.

Let me get my future value calculator.

If you start saving at age 21 $ 200 per month, and keep doing that until you retire 44 years later, and you make 7 % per year interest, you will have at age 65 ................ $ 683,398.35.

Same story, but you make 9 % interest per year, you end up with.................. $ 1,259,660.96

So, are your investtments going to make 7 % or 9 %? No one knows, so they estimate or guess. But the problem is a tiny difference in the guess makes an incredibly huge difference in the numbers.

BTW -- same story and you make 10 %, it comes to ..............................$ 1,722.971.61.

A difference of half a million dollars because of a 1 % difference.

Same thing with the economy. The difference between a 4 % growth and a 1 % growth is just huge, especially over a long period of time. That's how there can be a $ 500 billion swing in estimates when the government has only tinkered $ 30 billion here, $ 100 billion there.

is largely what they're pinning it on. That and reduced spending. (HA!)

It's all crap, though, since no one can project more than a year or two ahead, and even that is a stretch. Another war, another earthquake, another round of layoffs...

The real deficit for the current financial year is $480 billion + approx $250 billion in transfers from social security. Meaning of every three dollars the US Gov spends roughly one is being borrowed. This is a lot worse than Argentina was... and you are right it means that the idea that it is going to be turned around next year is pure fantasy.

Several people have pointed out that the reported deficit is roughly the same size as the US military budget - meaning (given that the US also has a record Trade and Current Acccount deficit) that the rest of the world (i.e. Europe and Japan) are in fact paying for the entire US military complex. This too us presumably unsustainable.

The outlook is far more dire than the CBO headlines. First and foremost, the projections count SSTF (Social Security Trust Fund) surpluses as offsets to general federal spending when, in fact, the SSTF is a creditor (holds IOUs). Thus, the projected cumulative $1.4 trillion deficit through 2013 becomes $3.8 trillion. More significantly, the CBO's optimistic projections past 2010 presume the complete phaseout of the Welfare For The Wealthy "taxcuts." It's folly, Polly. The "Cash And Carry" government in DC (Deceit and Corruption) will never allow these perquisites for the powerful to be completely phased out, especially when the mortgage comes due.

The Total Deficit or Surplus as a Share of GDP, 1965-2013

Thus, the above chart is, at best, misleading. It shows the net annual surplus/deficit, but does not show either the SSTF surplus/deficit (which was close to zero in 1983) nor the building national debt as a percentage of GDP. It's a near certainty that our nation will owe over 50% of its annual GDP by 2013 -- a national debt unmatched in our history. If the fiscal responsibility of Clinton/Gore had continued, we were looking forward to being debt-free. That's what the rape and pillage politics of fascist neoconservatives has brought us.


On edit: It's well worth noting that defense spending far exceeds the deficit. Total projected defense spending (other than Iraq!) through 2013 is over $5.1 trillion. Calling it "defense" is the epitome of Orwellian doublespeak. Far more than the aggregate deficit is 'offensive' spending.
It's also worth noting that the cumulative interest outlays on the increasing national debt, over and above the 'interest' shifted to the SSTF, will exceed $2.6 trillion -- which would more than pay for an adequate national defense!

The reason why the CBO estimates project the shrinking deficit in future years is because the Bush tax cuts are scheduled to expire after ten years. Of course this isn't really going to happen, but the CBO is required to use these assumptions in their calculations. In all likelihood, most of the tax cuts will be made permament, and Congress will reform the Altnernative Minimum Tax, and as a result, the deficits will be much larger.

In Table 1-6, the CBO notes that extending the expiring tax provisions would increase the aggregate deficit by nearly $1.6 trillion through 2013.