White House Says Deficit Manageable As Percentage Of GDP

[mbperrin]

http://www.quicken.com/investments/news_center/story/?story=NewsStory/dowJones/20040126/ON200401261336001101.var&column=P0DEC

Comment: it would be keen if you could spend GDP, wouldn't it? Too bad it's only the value of items made with NO guarantee that they will ever be sold!

[htuttle]

1. What the hell would Bush know about debt management?

The man ran three companies into bankruptcy, for god's sake.

That's like taking advice on gambling from Bill Bennett...

[reprobate]

14. Make that three companies and a country.

As an economist junior would make a good barber.

[ramapo]

2. Reagan trashed Carter on this theory

First, what does "relatively low" mean?

Here's what Carter had to say in his 1981 SOTU:

"While the budget deficits during my term are higher than I would have liked, their size is determined for the most part by economic conditions. And in spite of these conditions, the relative size of the deficit continues to decline. In 1976, before I took office, the budget deficit equalled 4 percent of gross national product. It had been cut to 2.3 percent in the 1980 fiscal year just ended. My 1982 budget contains a deficit estimated to be less than 1 percent of our gross national product."


By implication, Reagan, in his 1981 SOTU, trashed the deficit spending of Carter and the Democrats. Perhaps you remember Reagan's remarks:

"Can we, who man the ship of state, deny it is somewhat out of control? Our national debt is approaching $1 trillion. A few weeks ago I called such a figure, a trillion dollars, incomprehensible, and I've been trying ever since to think of a way to illustrate how big a trillion really is. And the best I could come up with is that if you had a stack of thousand-dollar bills in your hand only 4 inches high, you'd be a millionaire. A trillion dollars would be a stack of thousand-dollar bills 67 miles high. The interest on the public debt this year we know will be over $90 billion, and unless we change the proposed spending for the fiscal year beginning October 1st, we'll add another almost $80 billion to the debt."

We all know where this fiscal conservative took us.

[SharonAnn]

38. In Reagan's first term he doubled it, incredibly.

It was:
$1 trillion when Reagan took office,
$2 trillion after his first term,
$3 trillion after his second term, and then
$4 trillion after Bush's first term.

And "how high can we count?" after *'s first term.

[kentuck]

3. A totally irrelevant statement....

As a percentage of how much money they can run off the printing presses in the next 6 months, it's really not that much?

Can someone tell me what the GDP has to do with the debt or a percentage of the GDP? The GDP is not a pool of money for the government to dip into if they go into debt too far. It is a totally irrelevant statement. As if, we need $500 billion more to pay off our treasury debts, therefore, how can we get that money from the GDP???

The debt is there because we do not have the will or the power to take more money from the GDP (people's earnings and value) to pay for what programs the government says we want or need?? So the percentage has absolutely nothing to do with it, because the government does not own the "GDP" which it can use whenever it takes the notion.

[0rganism]

10. erroneous, but not entirely irrelevant

It's like having an income and property, and using that to prove solvency to a bank so you can get lots of loans. And don't underestimate the lengths to which that analogy pertains, either. At some point down the road, things we consider to be national assets could be subject to foreclosure! If this administration thought it could get away with such a thing, they'd sell off the national parks to resource extraction companies to finance tax cuts for the CEOs of those same companies.

What they're saying is that the grotesque defecit spending, financed with gov't bonds, is taking place in a context where we can make the payments on schedule. Eventually, though, if we want to keep the bond ratings up, and have our currency well-regarded internationally, interest rates are going to have to rise and the defecit is going to have to shrink. The alternative is years of hyperinflation and crushing widespread poverty.

[kentuck]

13. But they say it as if the entire GDP belongs to the government.....

as a pool for borrowing more money. There is no limit, if you use that equation. But in reality, we are beyond our limit already.

[0rganism]

20. The government taxes the GDP to pay off its loans

As long as the revenue from taxation is enough to pay the loans on schedule, our credit is a-okay. However, once we get into a circumstance where we have to borrow money to pay off our loans, our federal bonds won't be as desirable and our currency devalues.

Already, look what's happening. Interest rates on US bonds are through the floor, and our currency is getting demolished by the Euro. The international financiers are gradually coming to view the USA as a lousy investment. Soon enough, the only way we'll be able to borrow squat is by spending the social security "surplus", but there's a serious problem: social security is already robbed to the point of insolvency, to the point where we may be borrowing money from the general fund to make payments in 15-20 years.

So that eventually forces us into the position of countries like Mexico and (heaven forbid) Argentina, where we have to liquidate assets and/or hyperinflate currency to meet credit obligations. What's really annoying about this is WE DON'T HAVE TO GO THERE. By simply returning taxes to reasonably progressive levels, and limiting spending on DoD white elephants, we could return to a Clintonian black ink budget. However, this ignores another important project of the neo-conservatives: "starve the beast".

By pushing defecit spending through the roof while cutting revenues, Norquist's cult hopes to eliminate the federal government's ability to provide any social benefits whatsoever. When the only things we can pay for are national defense and national debt, the entirety of FDR's legacy will be demolished. And THAT is the neo-cons' ultimate goal.

We're at a turning point, where we can either save the federal government's flexibility or turn it into a stiff hollow shell. Another four years of bush will complete most of the beast-starver's agenda. Add on 8 years of president Jeb, and the game is over.

[kentuck]

23. Exactly.... and they're not even willing to tax enough to stay balanced..

How do they think they would ever tax enough to pay off these deficits. But, that is correct. The GDP is important in that is the value of our gross domestic product, which could be taxed at a higher level, but they are intent on doing the exact opposite.

[iam]

28. Right!

My personal debt is almost non-existent compared to the US GDP. Does this mean I can go out and buy a new Benz? Of course not. My ability to manage debt is measured against my income (and assets). The US govt's income is primarily taxes which have been cut drastically. So we have an exploding debt and a shrinking income, no problem.
A faith-based economic policy.

[seasat]

4. The Shrubittes always leave some important factors out.

They assume that deficits that are a low pecentage of GDP will be balanced out by growth and inflation. However, they ignore that inflation is supposedly low and the compounding of interest on the national debt. Historically low by their definition also means below the record set by Reagan. That deficit probably contributed to the downturn in the late 90's. If the deficit spending is invested wisely in such things as education and infrastructure then it can possibly lead to future growth where it is balanced out. The deficit spending by the Shrub administration is going to funding misguided wars and subsidizing campaign contributors. It will ultimately baloon out of control and lead to a hard downturn for us.

[maddogesq]

27. Good analogy. Here's that in other words.

It's the difference between borrowing money to make meaningful home improvemts that will, in the end, increase the equity on a home vs. borrowing money to buy some cheap guitars, a pool table, an air hockey game, darts, and video games for the play room.

[papau]

5. The 10 year tot. deficit is up from 1.4 T to 2.4 T -and that ignores 7.5T

of likely items not included in the baseline projection below - like the change in the alt min tax to conform it to the new levels of taxation in the regular FIT tax.

Up $1 trillion in the 10 year baseline estimate, just between the August estimate and this new estimate today.

And a total 10 year of $9.9 trillion if you include the likely numbers that CBO lays out but does not include in the baseline.

Are the US financial press just media whores for the GOP?

http://www.cbo.gov/showdoc.cfm?index=4985&sequence=0

[0rganism]

11. Doncha just love that "projected" revenue?

Somehow, miraculously, revenues will sharply increase starting in 2005 despite the additional scheduled tax cuts, as spending magically levels off.

And the funniest thing is, 50% of America BELIEVES THEM.

[papau]

18. CBO director on PBS says making 01 cuts permanent is 1.5T - is this

CBO director on PBS says making 01 cuts permanent is 1.5T - is this additional?

A 1.5 T number does not show up in the 9.9 T (2.4 base plus 7.5 likely) discussion.

Another lie?

[papau]

32. Krugman says tax cuts caused deficits

Krugman thinks anew that the Bush tax cuts caused the record deficit


http://www.nytimes.com/2004/01/27/opinion/27KRUG.html

<snip> The main reason for deficits, however, is that revenues have plunged. Federal tax receipts as a share of national income are now at their lowest level since 1950.Of course, most people don't feel that their taxes have fallen sharply. And they're right: taxes that fall mainly on middle-income Americans, like the payroll tax, are still near historic highs. The decline in revenue has come almost entirely from taxes that are mostly paid by the richest 5 percent of families: the personal income tax and the corporate profits tax. These taxes combined now take a smaller share of national income than in any year since World War II.

This decline in tax collections from the wealthy is partly the result of the Bush tax cuts, which account for more than half of this year's projected deficit. But it also probably reflects an epidemic of tax avoidance and evasion. Everyone who wants to understand what's happening to the tax system should read "Perfectly Legal," the new book by David Cay Johnston, The Times's tax reporter, who shows how ideologues have made America safe for wealthy people who don't feel like paying taxes.

I was particularly struck by Mr. Johnston's description of the carefully staged Senate Finance Committee hearings in 1997-1998. Senators Trent Lott and Frank Murkowski accused the I.R.S. of "Gestapo"-like tactics, and Congress passed new rules that severely restricted the I.R.S.'s ability to investigate suspected tax evaders. Only later, when the cameras were no longer rolling, did it become clear that the whole thing was a con. Most of the charges weren't true, and there was good reason to believe that the star witness, who dramatically described how I.R.S. agents had humiliated him, really was engaged in major-league tax evasion (he eventually paid $23 million, insisting he had done no wrong).<snip>


So the right has used deceptive salesmanship to undermine tax enforcement and push through upper-income tax cuts. And now that deficits have emerged, the right insists that they are the result of runaway spending, which must be curbed. <snip>

[porkrind]

37. Wow !! What a great graph!

Disturbing how the trends reversed when Bush took office.

[papau]

6. Real 03 deficit is $536B before stealing 161 B from Social Security

http://www.cbo.gov/showdoc.cfm?index=4985&sequence=0



Real deficit is $536B before stealing 161 B from Social Security

Seems the CBO is laying out the numbers but the media refuses to report them!The deficit baseline (ignoring the $7.5 trillion of likely but not certain deficit over 10 years from estentions of the tax cuts, and a change to the Alt Min that is likely)is

year 1... 536 before SS payroll tax theft of 161 billion

.....2....631................................$154 B

.....3....535................................174 B

.....8....511

....10....299 where the drop is the effect of NOT extending the tax cuts.

AND NOTE THAT TODAYS HEADLINE OF A projected $477 B deficitis really $631 before the theft from Social Security!

[papau]

19. CBO director on PBS says making 01 cuts permanent is 1.5T - is this

CBO director on PBS says making 01 cuts permanent is 1.5T - is this additional?

A 1.5 T number does not show up in the 9.9 T (2.4 base plus 7.5 likely) discussion.

Another lie?

[papau]

31. Krugman says tax cuts caused deficit

Krugman thinks anew that the Bush tax cuts caused the record deficit


http://www.nytimes.com/2004/01/27/opinion/27KRUG.html

<snip> The main reason for deficits, however, is that revenues have plunged. Federal tax receipts as a share of national income are now at their lowest level since 1950.Of course, most people don't feel that their taxes have fallen sharply. And they're right: taxes that fall mainly on middle-income Americans, like the payroll tax, are still near historic highs. The decline in revenue has come almost entirely from taxes that are mostly paid by the richest 5 percent of families: the personal income tax and the corporate profits tax. These taxes combined now take a smaller share of national income than in any year since World War II.

This decline in tax collections from the wealthy is partly the result of the Bush tax cuts, which account for more than half of this year's projected deficit. But it also probably reflects an epidemic of tax avoidance and evasion. Everyone who wants to understand what's happening to the tax system should read "Perfectly Legal," the new book by David Cay Johnston, The Times's tax reporter, who shows how ideologues have made America safe for wealthy people who don't feel like paying taxes.

I was particularly struck by Mr. Johnston's description of the carefully staged Senate Finance Committee hearings in 1997-1998. Senators Trent Lott and Frank Murkowski accused the I.R.S. of "Gestapo"-like tactics, and Congress passed new rules that severely restricted the I.R.S.'s ability to investigate suspected tax evaders. Only later, when the cameras were no longer rolling, did it become clear that the whole thing was a con. Most of the charges weren't true, and there was good reason to believe that the star witness, who dramatically described how I.R.S. agents had humiliated him, really was engaged in major-league tax evasion (he eventually paid $23 million, insisting he had done no wrong).<snip>


So the right has used deceptive salesmanship to undermine tax enforcement and push through upper-income tax cuts. And now that deficits have emerged, the right insists that they are the result of runaway spending, which must be curbed. <snip>

[indepat]

22. How will they steal from the mythical SS trust fund outl outlays exceed

revenues?

[damnraddem]

7. The IMF says otherwise.

And the dollar continues to fall in value against other major world currencies.

[indepat]

26. That fall in the value of the dollar has been rather dramatic and

what's in store for us as a result of a highly depreciated dollar might be a bit unpleasant.

[platinumPens]

8. But I wouldn't believe anything that comes out of the White House

[Rebellious Republican]

12. Welcome to DU platinumPens N/T

:toast:

[papau]

9. CBO used 4.8% growth next year - and still got these numbers -and * cuts

CBO used 4.8% growth next year - and still got these numbers -and * cuts are unreal - so minimal they do not pass laugh test.

Bush has - for this election year -promised an effective freeze on federal discretionary spending not connected to defense or homeland security, calling that the foundation of a push to halve the deficit over five years.

Congressional and private-sector budget analysts, however, note the move would save the government only around $8 billion dollars out of a $2 trillion-plus federal budget -- even if Congress can be made to swallow the cuts it would require.

And all this despite assumptions of economic growth of 4.8 percent this year and 4.2 percent in 2005

[snippy]

15. Republicans love to quote this Bushshit about the deficit as a % of GDP.

They never mention that of the 14 times that the federal deficit has exceeded 3% of GDP since Eisenhower was president every single time it was under a republican president. They also never mention that in that same time period the accumulated federal deficits total around $3.5 trillion, over 90% of which was accumulated under a republican president.
http://www.whitehouse.gov/omb/budget/fy2004/sheets/hist01z3.xls (Note: Since these numbers are for the government's fiscal year, the numbers for the first year of a presidential term are from the preceeding term. Thus, the surplus for 2001 was under Clinton's budget. Also, the estimates for 2003 and subsequent years are no longer valid.)

The lies the republicans tell about the fiscal responsibilty of republican presidents really piss me off. Eisenhower was the last fiscally responsible republican president.

[stevebreeze]

16. The size of the deficit relative to the GDP may be the best way to measure

If you personally for instance have a $100k mortgage. It matter a great deal to your interest rate if you that mortgage is on a $100k house or a $1 million house. Of course if you have more equity you are a lower risk and this should be reflected on the interest rate you pay. The same thing is true for countries. If it takes more of the gross national product to pay our debts there is a tendency to print more money, making the value of the currency less, causing interest rates to rise.
That being said Bush has the worst record imaginable in the area of fiscal responsibility. As pointed out in an earlier post the debt does not include the SS overpayment of taxes, nor do these numbers account for the stated policy of extending the Bush tax cuts. With an alternative min tax fix this will explode the deficits by an additional $2.3 trillion in the next 10 years. WWW.CBPP.ORG

:kick:

[mbperrin]

35. I guess that would be OK if the GDP was money, but

it's not. It's simply the "value" of all finished goods produced in one country in one year. Whether these goods are ever sold or not to enter the revenue streams of business as income is irrelevant to this number. As long as we churn out new products and assign values to them, GDP is there. If these items don't eventually sell, businesses will fail and employees will not draw checks.

Government cannot draw on the GDP - they don't own it. Government cannot tax the GDP - it's not taxable. The reason government likes to talk about GDP is because it is the biggest number available to talk about and makes their numbers look smaller.

GDP is simply an available number. It is not a reflection of the quality of life, sales, income, revenues or taxes.

[GOPBasher]

17. Manageable????

A few years ago we had surpluses as far as the eye can see, and now they're saying our deficits are "manageable"? I don't want "manageable" deficits; I want the fu**ing budget balenced, and I want to pay down to debt.

[Alpharetta]

21. I hear the fear but don't see the pain

Are investors fooled? I don't think so.

Are international bond investors stupid? I don't think so.

If there was true concern, wouldn't the bond curve be steeper and wouldn't yields be trending higher?

Investors are funding our debt just fine. There's no panic. The U.S. bonds are viewed as a safe investment.

So I don't buy the doom and gloom and "the dollar is about to dive" talk. It looks like international interdependence is allowing us to devalue the dollar a bit without losing our investors.

Same deal with the stock market. It's bouyant despite the currency risk of US dollars.

My conclusion? The world sees our dollars as safe.

But I'm just Joe average investor. Please educate me to my fallacies and tell me when the pain will happen.

[seasat]

24. One reason that US bond rates are low is foriegn investment

from foreign countries to prop up the dollar. It is not sustainable. They hope that in the short term the US economy will strengthen, the dollar regain value, and their exports will be cheap in the US. Without jobs, the demand for exports in the US will eventually decrease. Then you will see the pain when the foreign countries lose faith in investing in the US.

[kentuck]

25. Obviously it won't happen overnight....

But the warnings are already out there. People like to buy bonds that are backed by a strong currency.

"It looks like international interdependence is allowing us to devalue the dollar a bit without losing our investors."

I would say they are giving us time to get our shit together...

The stock market? Is not necessarily refective of Main Street. Who knows where the influx of new cash cme from to invest in the market? For some reason, I doubt that most of the stock trading is being done by average, middle-class stock holders...

[Pax Argent]

29. Somebody smarter than me stop me if I'm wrong

but you are right in the near term. The folks who are our major trade partners have no interest in watching one of their richest markets fall. If the US takes that big fall we'll leave a crater that would shake the rest of the world. Its not a question of doom and gloom. It has to do with what's real and what risks are on the horizon.

Risks include:

- the exchange of the dollar as the preferred medium for the oil trade (possible but not very likely) Iraq did it and we invaded. Venezuela has threatened it and the US is trying to destabilize their government. While these events might be coincidental, I wouldn't bet that way. As a tangent, OPEC is going to get tired of selling oil at reduced prices (devaluation of dollar = loss of value of oil/barrel) which will, at a minimum cause energy prices to rise.

- the resumption of higher interest rates from the Fed (likely at the point that the rest of the world gets tired of paying for our bad habits). When this occurs, people are going to be locked into their upgraded, remodeled houses because the ones below them financially will not be able to afford them. This would bring about...

- the end of the housing bubble. Right now, people are not getting rich on their labor. Wages have been pretty stagnant for the past few years. People have been "getting rich" by taking equity from their rapidly appreciating homes and buying the things they want/need. At some point property will end its wild appreciation for the simple fact that folks won't be able to afford it (see bullet two above).

- the Government not pumping half a trillion dollars into the economy over what they take in each year. Remember, Bushy promised to lower discretionary spending to 4%, thereby reducing the deficit somewhat; this will eventually bite into economic activities.

- the final cost of production efficiencies and transfer of labor to cheap labor countries coming due in the form of reduced employment and reduced wages in this country.

- continued hostility from other countries towards American imports, regardless of relative price

- further wars in the Middle East (Syria, Iran, etc.) if the Shrub is re-selected. Check out the PNAC Manifesto. They're coming, rest assured.

The daily Stock Market Thread is a great place to get up to speed on this stuff.

In my book this year is like a financial donut. Its sweet and tasty right now, but eventually everybody is going to find out how bad it was for us.

[0rganism]

30. The pain will happen if/when you collect Social Security or welfare

In order to keep the fund solvent long-term, some of the following will happen:

1) Tax rates from the SocSec payroll taxes will increase (a flat, capped tax on American workers)
2) Additional funds will be transferred from the general fund (FIT or other tariffs)
3) The benefit schedule will be "altered" (i.e., slashed)

And don't forget to look at this in the context of inflation. If the prime rate (set by the Fed, now at ~1%) remains below the devaluation rate of our currency, the effective buying power of the money in the SocSec fund will be dropping too.

Your SocSec benefits are determined by taking the amount you contribute to the fund, accumulating it with previous years, and appreciating it each year by the average Federal bond rate for that year. When that bond rate is too low, YOU LOSE.

Worse yet, when the tax money from the SocSec tax is used to pay for cuts in the top marginal rate and capital gains taxes, it amounts to a transfer of wealth from those who pay into the fund to those whose salaries dwarf the tax cap (currently around $90000).

So, if you're a rich man who doesn't care about Social Security benefits or any other welfare programs, you probably won't notice any pain. But if you find yourself in a situation of long-term unemployment or retirement or disability, and your "Joe average" mutual fund has been trashed by mismanagement, and you try to collect some kind of welfare benefit from the federal gov't... You will find that what little you get is not enough. You will find that your bridges, sewers, and roads are in disrepair. You will find that when you pull your kids out of their voucher-subsidized private schools, the public schools will be little more than large-celled detention centers. THEN you will begin to feel the pain many of us are already feeling.

That is the price we are paying for our growing and subsidized division between the rich and poor.

[mbperrin]

36. Stock pain happened in 1999. The DOW was

nearly 12,000 then. At 2-3% inflation in the five years since then, to keep even, the DOW would need to be 10 - 15% higher now or about 13,200 to 13,800; it's 30% lower than that, and the NASDAQ is a lot worse - more than 50% lower.

Ask anyone who started investing before 1995 and held on how they're doing now!

[Alpharetta]

33. thanks for the replies

I am still not convinced to bail from U.S. investments.

Under "efficient market theory" the bond yield curve is an assessment of future interest rates. Right now, the curve says the chances of inflation or devaluation of the dollar are about the same as chances of deflation.

The curve says our current level of borrowing (deficit) is sustainable.

[Bandit]

34. Where -o-where is our rainy day fund that Bush* promised in 2000

Remember when he was campaigning he said we had such a huge surplus he would establish a rainy day fund for if the time ever came when we no longer had a surplus. He said it was un-likely though because the surplus was too large and our economic policies too strong. :shrug: No one seems to want to remember all the lies Bush* campaigned on.