Budget Debt
The US Government spends about $3.7T a year and generates revenues of about $2.5T a year. A $1.2T annual deficit in 2012. In the last five years, Sequestration cuts and increased revenues have reduced the deficit. If anyone wants to know why we have a budget problem in this country, all you have to do is look at the running debt clock. We are now at $20T in debt.! But, if big numbers alone don't get your attention, then lets put the $20T in perspective, it represents over 100% of GDP. The nation owed $10.6 trillion on Jan. 20, 2009, when President Obama was sworn in, and he doubled it – more than Bush piled up in two terms. There is bipartisan agreement that we cannot sustain this level of debt. There is also bipartisan agreement that we must correct the outflows exceeding inflows that drives the debt higher every second (see debt clock) . Everyone who manages a checkbook has seen this problem before and knows how to correct it - reduce expenses and increase income. Increasing revenues is critical to the solution, but will not have an immediate impact. Reducing expenses is also critical to the solution and can generate immediate impact. It is the only thing in your control instantly! Everything else we here about this subject beyond these two facts is just noise and should be ignored. The political left and right cannot agree on how to correct this problem. Doing something is also better than doing nothing, which is what this stalemate is giving us now. The left solution to our problem is to increase taxes on the rich to increase income. Currently the top 20% of income earners pays 80% of the federal tax burden. So do we want them to pay 100%? 110%? 120%? Maybe just write the check every year for the entire cost of government, whatever it is? Clearly this is not a solution. The right wants us to reduce spending and taxes, which was also a poor solution in a recessionary economy, but in a growing economy in 2017 has promise. But, the truth is we must do both (reduce expenses and increase income), we must do it now and it will not be easy. All the political hot air outside these two facts is simply a distraction from the difficult but obvious answer. To increase income we must immediately restructure the tax code to foster a growing economy. Trump did that in Dec 2017. A growing economy will usually increase income (tax revenues for the government) over the 10 years, but not immediately. The Trump tax reform due to money overseas that will be returning home, will have immediate positive revenue impacts. To immediately begin to impact our budget and debt problem whiling anticipating increased revenues we also must immediately and dramatically cut spending. That MUST include discretionary spending AND entitlements (Social Security, Medicare & Obamacare) which represent 90% of the problem. The left will say you are hurting education, the homeless, healthcare of all Americans, the elderly and on and on. The right will shout "we are already taxed enough". All This whining MUST be ignored. No one wants to hurt themselves, their families or their neighbors We have no choice but to intelligently make these difficult decisions while minimizing the pain. But there will be pain. And our representatives MUST ACT NOW. It is a dereliction of duty if they do not. The 2 year budget passed Feb 2018 does not do this. It was a purely bi-partisan negotiation (which is good) but gives everything to everyone and makes no tough decisions on spending. Below you can watch the ongoing debate on this critical issue. And hopefully see the solution we need develop.

Bullish or Bearish on the future? Keep our time frames straight.

8/11/18
By John Mauldin,
from Maudlin Economics,
8/10/18:

First question: Is John Mauldin bullish or bearish? The answer is “Yes.” I’ve received several reader e-mails accusing me of straddling the fence. I can see why some might think this. I wrote a rather depressing “Debt Train Wreck” series (recap here) then capped it by describing the good things waiting on the other side. That’s perfectly consistent in my mind, but not everyone read it that way. So let me clarify again. The key is to keep our time frames straight. Here’s what I think.

Long Term (2030 and beyond): I’m amazingly bullish and optimistic. The Great Reset will be behind us (although we will be living with the outcomes) and an honest-to-God recovery will be gathering speed, technology will have created many new jobs, and we’ll be healthier and longer-lived thanks to biotech breakthroughs. I can’t wait to get there. But then again, part of the adventure is in the journey. Medium Term (2020–2030): We will experience a rough decade as crushing debt forces the global economy into a series of recessions and credit events, culminating in some kind of debt liquidation, i.e. the Great Reset. It will stretch out for several years. We will see social and political turmoil and possibly wars as well. People are going to get hurt, badly. I am not looking forward to this period at all. As I’ve said recently, I think we can not merely survive, but actually thrive. It won’t be by continuing to do business as usual, however. As the header for this letter says, the Maine surprise was time. I now believe we have more time to prepare than I thought a year or two ago. Short Term (2018–2020): This is where I am genuinely uncertain. I’ll admit to having wavered, mostly because the data has wavered, too. I thought the second quarter’s 4.1% US GDP growth estimate pretty impressive, but not necessarily enough to prevent a latter-half 2019 recession. But now some data suggests the third quarter will be north of 3%, too. That is much better than we have seen in a long time. So for the next couple of years, call me “neutral to concerned” that we can totally avoid a recession into the early 2020s. I think there are good reasons to expect recession sooner rather than later. But if (and it's a big if) this whole tariffs/protectionism thing can be brought to a reasonable resolution, then perhaps the recovery can last a little bit longer. Headwinds? Sure. But there are some nice tailwinds as well.

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