Record Federal Budget Deficit Expected in Fiscal 2009
Submitted by
CalculatedRisk on Mon, 07/28/2008 - 5:33am (57 comments)
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And how are we going to pay these debts?
Clearly, the financially liberal have the reins!
If anyone needs a psychic lift on Monday morning.
James Howard Kunstler
I seems that consumers are learning not to live beyond thier means; however, the government still is having problems in this area. Maybe a 'reverse mortgague' on each congressman's house?
I've been reading about the crisis in Argentina and it seems like it all stems around borrowing more and more money while grappling with existing debt in combination with an economic downturn.
I don't find the parallels reassuring.
"Deficits don't matter"
"Go F yourselves"
There's leadership.
State and city budgets are in far worse shape, as many here have pointed out repeatedly. That's a real friggin' crisis, because that's where we live, work, and play. Forget high gasoline - what if garbage collectors refuse to work for significantly lower pay? What if I lose my public job because our library closes down? That's what scares me - not some big federal deficit.
I seems that consumers are learning not to live beyond thier means; however, the government still is having problems in this area. Maybe a 'reverse mortgague' on each congressman's house?
It seems like the government is actively trying to negate consumer attempts at being thrifty by replacing credit card and housing debt with government debt dumped into their wallets via stimulus checks.
It's like once you get on this path you just can't stop.
Again, this reminds me of that A&E show Intervention.
Except without the intervention at the end.
Our deficit as a metric is not very visible. We tend to concentrate on GDP. If times are bad, start a war and deficit spend, and GDP goes up.
If only we could marry the annual deficit better with the annual GDP and get the country to focus on this new metric, say the Net Domestic Product, NDP. Ya, I know there is an NDP already that subtracts depreciation, but who cares.
Our leaders would have a reason to reduce the deficit or at least not to increase it if they thought they were going to be measured on it. But since Reagan, they seem to be proud of how much they can overspend.
Does anyone already have such a metric?
Coach, if you put me in, I'm sure that I could lose $10 triiiillliiiiion or more, fast!
AC, here in Panama almost 80% of the population own their homes. Not an 'american dream', just common sense. The governments have been down the path the US is taking now and it has always caused disaster! The people have learned that the only way to ever get anything is to own land, through good times and bad, you have a place to live and a small place to grow food. Boom and Bust- over and over-- borrow as much as you can and default! There is nothing you, as a citizen, can do but try to ride it out. If you owe money, or try to 'save', you are f$$ked! The money goes to nothing through inflation or currency deflation (we are tied to the US $ now- oach!) and your savings are worthless, but before that money gets tight and you lose whatever you owe on.
The land stays and you will always eat. You have to own it clear and free and don't worry about the price. Sorry guys!
Looks like the State of Naw Yawk is following suit:
http://www.nypost.com/seven/07282008/news/regionalnews/that_70s_woe_in_rerun_121880.htm
"The governor has said he's tired of the state going from deficit to deficit, spending like it has a credit card that never has to be paid, and that he's prepared to take action..."
Is there a government window at the confessional?
cd
If I was John McCain or Barack Obama, I think I'd play like an American homeowner, and just walk away. There's no way the next president will succeed at doing anything other than managing economic malaise.
But please, whomever it is, don't give any speeches on energy conservation from the White House while wearing cardigan sweaters. Even if the message is correct, the image of a country that appears it can't even afford to heat its president's house is not an image of hopefulness.
History does rhyme, even if it doesn't exactly repeat itself.
AC,
The government is indeed countering attempts by consumers to save. Negative real interest rates and deficit spending are all the proof you need.
The system cannot allow a protracted or large contraction in credit. There is way too much leverage. A protracted credit contraction would result in a nasty feed back loop of cascading debt defaults.
The fed does not have the balance sheet to keep the credit bubble afloat. Fiscal policy is the only answer.
Personally, I think fiscal policy can keep the bubble afloat, but the majority will become poorer as a result.
These projections are based on current law. The GSE rescue package hasn't been signed yet, and even if it had, contigent liabilities don't count. I also think the political winds are blowing strongly in the direction of another stimulus package next year. If so, we are likely to hear howls of righteous indignation from the very guys who gave us the prospect of a $490 bln deficit. Hell, we'll hear howls over the deficit they created just as soon as the next guy is innaugurated, assuming the next guy is from Chicago. Doesn't matter if there is another stimulus package.
And how are we going to pay these debts? Don't ask me, ask some third grader because THEY'RE the ones that will be paying this off.
For everyone asking how the U.S. will pay the debts - here's the deal. Older debt will be paid by issuing new debt. Further, the total U.S. debts will continually expand.
In a credit based monetary system, credit expands or the system collapses - period. There is no way the private sector can inflate credit at the level required to keep the system afloat. The government will inflate as necesaary - guaranteed.
However, this will cause the majority to become poorer.
the image of a country that appears it can't even afford to heat its president's house is not an image of hopefulness.
But what if it's an image of reality? Seems like some overly delusional thinking is exactly what's gotten us to this point.
OkieLawyer,they already took a postdated check.by the time they present it the account will be closed due to fraudulent activity.
I have nine grandchildren that I am urging to get skills and be prepared for a harder life than their parents or I have had. The older ones get it but little ones think I am crazy for urging them to learn to weld. It will come in time!
Second, these projections are probably optimistic.
Extrapolating from the May number -- admittedly not all that fair (stimulus checks etc) but the goal here is to make a point not to be fair -- the deficit will top $1 trillion this year.
I have nine grandchildren that I am urging to get skills and be prepared for a harder life than their parents or I have had.
I foresee a period of hardship. How bad and how long? I'm not sure, but too many have spent too much for too long.
So, if we accept the position of Kudlow, Bush, McCain et al, I guess we need another tax cut to reduce the deficit? Can you imagine how big the deficit would have been if W and his Republican poodles in Congress had not enacted the tax cuts early in his Administration.
And by the way, up is down, bad is good, backward is forward.
Learn to weld? Nobel calling. Where are the refined metals and the argon gas going to come from?
Career counseling: Hunting, gathering, pillaging, per aptitude.
Now that that's off my chest, I've got to say that the most interesting post will be five years from now when we do a CR peanut gallery retrospective. (Come to think of it, why not do one now?)
You guys didn't know? We are just keeping the country warm until China/Middle East take over. Of course the coup de grace will be a massive war against China/Middle East when they attempt to takeover that results in lots of deaths to the middle and lower class.
This Sovereign Wealth Takeover seems like its a direction our government is intentionally taking us...
In a credit based monetary system, credit expands or the system collapses - period.
This is also true of Ponzi schemes.
For a high-level overview of what happens when a country whose finances are based on a Ponzi scheme collapses, read the chapter in P.J. O'Rourke's Eat the Rich dealing with Albania, c. 1995-6.
The skill sets we need to make sure our next generation learns are those that are easily transportable from one place to another and not language-specific ... engineering, mathematics, medicine. Those who had those skills in places like Albania got out and were able to claim asylum in countries happy to have their skills. Those who didn't, couldn't, and watched the edifice collapse around them, or on them.
Some humor from 2004:
President Bush said Monday he will submit a federal budget that will halve the deficit in five years and maintain strict discipline in spending tax dollars.
Bush vows to halve deficit in 5 years - Politics- msnbc.com
from ac:
It seems like the government is actively trying to negate consumer attempts at being thrifty by replacing credit card and housing debt with government debt dumped into their wallets via stimulus checks.
It's like once you get on this path you just can't stop.
Yup. I can't find the link this morning, but Naked Capitalism recently linked to a Pimco economist guy who referred to something he called "the paradox of saving," as I recall. If we all hit the brakes and start saving (he said) the amount of net savings would be less, because so many of us would lose our jobs in the spending downturn and we would have to spend down our existing savings (assuming we had any) to survive.
But maybe we have to go through that phase. Maybe if we keep hyperventilating to keep that leaky bubble inflated, we eventually turn blue and pass out.
Over at the wallstreet examiner they've been following this closely for years. They are now running so far behind TBAC projections for their treasury auctions that at the current rate if a 12 month period started now, they would exceed $1 trillion per annum. This is a historic ponzi scheme. Settlement old debt by issuing new debt. Borrowing to pay interest on earlier borrowings. If you did that on your credit cards, tell me now that would end up for you. Coming quickly to no choice left but to monetize (print). Lets just add the unfunded liabilities that are now starting to come due and the budget figures quickly descend to a horrible joke, game over. The US is insolvent, pure and simple.
Thanks, Mook. To that list I could only add music and mayhem.
End days is a useful construct so long as the quirks of our species is taken into account.
demi-sarcasm/off
But please, whomever it is, don't give any speeches on energy conservation from the White House while wearing cardigan sweaters. Even if the message is correct, the image of a country that appears it can't even afford to heat its president's house is not an image of hopefulness.
Right. We rejected Carter's image of thrift, the idea of limits on our personal wealth and consumption, in favor of Reagan's "hope." Morning in America and all that. Too bad it's too late for a do-over.
naked capitalism
I just have to put this 'ray of sunshine' out for those of you that are still worried: The March 31 level(of debt) was 350% of GDP. The previous peak occurred in 1933, during the Great Depression, at just under 270% of GDP.
skip....
An additional bit of cheery news comes from reader Bjomar: Japan's total debt to GDP in 1990 was roughly 250%
skip....
Business debt continued to expand at a healthy pace Businesss debt grew 10.8% yoy. With interest payments at historical lows (relative to profits) debt growth in corporate America was robust. This explains why businesses have been shifting the means to finance itself,
The article (with graphs) continues to relate how there is no deleveraging going on.. leverage continues to grow...making a second wave down almost guaranteed.
worth a read (and now I am going to have a drink).
The FDIC has issued the attached final interim policy statement on the treatment of "covered bonds" in the event that the issuing insured depository institution is placed into FDIC receivership or conservatorship.
The collateral for the covered bonds is secured by perfected security interests under applicable state and federal law on performing mortgage loans on one- to four-family residential properties, underwritten at the fully indexed rate and relying on documented income in accordance with existing supervisory guidance governing the underwriting of residential mortgages.
Up to ten percent of the collateral may consist of AAA-rated mortgage- backed securities backed solely by mortgage loans that are made in compliance with the policy statement.
FDIC: Error 404 - Page Not Found
"I keep myself in good spirits by reminding myself that the worst is yet to come".....Joe Hill on Death Row
Anyone think rating agencies will help SIFMA sell covered bonds to friends of angelo and paulson? These people are crooks! The only question you have to ask here, is..
Q: How is WaMu doing with its covered bond?
And these "budget" figures do NOT include expenses for Iraq or Afghanistan.
Got gold?
Taken bets we can achieve a TRILLION dollar year. Nancy, yur turn..
Looks like George is going to be the 10 trillion dollar man you pridicted!!
1 trillion!! wow thats the price tag to let the Jester In Chief run the show ....
i just hoope you dont nuke your debtors at the end....
Angry Saver wrote
For everyone asking how the U.S. will pay the debts - here's the deal. Older debt will be paid by issuing new debt. Further, the total U.S. debts will continually expand.
In a credit based monetary system, credit expands or the system collapses - period.
yes
and what causes the system to collapse!?
growth to pay for growing debt can not go on forever within a closed system (ie planet earth)
assume and or imagine what ever technology you want, the earth can only hold a finite number of people...
at some point we hit end game....
unless we change from a "club for growth" to a system of sustainability.
Is it a weaker market for not having any legislation?
We believe that the credit enhancements enshrined in each of the issued bond structures are sufficient to counter the lack of regulation. In addition UK bonds tend to have an added risk premium over the regulated markets. However a strong regulatory environment has been the cornerstone of the covered bonds market, which has produced no defaults in its 230-year history. Thus, in our view, unless the UK adopts similar legislature to its European counterparts, investors will continue to associate the UK covered bond market with the traditional RMBS market. As a result investor appetite for UK covered bonds will fall, weakening the market as a whole.
John Stark wrote:
snip
Right. We rejected Carter's image of thrift, the idea of limits on our personal wealth and consumption, in favor of Reagan's "hope." Morning in America and all that. Too bad it's too late for a do-over.
now we find out he secretly meant "mourning" in america.
isn it interesting that this president Bush, (dubya), proclaimed he was like Reagan, and the two of them had administrations that piled up more debt than any other since WWII.
how did this happen...coincidence
i would submitt the idea that they both hate fed gov...parks, regulation, all forms of social programs, and even the military unless it is private (think general r. secord and oliver north, and thier plans for off the shelf fighting forces to bypass congress to fight wars in central america and elsewhere)
and so their solution was, is to bankrupt the gov, and privatizing, everything in sight...war, municipal water, other utilities, eliminate regulation and inspection... etc
the supremacy of the corporation over government by the people and for the people
OkieLawyer writes:
And how are we going to pay these debts?
OkieLawyer | Homepage | 07.28.08 - 9:48 am | #
ok that'an easy question; japanese yen, chinese yuan and euros! (cause some day they ain't going to accept payment in US dollars!
Can you say Banana Republic? I knew you could.
I don't watch the TeeVee much, but was there even one brave soul who looked into the camera and said "Lookit, people!! We are writing checks to ourselves... AGAIN!!".
All I saw were pom-pom waving Washington Consensus (hey, I just realized that it abbreviates as "WC"... how appropriate) economist, their souls bought and paid for, nattering on about "stimulus" and "turning corners" and "how this will help the (stock market, homeowners, consumers, you name it)" and all that crap.
If we actually used GAAP and booked S.S. like it should be (accrual based accounting) how bad would the budget deficit be?
S.S. is pre-paid for through 2040. It's not the problem.
mock -- yes, I think the term "Disaster Capitalism" fits.
Troy
yeah, its a shame
cause it didnt have to be this way.
i'm a fan of that great economic engine called private enterprise, but
when you have powerful engines there has to be speed limits, lane stripes, rules of the road, and cops.
in the past 30 years the mantra has become "anything goes" so now we reap the whirl wind.
It is clear when you look at the revenue receipts and debt load that the US is bankrupt. Raises taxes helps marginally, but the very idea that the US can pay back all that debt is essentially a faith based trade, in keeping with the current adminsitration. The rest of the world is waning...
Start a war in the Middle East, cut taxes, increase domestic spending and what do you think would happen? Seriously, what do you think would happen. Debt and more debt, a mountain of debt. As stated above we have total debt in this country of 330% of GDP or so, with the previous high being in the early thirties. Guess what happened then.
Some day Bush is going to write a book, How to Ruin a Great Country by the class clown.
and so their solution was, is to bankrupt the gov, and privatizing, everything in sight...war, municipal water, other utilities, eliminate regulation and inspection... etc
A private corporation with a natural monopoly is just as bad if not worse than government. Neither has any incentive to innovate due to lack of competition.
InvestmentBanker writes:
Has Deleveraging Even Begun? (Not For the Fainthearted)
InvestmentBanker has pointed to the latest post over at Naked Capitalism today on the debt levels in the U.S. It is this salient fact that I think outstrips everything else about economic prospects in the coming years. The debt levels are just too high.
Other posters also have found some kernels of truth:
mock turtle writes:
...
i would submitt the idea that they both hate fed gov...parks, regulation, all forms of social programs, and even the military unless it is private (think general r. secord and oliver north, and thier plans for off the shelf fighting forces to bypass congress to fight wars in central america and elsewhere)
and so their solution was, is to bankrupt the gov, and privatizing, everything in sight...war, municipal water, other utilities, eliminate regulation and inspection... etc
This is part of the "Starve the Beast" policy. The idea is to make it impossible to afford any kind of government-based social spending to alleviate social ills.
Be careful what you wish for....
"The older ones get it but little ones think I am crazy for urging them to learn to weld."
Start them off with a torch set and an old Lincoln buzz box. None of that MIG crap. After they've learned that, buy them a metal cutting band saw and a TIG box.
I forgot the 4" grinder and lots of grinding wheels. Torch and stick welding, that's the way to learn.
The torch set should include both a cutting torch and an aircraft welding torch.
@John Stark:I can't find the link this morning, but Naked Capitalism recently linked to a Pimco economist guy who referred to something he called "the paradox of saving," as I recall.
Here's the link:
PIMCO - Global Central Bank Focus - July 2008 "The Paradox of Deleveraging"