|'You keep spending more money than you take in|
and you will get in trouble one day, Linus!'
We grew up in the days of $300 billion annual budget deficits in the early 1980's. That doesn't sound like a lot in these days where $1 trillion deficits were yawned at by the Obama Administration for 4 years after the fiscal crisis was over. They even brag today about 'bringing the deficits down by 1/2!' during his term in office, which still puts them at the $500 billion annual deficit level as if something monumental has been achieved.
Way back when, $300 billion annual deficits were really a big deal. They represented close to 30% of the annual federal budget which was $808 Billion in total in 1983 if you can believe that or not.
People ran for federal office in the 1980s and 1990s specifically to address the deficit and balance the budget. Adults back then intuitively knew something had to be done about them eventually and, eventually in 1997, the adults in the Clinton White House and the adults in the Republican House and Senate got together and passed the Balanced Budget Act of 1997 and we got 4 successive budget surpluses from 1998-2001.
So it can be done. No doubt about it. It is right there, proof in the history books.
$1 trillion budget deficits in 2009-2012 represented about 30% of annual federal budgets as well. But you know what was different?
Back then, the national debt held by the public and foreign sovereigns was about $1 trillion and represented about 30% of GDP.
Today? Our national debt held by the public has ballooned to over $13 trillion ($18 trillion overall) and represents over 72% of GDP.
(We consider intragovernment debt between the federal government and 'trust funds' (sic) such as in Social Security about as seriously as CBO does which views them as having 'no economic value whatsoever'. Debt between government agencies is ephemeral at best and really comes down to this one day: raising your taxes or cutting spending in other programs to 'pay off' those debts down the road)
CBO has just released their 2015 Long-Term Budget Forecast and in it you will read the following chilling words that no one in the Obama Administration wants you to read, nor will they ever tell you it is all that important for you to read.
But it is. It should shape the way you look at any candidate running for President, Congress or the US Senate for the rest of your life. It should also change the way you look at the Federal Government as the never-ending piggybank that never runs out of money to spend on anything anyone wants in this country.
'How long the nation could sustain such growth in federal debt is impossible to predict with any confidence. At some point, investors would begin to doubt the government’s willingness or ability to meet its debt obligations, requiring it to pay much higher interest costs in order to continue borrowing money.
Such a fiscal crisis would present policymakers with extremely difficult choices and would probably have a substantial negative impact on the country. Unfortunately, there is no way to predict confidently whether or when such a fiscal crisis might occur in the United States. In particular, as the debt-to-GDP ratio rises, there is no identifiable point indicating that a crisis is likely or imminent.
But all else being equal, the larger a government’s debt, the greater the risk of a fiscal crisis.'You want to go through 2008-2011 again? How much of a 'fiscal crisis' do you want to go through again? More importantly, how much of an economic crisis do you want to put your children and grandchildren through? Haven't we already caused them enough problems already?
We are not really even out of the last economic retrenchment yet by all indications and reports. The Fed under Janet Yellen announced last week they were not going to raise interest rates from near-zero levels because they are lowering their economic forecast to 1.8% this year down from an already anemic 2.7% from their previous forecast not more than 8 months ago!
Go ahead. Put your feet up sometime this week and stay inside during this hot weather and read this CBO Long-Term Budget Outlook in its entirety. We dare you to do so. It is only 128 pages including charts and footnotes and acknowledgements and, for an otherwise dry subject, economics and federal budget policy, surprisingly well-written and interesting.
If you don't like history or economics but prefer fiction, pretend this is a science fiction novel where some sort of alien DNA has landed in America and is quietly and secretly infecting everything we own and do as a business or hobby or art or science. If we stop feeding the beast via deficit-spending, it will die and go away since deficit-spending is its fuel, its oxygen.
However, if we keep doing what we are now currently doing, overspending in an unbalanced, not optimally productive manner from the federal budget level, one day, without anyone knowing it, it will collapse our financial system and wreak economic havoc on everyone, rich and poor; black, white, Asian and hispanic; the washed and the unwashed.
How exciting would that sci-fi novel be?
Sadly it could happen. It has happened to hundreds of irresponsible governments in the past, even to the vaunted Roman Empire, The British Empire, the Ming Dynasty and the Soviet Union. Even CBO is ratcheting up their trumpets to sound the alarm more whole-heartedly in this report from what they have said in the past.
|'Do you really want me to know more|
about your country's finances than
However, if you do read the whole report, you will be like that Dos Equis guy who says: 'I don't often read federal budget reports. But when I do, I know more than 99.999999% of all the rest of you American citizens out there'
Be like the Dos Equis guy then.
Excerpts from the CBO report:
- With deficits projected to remain close to their current percentage of GDP for the next few years, federal debt held by the public would remain at a very high level, between 73 percent and 74 percent of GDP, from 2016 through 2021. Thereafter, the larger deficits would boost debt—to 78 percent of GDP by the end of 2025.
- At the end of 2008, federal debt held by the public stood at 39 percent of GDP, which was close to its average of the preceding several decades. Since then, large deficits have caused debt held by the public to grow sharply—to 74 percent of GDP in 2014; debt is projected to stay at that level in 2015. Debt has exceeded 70 percent of GDP during only one other period in U.S. history: from 1944 through 1950; it peaked at 106 percent of GDP in 1946 because of the surge in federal spending that occurred during World War II (see Figure 1-1).
- CBO projects that, under current law, net outlays for interest would jump from 1.3 percent of GDP this year to almost 3 percent 10 years from now. By 2040, interest costs would be 4.3 percent of GDP, bringing total federal spending to over 25 percent of GDP (see Figure 1-4). Federal spending has been larger relative to the size of the economy only during World War II, when it topped 40 percent of GDP for three years.
- Total national spending on health care services and supplies—that is, by all people and entities in the United States, governmental and nongovernmental—increased from 4.6 percent of gross domestic product (GDP) in calendar year 1960 to 9.5 percent in 1985 and to 16.4 percent, about one-sixth of the economy, in 2013, the most recent year for which such data are available.
- Federal spending for Medicare (net of certain receipts, termed offsetting receipts, which mostly consist of premiums paid by beneficiaries) and Medicaid rose from 2.0 percent of GDP in 1985 to 4.7 percent in 2014. Underlying those trends is the fact that health care spending per person has grown faster, on average, than the nation’s economic output per capita during the past few decades. The Congressional Budget Office estimates that growth in health care spending per person outpaced growth in potential (or maximum sustainable) GDP per capita by an average of 1.4 percent per year between calendar years 1985 and 2013.
- Key factors contributing to that faster growth were the emergence and increasing use of new medical technologies, rising personal income, and the declining share of health care costs that people paid out of pocket. Those factors were partly offset by other influences, including the spread of managed care plans in the 1990s, the 2007–2009 recession, and various legislated changes in Medicare’s payment policies.
- Discretionary Spending A distinct pattern in the federal budget since the 1970s has been the diminishing share of spending that occurs through the annual appropriation process. Between 1965 and 2014, discretionary spending declined from 66 percent of total federal spending to 34 percent. Relative to the size of the economy, that spending decreased from 10.9 percent of GDP to 6.8 percent.
(editor's note: If you think the federal government should be spending more money on education, roads, research and development, the environment, welfare and any other assorted programs, don't blame the Republicans for this drop, blame the seniors and their lobby, the AARP. Because every time senior lobbying groups such as the AARP stop any discussion about entitlement reform, your favorite discretionary program just keeps getting nibbled to death by ducks as the startling numbers above prove)