America's Credibility Gap-Growing Deficits & Out of Control Spending

Dissipate

Diamond Member
Jan 17, 2004
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THE DEFICIT
America's Credibility Gap
Growing deficits. Out-of-control federal spending. Rising debt. With the budget suddenly an election issue, it's time for some straight talk.
FORTUNE
Monday, February 23, 2004
By Shawn Tully


When Alan Greenspan testified before Congress in mid-February, the Fed chairman delivered a Valentine's Day garland to the recent performance of the U.S. economy, lauding the "stunning increases in productivity" that have fueled the recovery. But that same testimony included a far darker message: Greenspan reminded Americans that the U.S. economy faces a giant threat in the guise of big budget deficits stretching far into the future. In the past, Greenspan had mainly warned of the looming dangers of deficits in a decade or so, when the baby-boomers start retiring en masse. This time he hinted strongly that raging deficits could derail today's recovery. "Deficits could cause difficulties even in the relatively near term," intoned the chairman in his usual courtly style. In Greenspan-speak, that means the wolf is at the door, and he could start biting in months, not years.

It is astonishing how quickly we've gone from big budget surpluses to massive budget deficits. Between 1998 and 2001, the U.S. generated some $560 billion in surpluses?including a $236 billion surplus in 2000?and it was widely assumed that the era of big deficits was over. Indeed, in 2000 the Clinton administration was giddily predicting that the country would pay off all of the debt held by the public?some $3.4 trillion?by 2010.

But a year later the budget fell into deficit, and it's been spiraling downward ever since. Last year the deficit was $375 billion, and this year it is projected to be a staggering $521 billion. (The government's fiscal year ends in September.) Not surprisingly, the deficit is quickly becoming a hot election-year issue. Which is to say, there's not a lot of straight talk on the subject. Democrats invoke the need to balance the budget, but they never mention the source of half our fiscal mess, that government spending is now largely out of control. The Bush administration, meanwhile, has projected that the deficit will shrink in half by 2009. But to get to that number, the administration had to make a series of assumptions that are nothing short of laughable, as we shall see. Add to those bogus assumptions the administration's steely determination to not raise taxes, and, well, we've got a big problem.

Article is long so I will just throw in a few highlights:

The Brookings Institution ran numbers using more realistic forecasts for spending increases (higher) and tax receipts (lower) than in the President's highly optimistic budget. Though Brookings is a liberal think tank, its spending numbers are fairly conservative; if anything, they could get far worse. Brookings reckons that even if Congress imposes relatively spartan restraint on discretionary spending, the deficit will still stand at $500 billion in 2009, precisely where it is today.

And:

Most painful of all, it will require regaining control over entitlements, especially Social Security and Medicare. "They're America's exploding cigar," says Bill Gale, a senior fellow at Brookings. According to the OMB, if entitlements are left alone, federal spending as a share of GDP will grow from 20% to 28% by 2035. Though they remain America's biggest sacred cows, entitlement programs will break us if we remain unwilling to wrestle them to the ground.

And:
If the deficits keep running, America's total debt will hit $9.7 trillion by 2014. That's 54% of GDP, the highest number in 50 years and a major red flag for the foreign investors buying our debt. By then we'd be drowning in $500 billion a year in interest payments, three times the current amount.

Full Article

I want to pose a question, and no it is not rhetorical. What if foreign investors stop buying U.S. bonds because the nation's "credit rating" goes down because of these huge never ending deficits? I think its all downhill from there.
 

CADsortaGUY

Lifer
Oct 19, 2001
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www.ShawCAD.com
This is why we need REAL fiscal reform on the Federal level.
We need to reform our "welfare" system(medicaid, medicare, SS, and other traditional welfare type programs) into a system that is all inclusive and has means tested depts for people who actually do NEED help.
We need to force our gov't to use Real budget numbers - just like any other entity has to use.
And finally we need to strip the Feds of "responsibilities" they have taken for themselves to deal with.

CkG
 

Witling

Golden Member
Jul 30, 2003
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Foreign investors are now in the position of sitting in the theater and smelling smoke. If one breaks for the door, they'll all go and a lot of them will be hurt in the process. The question is, how to get out of the theater before everybody else makes a break for the same door? One effect of loss of faith in the dollar will be the continued decline of the dollar.
 

GoPackGo

Diamond Member
Oct 10, 2003
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Originally posted by: CADkindaGUY
This is why we need REAL fiscal reform on the Federal level.
We need to reform our "welfare" system(medicaid, medicare, SS, and other traditional welfare type programs) into a system that is all inclusive and has means tested depts for people who actually do NEED help.
We need to force our gov't to use Real budget numbers - just like any other entity has to use.
And finally we need to strip the Feds of "responsibilities" they have taken for themselves to deal with.

CkG

Should the Fed (have sold) / sell War Bonds or maybe retirement bonds?

 

Witling

Golden Member
Jul 30, 2003
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Hey, Cad! You forgot to say we've got to stop persuing stupid, costly wars and trying to police the world where people don't want us. Curious that you forgot that.
 

CADsortaGUY

Lifer
Oct 19, 2001
25,162
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www.ShawCAD.com
Originally posted by: Witling
Hey, Cad! You forgot to say we've got to stop persuing stupid, costly wars and trying to police the world where people don't want us. Curious that you forgot that.

National security is a Federal concern so they have jurisdiction. However - I do think there could be some changes to make that whole system more cost effective.

CkG
 

CADsortaGUY

Lifer
Oct 19, 2001
25,162
1
76
www.ShawCAD.com
Originally posted by: GoPackGo
Originally posted by: CADkindaGUY
This is why we need REAL fiscal reform on the Federal level.
We need to reform our "welfare" system(medicaid, medicare, SS, and other traditional welfare type programs) into a system that is all inclusive and has means tested depts for people who actually do NEED help.
We need to force our gov't to use Real budget numbers - just like any other entity has to use.
And finally we need to strip the Feds of "responsibilities" they have taken for themselves to deal with.

CkG

Should the Fed (have sold) / sell War Bonds or maybe retirement bonds?

No. I'm not sure why they should do that when it really doesn't solve the problem - which is and has been OVERSPENDING.

CkG