US Deficit to hit 2.6 Trillion?

[a_unique_person]

http://www.theage.com.au/news/Business/US-deficit-to-blow-out/2005/03/05/1109958152730.html

The US budget deficit will reach $US2.6 trillion ($A3.29 trillion) over the next 10 years under the budget request President George Bush submitted to Congress last month, according to the non-partisan US Congressional Budget Office.

The deficit projection compares with $US980 billion over 10 years under a Budget Office forecast that excludes spending and tax policies that Congress has not yet approved.

The agency estimated this year's deficit would reach $US394 billion under Mr Bush's plans, including his recent request for about $US82 billion more to cover costs of the war in Iraq. Last year, the deficit reached a record $US412 billion.

Analyst Stan Collender, managing director of the Washington office of Financial Dynamics, a business consulting firm, said the long-term deficit may be larger than the agency estimates. Mr Bush's budget did not include any future costs for Iraq, or the costs of his plan to create private social security accounts. The Budget Office earlier estimated that implementing the accounts would cost up to $US2 trillion.

 

[Bruce]

Ok, I'm going to risk my neck and expose a bit of ignorance. I don't have any formal education in economics, international trade, or the detailed mechanics of government budgeting or spending. I keep hearing terms like deficit, national debt, etc. followed by impossibly huge numbers that my poor little mind cannot fathom.

I know I'm going to regret asking this, but could someone please explain, in terms that a humble little PhD chemist can understand, what a deficit of 2.6 trillion actually means? Where the money comes from to pay it? How the Democrats propose to pay it? How it's going to affect little old me?

Were I a six year old, I would ask something like, "Why doesn't the government just go to the mint and print out 2.6 trillion dollars in cash?"

I'm going to put on my body armor now and prepare for a severe beating. Go to it, Shane.......

 

[shuize]

In light of Bruce's question, I'm going to follow up and ask, does the relationship between a country's debt and its GDP (abilty to repay) mean anything?

If it does, then the U.S. is better off than Canada and much of Europe. But since you never hear that, I suppose I could be wrong.

 

[a_unique_person]

From my point of view, a deficit is not in itself a bad thing, if it is used for 'good' things. That is, infrastructure, etc.

It is the Republicans who seem to have the regular refrain that it's a bad thing, then make them bigger than the Democracts do. Reagan was a classic, berating Carter for having a monster deficit, then leaving with an even bigger one.

 

[Bruce]

From my point of view, a deficit is not in itself a bad thing, if it is used for 'good' things. That is, infrastructure, etc.

It is the Republicans who seem to have the regular refrain that it's a bad thing, then make them bigger than the Democracts do. Reagan was a classic, berating Carter for having a monster deficit, then leaving with an even bigger one.

I suppose it sounds selfish of me, but I actually hope that most Americans are as ignorant about the meaning of the deficit as I am. That way, I don't feel so stupid.

I know that if I spend more money than what is in my budget, I lose my job, but the government doesn't work they same way as my little world. If I run up an impossible debt, and then declare bankruptcy, I lose all my credit and live a hard life, but my debts are nulled. I have no idea what that does to my country on the broad scale. Given all the avenues of money exchange ranging from insurance to minting of new coins, I'm not 100% confident that the most educated economists could answer that question.

As it stands, there are probably many people that understand such matters than me. I feel like such a hick when politicians bash each other about the deficit, national debt, value of the dollar, the Nasdaq, etc. when I have very little understanding what it all means.

Yes, shame on Bush for running up such a huge deficit. The bastard. If Kerry were in office, there wouldn't be such a huge deficit..........would there?.......what's a deficit?

 

[Rob Lister]

Ok, I'm going to risk my neck and expose a bit of ignorance. I don't have any formal education in economics, international trade, or the detailed mechanics of government budgeting or spending. I keep hearing terms like deficit, national debt, etc. followed by impossibly huge numbers that my poor little mind cannot fathom.

I know I'm going to regret asking this, but could someone please explain, in terms that a humble little PhD chemist can understand, what a deficit of 2.6 trillion actually means? Where the money comes from to pay it? How the Democrats propose to pay it? How it's going to affect little old me?

Were I a six year old, I would ask something like, "Why doesn't the government just go to the mint and print out 2.6 trillion dollars in cash?"

I'm going to put on my body armor now and prepare for a severe beating. Go to it, Shane.......

I'm not an economist either but I'll stick my nose in. The deficit comes from borrowing money. Like your personal debt, it is payed by giving up some of your salary to pay down the principle and interest. It's not necessarily a bad thing. it just depends on if what you spend the money yeilds a return. Do you own a house? Did you incur a huge deficit? Was it worth it? Did your deficit include a balloon payment? Many do because the borrower has a belief that his personal income will grow enough to afford it.

We could just "print" the money but that would be a very bad thing for our country. Sort of like treating a scrapped knee by cutting off your leg. It would be the same as forcing everyone with cash holdings to pay off the entire debt in one payment. The "value" of cash would undermined, inflation would skyrocket, confidence in the U.S. dollar abroad would be wiped out, banks would fail, massive depression, global warming, earthquakes, doom from the sky, etc.

 

[karl]

As it stands, there are probably many people that understand such matters than me. I feel like such a hick when politicians bash each other about the deficit, national debt, value of the dollar, the Nasdaq, etc. when I have very little understanding what it all means.

An increased deficit doesn't mean much in itself. But if, in the long run, it keeps growing faster than the GDP (which would be the case according to the article), you enter a debt spiral where a bigger and bigger piece of the budget goes into paying interest rates. Eventually you reach a point where it is no longer possible to borrow money and the nation goes bankrupt.

Assuming the government wants to avoid that, the debt has to be paid off somehow. By you. Because ultimately the citizens of the US are the ones who have the money. It can either be done by raising taxes, or by printing more money and letting inflation reduce the absolute value of the debt. In the former case it comes out of your paycheck, in the latter it comes out of your savings account. But rest assured -- you will pay, sooner or later.

 

[Bruce]

Assuming the government wants to avoid that, the debt has to be paid off somehow. By you. Because ultimately the citizens of the US are the ones who have the money. It can either be done by raising taxes, or by printing more money and letting inflation reduce the absolute value of the debt. In the former case it comes out of your paycheck, in the latter it comes out of your savings account. But rest assured -- you will pay, sooner or later.

That's the best lay-man's explaination I've heard so far. Thank you.

 

[billydkid]

my poor understanding

From my point of view, a deficit is not in itself a bad thing, if it is used for 'good' things. That is, infrastructure, etc.

It is the Republicans who seem to have the regular refrain that it's a bad thing, then make them bigger than the Democracts do. Reagan was a classic, berating Carter for having a monster deficit, then leaving with an even bigger one.

From my understanding - the deficit amounts largely and essentially to money borrowed from and owed to another nations. I can't imagine it is in anyway good to be a good thing to be grotesquely in debt to other countries.

 

[demon]

World's second-richest person bets $21.4 bln against the US dollar

NEW YORK (Reuters) - Warren Buffett, the world's second-richest person, last year increased his bet against the U.S. dollar 78 percent to $21.4 billion, resulting in a $1.84 billion gain.

He also said he would be happy if his bet were to fail.

In his annual letter to shareholders of his Berkshire Hathaway Inc. holding company, the 74-year-old said Berkshire held $21.4 billion of foreign currency contracts spread among 12 currencies. A year earlier, Berkshire had $12 billion of contracts over five currencies.

Buffett is concerned that U.S. policies are causing trade and budget deficits to spiral higher and might cause non-U.S. investors to pull money out of the country. This, he said, will put downward pressure on the dollar, which already trades near lifetime or multi-year lows against several major currencies....


http://www.reuters.co.za/locales/c_newsArticle.jsp?type=businessNews&localeKey=en_ZA&storyID=7817231

 

[Ed]

It is not the magnitude of the debt, it is the debt as it relates to GDP. We do, after all, have a pretty robust economy.

AUP, still batting 1.000. Every thread designed to bash the US.

 

[Ed]

Of course, to be fair, this ratio has to be looked at relative to other countries.

From:http://www.buec.udel.edu/butkiewj/I...cs/Federal Debt and Deficits - Chapter 15.ppt

 

[a_unique_person]

It is not the magnitude of the debt, it is the debt as it relates to GDP. We do, after all, have a pretty robust economy.

AUP, still batting 1.000. Every thread designed to bash the US.

I never said the level of debt was bad. If Kerry had come up with this figure, the conservatives would have been saying the sky was falling in.

 

[Rob Lister]

Of course, to be fair, this ratio has to be looked at relative to other countries.

From:http://www.buec.udel.edu/butkiewj/I...cs/Federal Debt and Deficits - Chapter 15.ppt

I disagree, but only from a novice POV. It seems to me that the comparison, should it be made, should not reference, in any way, GDP. Do you analyse your personal debt upon the value of that you produced? Of course not. What matters is your takehome pay.

Let's compare that way and see how it adds up. What is the National debt as compared with the various governments' takehome pay (receipts only please, from whatever source).

I suspect, again from a novice POV, that we we likely maintain pretty much the same position in the list but I don't know that for a fact.

 

[Ed]

I never said the level of debt was bad. If Kerry had come up with this figure, the conservatives would have been saying the sky was falling in.

Then why the sneering, suggestive OP? You just neutrally reporting news now?

Watch your debt if we start pulling troops out of the far east.

 

[Mycroft]

Re: my poor understanding

From my understanding - the deficit amounts largely and essentially to money borrowed from and owed to another nations. I can't imagine it is in anyway good to be a good thing to be grotesquely in debt to other countries.

The debt is treasury bills. They are purchased by governments, foreign investors, US citizens, insurance companies, and anyone looking for long-term stable investments.

One oft overlooked downside to carrying government debt is how much money it takes out of the provate sector that would otherwise be invested in other things. It this 3.6 trillion were not held in treasury bills, it would be invested in stocks and bonds instead, providing capital for new wealth creating ventures.

 

[a_unique_person]

Then why the sneering, suggestive OP? You just neutrally reporting news now?

Watch your debt if we start pulling troops out of the far east.

I just re-read the OP. Not a sneer or suggestion in sight. I do wonder at how one party can run massive deficits, and it's OK, another runs smaller ones, and is caned for it.

 

[Mycroft]

I just re-read the OP. Not a sneer or suggestion in sight.

Because you've learned from the Fool that if you don't actually say anything you can't be held accountable for it?

 

[Ed]

I just re-read the OP. Not a sneer or suggestion in sight. I do wonder at how one party can run massive deficits, and it's OK, another runs smaller ones, and is caned for it.

Not the Japs, not the Belgins, not the Canadians; the US. The impliciation is that the number is intrinsically bad. Sorry, but you are so biased that it is hard for you to plead objectivity at this point.

 

[a_unique_person]

Not the Japs, not the Belgins, not the Canadians; the US. The impliciation is that the number is intrinsically bad. Sorry, but you are so biased that it is hard for you to plead objectivity at this point.

I was reading the paper, and saw the story I linked to. The US is the country that is most in my face. As the saying goes, "When the US sneezes, the rest of the world catches a cold". Whatever happens to the US affects the global economy. The deficit, for an administration that believes in small government, seems to be quite large.