The Deficit Is Worse Than We Think

[Damocles]

Normal interest rates would raise debt-service costs by $4.9 trillion over 10 years, dwarfing the savings from any currently contemplated budget deal.

By LAWRENCE B. LINDSEY
Washington is struggling to make a deal that will couple an increase in the debt ceiling with a long-term reduction in spending. There is no reason for the players to make their task seem even more Herculean than it already is. But we should be prepared for upward revisions in official deficit projections in the years ahead—even if a deal is struck. There are at least three major reasons for concern.

First, a normalization of interest rates would upend any budgetary deal if and when one should occur. At present, the average cost of Treasury borrowing is 2.5%. The average over the last two decades was 5.7%. Should we ramp up to the higher number, annual interest expenses would be roughly $420 billion higher in 2014 and $700 billion higher in 2020.

The 10-year rise in interest expense would be $4.9 trillion higher under "normalized" rates than under the current cost of borrowing. Compare that to the $2 trillion estimate of what the current talks about long-term deficit reduction may produce, and it becomes obvious that the gains from the current deficit-reduction efforts could be wiped out by normalization in the bond market.

To some extent this is a controllable risk. The Federal Reserve could act aggressively by purchasing even more bonds, or targeting rates further out on the yield curve, to slow any rise in the cost of Treasury borrowing. Of course, this carries its own set of risks, not the least among them an adverse reaction by our lenders. Suffice it to say, though, that given all that is at stake, Fed interest-rate policy will increasingly have to factor in the effects of any rate hike on the fiscal position of the Treasury.

More at link...

http://marklevinshow.com/goout.asp?...0001424052702304657804576401883172498352.html

 

[Bfgrn]

Hey Damo, check this out.

FYI, Peter G. Peterson served as Secretary of Commerce under Richard Nixon. He is a fiscal conservative and a deficit hawk.

What I learned from hanging out with deficit hawks
The Peter G. Peterson Foundation's "Fiscal Solutions Tour" came to my town, so I stopped by

Peter G. Peterson

The Fiscal Solutions Tour is the latest Peter G. Peterson Foundation effort to rouse the public against deficits and the national debt — and in particular (though they manage to avoid saying so) to win support for measures that would impose drastic cuts on Social Security and Medicare. It features Robert Bixby of the Concord Coalition, former Comptroller General David Walker and the veteran economist Alice Rivlin, whose recent distinctions include serving on the Bowles-Simpson commission. They came to Austin on February 9 and (partly because Rivlin is an old friend) I went.

Mr. Bixby began by describing the public debt as "the defining issue of our time." It is, he said, a question of “how big a debt we can have and what can we afford?" He did not explain why this is so. He did not, for instance, attempt to compare the debt to the financial crisis, to joblessness or foreclosures, nor to energy or climate change. Oddly none of those issues were actually mentioned by anyone, all evening long.

A notable feature of Bixby’s presentation were his charts. One of them showed clearly how the public deficit soared at the precise moment that the financial crisis struck in late 2008. The chart also shows how the Clinton surpluses had started to disappear in the recession of 2000. But Mr. Bixby seemed not to have noticed either event. Flashing this chart, he merely commented that "Congress took care" of the budget surplus. Still, the charts did show the facts -- and in this respect they were the intellectual highpoint of the occasion.

A David Walker speech is always worth listening to with care, for Mr. Walker is a reliable and thorough enumerator of popular deficit-scare themes. Three of these in particular caught my attention on Friday.

To my surprise, Walker began on a disarming note: he acknowledged that the level of our national debt is not actually high. In relation to GDP, it is only a bit over half of what it was in 1946. And to give more credit, the number Walker used, 63 percent, refers to debt held by the public, which is the correct construct -- not the 90+ percent figure for gross debt, commonly seen in press reports and in comparisons with other countries. The relevant number is today below where it was in the mid-1950s, and comparable to the early 1990s.

More

 

[Cancel 2018. 3]

who cares, lets just raise the debt ceiling

it was all responsible people do, when in debt, instead of cutting spending to pay off the debt, get the credit companies to raise the ceiling

duh!

 

[Bonestorm]

This assumes that the CBO deficit projections do not take into account a higher cost of borrowing in future years than exists presently, and that is not the case.

 

[Cancel 2016.2]

Hey Damo, check this out.

FYI, Peter G. Peterson served as Secretary of Commerce under Richard Nixon. He is a fiscal conservative and a deficit hawk.

What I learned from hanging out with deficit hawks
The Peter G. Peterson Foundation's "Fiscal Solutions Tour" came to my town, so I stopped by

Peter G. Peterson

The Fiscal Solutions Tour is the latest Peter G. Peterson Foundation effort to rouse the public against deficits and the national debt — and in particular (though they manage to avoid saying so) to win support for measures that would impose drastic cuts on Social Security and Medicare. It features Robert Bixby of the Concord Coalition, former Comptroller General David Walker and the veteran economist Alice Rivlin, whose recent distinctions include serving on the Bowles-Simpson commission. They came to Austin on February 9 and (partly because Rivlin is an old friend) I went.

Mr. Bixby began by describing the public debt as "the defining issue of our time." It is, he said, a question of “how big a debt we can have and what can we afford?" He did not explain why this is so. He did not, for instance, attempt to compare the debt to the financial crisis, to joblessness or foreclosures, nor to energy or climate change. Oddly none of those issues were actually mentioned by anyone, all evening long.

A notable feature of Bixby’s presentation were his charts. One of them showed clearly how the public deficit soared at the precise moment that the financial crisis struck in late 2008. The chart also shows how the Clinton surpluses had started to disappear in the recession of 2000. But Mr. Bixby seemed not to have noticed either event. Flashing this chart, he merely commented that "Congress took care" of the budget surplus. Still, the charts did show the facts -- and in this respect they were the intellectual highpoint of the occasion.

A David Walker speech is always worth listening to with care, for Mr. Walker is a reliable and thorough enumerator of popular deficit-scare themes. Three of these in particular caught my attention on Friday.

To my surprise, Walker began on a disarming note: he acknowledged that the level of our national debt is not actually high. In relation to GDP, it is only a bit over half of what it was in 1946. And to give more credit, the number Walker used, 63 percent, refers to debt held by the public, which is the correct construct -- not the 90+ percent figure for gross debt, commonly seen in press reports and in comparisons with other countries. The relevant number is today below where it was in the mid-1950s, and comparable to the early 1990s.

More

Imagine that.... a liberal who has no clue when it comes to economics. That article is quite comical.

1) Clinton NEVER had an ACTUAL surplus
2) the 'budget surpluses' were a myth created by the two parties to justify MORE spending
3) GROSS debt is the proper thing to look at, not the debt held by the public. Unless of course you want to pretend that SS doesn't have to be paid. Then by all means just look at debt held by the public.
4) his comments on the Chinese is moronic.... at best. To pretend the Chinese only have the options of buying US Treasuries or the US dollar with their surplus is false. 100% false. Unless you are going to pretend things like other currencies, gold, silver etc... don't exist
5) the authors comments on the US vs. Greece are factually correct, but woefully ignorant at the same time. Just because we are the reserve currency NOW, doesn't mean we will always be. Just ask England. While we will be the reserve for the foreseeable future, it is sheer idiocy to continue driving up our debt to GDP simply because 'we can print more money'. What does 'printing more money' do to the average worker? It drives down the value of the dollar meaning they can afford less and less for each dollar they earn. It also means that as the dollar falls, commodities rise as they are all denominated in the dollar. That means higher costs for energy, gasoline, food, clothing etc...

 

[Guns Guns Guns]

That 'big deficit' scare seems to have gained traction right about the time certain people started campaigning.

 

[Bfgrn]

Imagine that.... a liberal who has no clue when it comes to economics. That article is quite comical.

1) Clinton NEVER had an ACTUAL surplus
2) the 'budget surpluses' were a myth created by the two parties to justify MORE spending
3) GROSS debt is the proper thing to look at, not the debt held by the public. Unless of course you want to pretend that SS doesn't have to be paid. Then by all means just look at debt held by the public.
4) his comments on the Chinese is moronic.... at best. To pretend the Chinese only have the options of buying US Treasuries or the US dollar with their surplus is false. 100% false. Unless you are going to pretend things like other currencies, gold, silver etc... don't exist
5) the authors comments on the US vs. Greece are factually correct, but woefully ignorant at the same time. Just because we are the reserve currency NOW, doesn't mean we will always be. Just ask England. While we will be the reserve for the foreseeable future, it is sheer idiocy to continue driving up our debt to GDP simply because 'we can print more money'. What does 'printing more money' do to the average worker? It drives down the value of the dollar meaning they can afford less and less for each dollar they earn. It also means that as the dollar falls, commodities rise as they are all denominated in the dollar. That means higher costs for energy, gasoline, food, clothing etc...

The point that needs to be understood is that YES, we need to address our debt. We must create a trajectory that is moving downward. But it will take as long or longer to get there then it did to create it. Deep, drastic and sudden cuts like the GOP and especially the tea party are spewing would cause a much bigger catastrophe. During Bush's 8 years, the debt ceiling was raised 9 times. He started two war that will cost us 3 trillion dollars, he didn't even include them in his budget, passed Medicare D with no way to pay for it and there was not a PEEP from any of you right wingers. Republicans lost the White House, and NOW they have done a good job of framing this issue. They have created a false precipice and have you right wingers brainwashed into believing we sit on the very edge of it.

I am sure you will dismiss the source, so you are welcome to provide charts and studies that refute this...

CHART: States That Cut The Most Spending Have Lost The Most Jobs

Govs. John Kasich (R-OH), Rick Snyder
(R-MI), and Scott Walker (R-WI)

Steep state spending cuts have gone hand-in-hand with rising unemployment rates, falling private-sector payroll employment, and lower growth in state’s gross domestic product, or GDP — the sum of all goods and services produced by labor and equipment in each state, less imports.

Mere parsimony is not economy. Expense, and great expense, may be an essential part in true economy.
Edmund Burke

 

[Guns Guns Guns]

I wonder how many of the newly-minted budget hawks comprehend the extent to which the private sector - and jobs - depend on government spending through procurement, subsidies etc.

 

[Cancel 2016.2]

The point that needs to be understood is that YES, we need to address our debt. We must create a trajectory that is moving downward. But it will take as long or longer to get there then it did to create it.

You are correct to this point.

Deep, drastic and sudden cuts like the GOP and especially the tea party are spewing would cause a much bigger catastrophe. During Bush's 8 years, the debt ceiling was raised 9 times. He started two war that will cost us 3 trillion dollars, he didn't even include them in his budget, passed Medicare D with no way to pay for it and there was not a PEEP from any of you right wingers.

and here is where you fell apart. The GOP is talking about cutting $4 Trillion over the next TEN years. That is hardly 'deep/drastic or sudden'. It is not even close to what needs to be done. The wars have thus far cost about $1trillion.... no where near $3.

You are 100% incorrect in stating there wasn't a peep. While you might not have been present on this site back then, but we have been bitching about Bush's fiscal irresponsibility for the better part of 7-8 years on this site and others. So quit parroting your ignorant partisan talking points if you have no clue what has actually been discussed.

I am sure you will dismiss the source, so you are welcome to provide charts and studies that refute this...

CHART: States That Cut The Most Spending Have Lost The Most Jobs

Steep state spending cuts have gone hand-in-hand with rising unemployment rates, falling private-sector payroll employment, and lower growth in state’s gross domestic product, or GDP — the sum of all goods and services produced by labor and equipment in each state, less imports.

Obviously they are a biased site in terms of political views, but I don't dismiss actual data. Unfortunately the author doesn't link us to his data. His source is 'his analysis of BLS and NASBO data'. Without seeing the data my reply is going to be limited. But off hand it seems insanely simplistic in 'analysis'. It doesn't seem to account for where the states were financially PRIOR to the downturn. It doesn't state whether or not the states could AFFORD to raise spending or whether they were FORCED to CUT. The states do play some gimics when it comes to showing their books, but they HAVE to have a balanced budget and minus some gimics they HAVE to stick to them. Thus it is not an apples to apples comparison to the Fed.

The other problem with the author's 'analysis' is that it doesn't take into account the effects of the FEDERAL government's policies/actions on the states.

 

[Guns Guns Guns]

I suppose more tax cuts and eliminating all entitlements will restore the prosperity of the Clinton years, right?

 

[Cancel 2016.2]

The point that needs to be understood is that YES, we need to address our debt. We must create a trajectory that is moving downward. But it will take as long or longer to get there then it did to create it. Deep, drastic and sudden cuts like the GOP and especially the tea party are spewing would cause a much bigger catastrophe. During Bush's 8 years, the debt ceiling was raised 9 times. He started two war that will cost us 3 trillion dollars, he didn't even include them in his budget, passed Medicare D with no way to pay for it and there was not a PEEP from any of you right wingers. Republicans lost the White House, and NOW they have done a good job of framing this issue. They have created a false precipice and have you right wingers brainwashed into believing we sit on the very edge of it.

I am sure you will dismiss the source, so you are welcome to provide charts and studies that refute this...

CHART: States That Cut The Most Spending Have Lost The Most Jobs

Govs. John Kasich (R-OH), Rick Snyder
(R-MI), and Scott Walker (R-WI)

Steep state spending cuts have gone hand-in-hand with rising unemployment rates, falling private-sector payroll employment, and lower growth in state’s gross domestic product, or GDP — the sum of all goods and services produced by labor and equipment in each state, less imports.

Mere parsimony is not economy. Expense, and great expense, may be an essential part in true economy.
Edmund Burke

In thinking about this more, the OTHER factor that the chart doesn't show is: Did the higher rates of unemployment LEAD to the reduced revenues and thus FORCE spending cuts? Or was it the spending cuts that preceded the jobs being lost?

 

[Rune]

In thinking about this more, the OTHER factor that the chart doesn't show is: Did the higher rates of unemployment LEAD to the reduced revenues and thus FORCE spending cuts? Or was it the spending cuts that preceded the jobs being lost?

Is the sky blue or does the sky reflect the color of the oceans?

 

[Cancel 2016.2]

Is the sky blue or does the sky reflect the color of the oceans?

Neither.

The sky simply LOOKS blue due to the manner in which light is reflected not by the ocean, but by the AIR (and the water molecules and particulars IN the AIR). As for why blue and not other colors? I think it has something to do with the length/strength of the light wave. Certain colors are stronger/longer and aren't refracted???? Don't quote me on this.... but it is something like that.

That said, your feeble attempt to equate your question to mine is quite irrelevant.

My question is quite valid with regards to the situation the states would find themselves in should unemployment cause a reduction in revenue.

 

[Cancel 2018. 3]

:lol:

dune thought he would act smart by asking a "tricky" question only to be schooled by SF....tff...dune doesn't even know why the sky looks blue

 

[Rune]

Neither.

The sky simply LOOKS blue due to the manner in which light is reflected not by the ocean, but by the AIR (and the water molecules and particulars IN the AIR). As for why blue and not other colors? I think it has something to do with the length/strength of the light wave. Certain colors are stronger/longer and aren't refracted???? Don't quote me on this.... but it is something like that.

That said, your feeble attempt to equate your question to mine is quite irrelevant.

My question is quite valid with regards to the situation the states would find themselves in should unemployment cause a reduction in revenue.

Just as irrelevant as your point. I certainly understand you don't see it that way.

How could you cut spending and not lose jobs? I know, you have some convoluted bullshit reason why you can cutting spending without cutting jobs but the reality is that all spending cuts are job cuts, so don't bother even replying.