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.

The Unintended Consequences of Federal Reserve Policies

from MISH Talk,

The interview below first appeared on the FRA website along with a video.

FRA: Great. I thought we’d have a discussion on a variety of topics relating to the economy and the financial markets. You recently mentioned that you thought this was the worst economic expansion recovery in U.S. history since 1790. Wow. Can you elaborate? Dr. Lacy Hunt: If you calculate the average growth rate in the expansions since 1790, this is a long-running expansion, but it’s the slowest and in the last 10 years the household sector lagged very, very badly. The rate of growth in real disposable household income per capita is only 0.9 percent per year. And in the last 12 months, we’re up only 0.6 percent per year. So it’s a long-running expansion, but it’s been a poor expansion. There are certainly problems with some of the earlier data, but this appears to be the slowest expansion since the turn of the 18th Century and our households are the main problem for the growth rate lag. FRA: And do you point a finger for this cause as primarily on the Federal Reserve or do you see structural changes happening to the economy? Dr. Lacy Hunt: I think that the main element suppressing growth is the heavily leveraged U.S. economy. We have too much public and private debt, and this debt does not generate an income stream for the aggregate economy. As a result of the prolonged indebtedness, which is on the verge of going much higher because of problems in the governmental sector, the economy is now experiencing very poor demographics. We have a baby bust, a household formation bust, and the lowest birth rate since 1937. These demographics are exacerbating the problems because we have too much of the wrong type of debt and thus the velocity of money has been falling since 1997. Velocity this year is only 1.43 percent, which is the lowest since 1949. Furthermore, the debt creates a situation where monetary policy capabilities are asymmetric. In other words, a lot of action is needed to provoke even a muted impact on the economy, whereas the slightest monetary tightening goes a long way in depressing economic activity. So the root cause of this underperformance is extreme indebtedness.

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