US Deficit Grows to Record

[DrChinese]

US Deficit grows to over $400 BILLION in 2003, perhaps a record $500 billion in 2004! (That's a "b" as in "beellion")

Why, I haven't seen a budget deficit this big since Bush Sr. was in office (1992)! Remember that previous MO-RON president named Bill something or other... he was dumb enough to run SURPLUSES for most of his last term. The fiend...

I'm sure the over 1 million additional Americans unemployed since Bush Jr. took office will be happy to learn: if they win next week's Powerball jackpot, their tax bill will be substantially less! Thanks, George.

 

[Aoidoi]

While Bush is indeed getting on my nerves, don't you think that the collapse of the internet and tech booms had a bit to do with this? Clinton's surpluses were based on imaginary money, and now that it has vanished we're stuck with reality.

I don't know that Bush is handling this correctly (I'm not even sure if there is a "correct" way to handle it), but praising Clinton for presiding over the largest pump-and-dump scam in history and blaming Bush for it's collapse seems a tad... partisan.

What would you prefer Bush to do? What programs do you want him to cut? Or do you want him to increase taxes? If you're going to blast him for the deficit you might want to suggest how he should be improving the situation.

 

[Malachi151]

While Bush is indeed getting on my nerves, don't you think that the collapse of the internet and tech booms had a bit to do with this? Clinton's surpluses were based on imaginary money, and now that it has vanished we're stuck with reality.

I don't know that Bush is handling this correctly (I'm not even sure if there is a "correct" way to handle it), but praising Clinton for presiding over the largest pump-and-dump scam in history and blaming Bush for it's collapse seems a tad... partisan.

What would you prefer Bush to do? What programs do you want him to cut? Or do you want him to increase taxes? If you're going to blast him for the deficit you might want to suggest how he should be improving the situation.

I agre Aoidio, and I hate it every time I hear people talk about this, because it avoids the real issues. Bush is wrong in his approach, but by not gettign to the roots of that the arguments presented are pure crap and meaningless.

I also predict a continued weakening of the dollar over the next 20 years which is going to make the deficit even worse.

 

[CapelDodger]

Does anyone know how much of the change during this administration is down to tax-cuts that the Democrats wouldn't have made (like inheritance tax) and extra spending they wouldn't have made (such as the Notional Missile Defence)?

 

[Ziggurat]

While Bush is indeed getting on my nerves, don't you think that the collapse of the internet and tech booms had a bit to do with this? Clinton's surpluses were based on imaginary money, and now that it has vanished we're stuck with reality.

The exhuberence was based on imaginary money. The surplus itself was quite real, even if it wasn't going to last.

I don't know that Bush is handling this correctly (I'm not even sure if there is a "correct" way to handle it), but praising Clinton for presiding over the largest pump-and-dump scam in history and blaming Bush for it's collapse seems a tad... partisan.

Clinton was not wholy responsible for the surplus. But he didn't screw it up. He actually exercised fiscal responsibility. Spending didn't shoot way up when government revenues did. That is something to be praised.

Bush, on the other hand, has done an amazingly bad job. First he says he'll give a huge tax cut BECAUSE we have a surplus, but he lies about the nature of that tax cut (denying it goes mostly to the very wealthy). Then the surplus vanishes, he keeps the tax cut even though the original justification is gone, invents a contradictory one, and piles MORE tax cuts on top. And to make things worse, he doesn't try seriously to cut spending - it's been growing quite rapidly. At this point, our deficit woes are more the result of excessive tax cuts without corresponding spending restraints than the result of the economic downturn.

What would you prefer Bush to do? What programs do you want him to cut? Or do you want him to increase taxes? If you're going to blast him for the deficit you might want to suggest how he should be improving the situation.

I didn't want Bush to give massive tax cuts targeted primarily at the very wealthy in the first place, so I don't really think of it as "raising" taxes. Many of these cuts are set to expire (making them "temporary" decreases the initial price tag) in a while, but this is a ruse: now that they're in place, politicians can argue that repealing the expiration date is avoiding raising taxes. But at that point they just argue about the fairness of "raising" taxes, and not about the cost. It's a sleight of hand to hide the true cost when initially implemented So I would like to see some honesty out of Bush. But that's about the only thing this administration can't come up with. Bush needs to repeal most of his tax cuts if he wants to show any fiscal responsibility at all, but I don't think he actually cares about that. He seems quite willing to let his successor deal with that little problem and make the unpopular hard choices.

 

[Grammatron]

I also predict a continued weakening of the dollar over the next 20 years which is going to make the deficit even worse.

How do you define the dollar weakness and continuing weakness?

 

[Aoidoi]

Bush's insistence on tax cuts does seem problematic. I suspect he's being told that the tax cuts will stimulate the economy, but I have no idea whether that's true or not (ask 2 economists and get 3 answers, etc.). From a simple income vs. expenditure point of view it is certainly foolish.

Some of the tax cuts are certainly aimed at the wealthy... the inheritance tax cut and such in particular. I disagree with an inheritance tax on principle (it's taxing the same money at least twice, and so on), but if it's to be removed then some way to make up the difference in revenue needs to be devised. There is the issue that the wealthy pay most of the taxes so any tax cut is likely to benefit them more, and since the least wealthy pay no taxes it seems pretty clear a tax cut won't benefit them, but it seems somewhat odd that even with an issue almost impossible to dislike (tax-cuts) Bush doesn't seem to be doing so in a way that's making him popular. It's either incompetence or he's playing a different game entirely, I don't know which.

I would, as CapelDodger, like to see some good numbers on how much of the deficit is due to the tax cuts, how much is due to our military operations, and how much is due to the economic slowdown. Unfortunately, Washington D.C. doesn't seem likely to give us any good numbers on this sort of thing since it's their *ss in a sling if people figure out how they're operating. If the deficit is largely a result of the tax cuts then the issue seems pretty clear... just reinstate the taxes. If it's due to other things (and I strongly suspect most of it is) then other measures need to be taken.

Personally, I think that they could probably cut spending massively just by removing pork barrel spending, but even that would be putting people out of jobs and hurting local economies, so it's an inevitably messy situation.

Ok, enough slacking off... back to work for me.

 

[Crossbow]

Another scary element is that the extended budget projection figures assume that the two recent tax cuts will be rescinded on schedule.

But if they are not, the deficits then will substanitially break next years record due to the additional load caused by baby-boom retirees.

 

[Malachi151]

How do you define the dollar weakness and continuing weakness?

Lower international demand for the US dollar as the world moves away from greenbacks as the backbone of the international reserve system.

This is neither our fault or thier wrong doing, it is just simply that after WWII the US had the strongest currecny and had accumulated over half of all the gold in the world. This gold backing made the US dollar untouchable, but then Nixon cut the tie between gold and paper money making that gold essentially meaningless in terms of dollars, which was a mostly good thing but it paved the way for the move away from the dollar, and as the rest of the world has slowly recovered from WWII, which has taken about 50 years, we have at the same time come down off our WWII high. The greenback is no longer meaninful as a centerpiece of world trade, and in fact many people want to get away from it, which is partly why there is a puch for the euro.

As the US dollar loses favor and is shed is a reserve currency by every nation in the world it will lose value. As the dollar weakens it gets harder and harder to pay of debts because the interest continues to climb and the values stay steady as the dollar slides meaning that it takes more and more money to pay off the debt. As that debt becomes a greater burden the dollar will lose even more value, it could begin getting dumped in massive quantities flooding the makert with dollars and causing a major problem with the money supply and massive deflation making our debt unbearable. It can be a vicious cycle that leads to major economic problems.

The same way that gold restrained the US economy before would not serve as a crutch to hold it up, but now we have cut that line and our dollars are backed with thin air instead of gold, which makes the dollar highly succeptable to deflation. Getting off the gold standard was great in an economy of inflation and growth, but in the opposite it can be a nightmare.

 

[CapelDodger]

from Malachi:

I also predict a continued weakening of the dollar over the next 20 years which is going to make the deficit even worse.

One thing the US has going for it is the fact that their international debt (a separate subject, I realise, but you've brought it up) is denominated in dollars. So one way to reduce the international part of the national debt is to inflate/devalue the dollar. In fact, let it go the way of the German mark in the 20's and it can be paid off with 200 Marlboros.

from Gramatron:

How do you define the dollar weakness and continuing weakness?

Weakness means a distinct long-term decline, a tendency to take sharp drops without making sharp gains. It results in having to pay higher interest rates (to compensate for risk and exchange losses) and domestic inflation (as prices of imports rise). However, it is overall (other things being equal) good for employment and investment. (Borrow to make productive investments, then pay back later with devalued money.) If this get out of hand, of course, you get a complete breakdown and you have to re-boot. (see Argentina)

 

[CapelDodger]

From Malachi151:

... but then Nixon cut the tie between gold and paper money making that gold essentially meaningless in terms of dollars,

Not a primary cause, of course; why did Nixon (of the strong-money Republican tradition) do it? The reason was the Vietnam War. It was fantastically expensive, but neither Johnson nor Nixon were prepared to raise taxes to pay for such an unpopular war. So they funded it by, in effect, printing money (you have to follow a convoluted trail to discover that, but that's essentially it). The extra dollars disappeared into the world system where everybody wanted them, and weren't concerned about converting them to gold. This was the basis of the euro-dollar and petro-dollar funds that were washing around in Europe and the Middle East in the late 60's and 70's. Enough of them trickled back for conversion - "I'd like to cash this in, please" - that the bluff was called. So Nixon just changed the rules. (The Bank of England did it a long time ago.)

 

[CapelDodger]

From Malachi151:

As the dollar weakens it gets harder and harder to pay of debts because the interest continues to climb

Not if you funded the debt by issuing bonds. These have a fixed interest rate. The interest rate is payed on the nominal amount of the bond, so the effective interest-rate to the holder varies with the actual price they payed for the bond - the cheaper the bond, the higher the effective interst-rate. But the bond-issuer (in this case the government) continues to pay the fixed interest on the nominal value, and re-pays the nominal value at expiry of the bond (which may be 10 or even 20 years ahead). If the currency has devalued in the meantime by, say, 20% the bond-issuer has gained that 20%.

 

[Ziggurat]

From Malachi151:
"As the dollar weakens it gets harder and harder to pay of debts because the interest continues to climb"

Not if you funded the debt by issuing bonds. These have a fixed interest rate.

I think Malachi misstated the problem with a weakening dollar. If the dollar weakens (which can be a self-promoting effect if foreign investors start dumping dollar-denominated bonds), then bond investors will demand a higher interest rate to compensate. And it's that higher interest rate that will make paying off debt more difficult unless you want inflation, which isn't much fun either. If the national debt is huge, then either taxes go up to pay for it, or the government prints more money to pay for it and the public loses wealth from inflation. A strong dollar is postponing this issue (we can sell government bonds at low rates right now), and a weak dollar will hasten it.

 

[Grammatron]

Lower international demand for the US dollar as the world moves away from greenbacks as the backbone of the international reserve system.

This is neither our fault or thier wrong doing, it is just simply that after WWII the US had the strongest currecny and had accumulated over half of all the gold in the world. This gold backing made the US dollar untouchable, but then Nixon cut the tie between gold and paper money making that gold essentially meaningless in terms of dollars, which was a mostly good thing but it paved the way for the move away from the dollar, and as the rest of the world has slowly recovered from WWII, which has taken about 50 years, we have at the same time come down off our WWII high. The greenback is no longer meaninful as a centerpiece of world trade, and in fact many people want to get away from it, which is partly why there is a puch for the euro.

As the US dollar loses favor and is shed is a reserve currency by every nation in the world it will lose value. As the dollar weakens it gets harder and harder to pay of debts because the interest continues to climb and the values stay steady as the dollar slides meaning that it takes more and more money to pay off the debt. As that debt becomes a greater burden the dollar will lose even more value, it could begin getting dumped in massive quantities flooding the makert with dollars and causing a major problem with the money supply and massive deflation making our debt unbearable. It can be a vicious cycle that leads to major economic problems.

The same way that gold restrained the US economy before would not serve as a crutch to hold it up, but now we have cut that line and our dollars are backed with thin air instead of gold, which makes the dollar highly succeptable to deflation. Getting off the gold standard was great in an economy of inflation and growth, but in the opposite it can be a nightmare.

I think you are not keeping an eye on international currency markets. The Euro has been going down for some time now, in fact it lost almost 10% of its value against the dollar since June. Most European countries are still in recession while US appears to be coming out of it. I'm not saying that dollar will become as dominant as it once was, but I don't see any evidence that it will be progressively weakened over 20 year period, there's just no evidence of that what so ever.

 

[DrChinese]

1. While Bush is indeed getting on my nerves, don't you think that the collapse of the internet and tech booms had a bit to do with this? Clinton's surpluses were based on imaginary money, and now that it has vanished we're stuck with reality.

2. I don't know that Bush is handling this correctly (I'm not even sure if there is a "correct" way to handle it), but praising Clinton for presiding over the largest pump-and-dump scam in history and blaming Bush for it's collapse seems a tad... partisan.

3. What would you prefer Bush to do? What programs do you want him to cut? Or do you want him to increase taxes? If you're going to blast him for the deficit you might want to suggest how he should be improving the situation.

1. Collapse of tech stocks has little to do with the record deficit. The Clinton surpluses were real.

2. Clinton was not responsible for any kind of pump and dump. Bush was not responsible for Enron or Worldcom, either.

3. Bush should repeal his ill-advised tax cuts. He should focus on reducing the unemployment rate. Turning surpluses into deficits to put money in the hands of multi-millionaires violates almost every generally accepted notion of federal fiscal policy.

While Bush is not single handedly responsible for every negative element in our economy, he has mucked up just about every item possible. Clinton could explain it to Bush if he would bother to ask, since Clinton used bipartisan economics to achieve his successes in that arena.

 

[CapelDodger]

Ziggurat:
Indeed, I didn't go into the effect on new issues when the debt rolls over.

Inflation, like many things, is fine and dandy in moderation. It takes from the money-rich (bastards) and gives to the debt-rich (mortgage holders, salt of the earth). Unfortuantely, when government put their hands into that particular cookie-jar they tend to put it in up to the elbow. For instance, paying for the Vietnam War (quite an indulgence) without collecting taxes for it.

 

[CapelDodger]

From DrChinese:

2. Clinton was not responsible for any kind of pump and dump. Bush was not responsible for Enron or Worldcom, either.

Whenever the pump phase is going ii's always down to a whole new economic reality which is not going to be like the previous booms but is going to make everybody rich veru suddenly without any work involved. When it goes wrong, the gummint should have done something about it. South Sea Bubble, Bank of France, the Namibia thing in Portugal, tulipomani, 1887, 1929, 1987 and the dot.con business. It's always the same. And there are always rationalists who are watching and trying to explain reality to people who don't want to hear your message, they want to listen to the guy over there who says he'll make them rich. No politician dare say a word, since if they advise caution and the bubble bursts they'll be blamed. When the bubble does burst the boosters start searching for some third-under-secretary at the Treasury that mentioned in passing to a journalist that he thought prices were a bit high. This, apparently, was enough to bring the unstoppable juggernaut of the New Economic Paradigm to a juddering halt.

I could weep with laughter at times.

 

[Aoidoi]

1. Collapse of tech stocks has little to do with the record deficit. The Clinton surpluses were real.

Um, economy massively growing then "oops" and it's nearly flat for years? That rather obviously had an effect on tax revenue and projections of revenues. It's not the only thing, but if the economy was still going nuts like back then we'd probably not be having this conversation.

2. Clinton was not responsible for any kind of pump and dump. Bush was not responsible for Enron or Worldcom, either.

Agreed, neither was directly involved, though both did happen under their respective watches (though no one ever seems to get prosecuted for these crimes which are far worse than some slob knocking over a bank... though I digress), but the tech bubble was largely a result of the big investment banks pulling a gigantic pump and dump scheme on... well, everyone else. This was largely responsible for the increase in tax revenue during the 90s. Just one aspect of a complex issue.

3. Bush should repeal his ill-advised tax cuts.

Well, most everyone appears in agreement on that one. Oddly enough.

He should focus on reducing the unemployment rate.

How? The only way I can think of off hand is increased goverment hiring, which wouldn't improve the deficit situation.

Turning surpluses into deficits to put money in the hands of multi-millionaires violates almost every generally accepted notion of federal fiscal policy.

I think that was largely the basis for Reagan's Trickle Down theory. Not that I'm saying Reagan was right, but it's not like Bush is blazing his own trail here. Cutting taxes and increasing spending was viewed as a good idea by Reagan and Bush I, after all. (counter-intuitive as that may be)

While Bush is not single handedly responsible for every negative element in our economy, he has mucked up just about every item possible. Clinton could explain it to Bush if he would bother to ask, since Clinton used bipartisan economics to achieve his successes in that arena.

An interesting assertion... what did Clinton due that Bush should be doing? I recall very little in the way of fiscal policy from Clinton (i.e. his fiscal policy seemed to be do whateve Greenspan says), but I can't think of any particulars. What did you have in mind?

 

[EvilYeti]

Hey folks, this is real simple, if you cut taxes and increase spending, you get a deficit. I don't have a problem with cutting taxes (though I think the lower income should benefit more than the wealthy) but Bush then decided he wanted to fight a very costly war.

Dubya really should take some night classes on economics at the local community college, or something.

 

[DrChinese]

1. Um, economy massively growing then "oops" and it's nearly flat for years? That rather obviously had an effect on tax revenue and projections of revenues. It's not the only thing, but if the economy was still going nuts like back then we'd probably not be having this conversation.

2. [Pump and dunp] was largely responsible for the increase in tax revenue during the 90s.

3. An interesting assertion... what did Clinton due that Bush should be doing? I recall very little in the way of fiscal policy from Clinton (i.e. his fiscal policy seemed to be do whateve Greenspan says), but I can't think of any particulars. What did you have in mind?

1. If GNP levels off, all other things equal, then the surpluses Clinton generated should have continued. That hasn't happened. So it relates to changes since Bush has been in office.

2. You won't find too many who agree with that assessment. People tend to pay taxes on realized appreciation, not paper fortunes.

3. Clinton did a lot of middle of the road things that were not flashy, but produced results. He kept unemployment down, the surplus up and used a bi-partisan approach that inspired a lot of confidence on Wall Street. Robert Rubin (Republican who served as Clinton's Secretary of the Treasury) is an example, the street loved him.

Come on, Bush apologists! Where are you? Surely you can fabricate some cockamamie explanations why presidents named Bush (6.5 years so far) have sorry economic performance records (rising unemployment, record deficits), while presidents named Clinton (8 years so far) do much better (soaring stock market, surpluses). Or do you still insist it's just "coincidence"?