Budget Debt
The US Government spends more than it takes in just about every year. Here are the budget deficit numbers by year since 1932. 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 $21T in debt.! But, if big numbers alone don't get your attention, then lets put the $21T 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! Sequestration and government shutdown revealed that with immediate impacts in 2012 & 2013. 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. 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. Trump's tax law in Dec 2017 had an economic stimulation effect. 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. His military defense spending will have a negative national debt impact. To immediately begin to impact our budget deficit 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. Then, in 2020, the COVID-19 pandemic arrives and budget busting, debt and printing money takes on historic proportions!

We need "another stiff-necked public servant like Paul Volcker"

5/25/20
by Bill Bonner,
from Rogue Economics,
5/19/20:

"There are decades when nothing happens. And there are weeks when decades happen."– Vladimir Lenin, former premier of the Soviet Union

No pure-paper money has ever survived a complete interest rate cycle.” We wrote that about 20 years ago. Now, we will see it put to the test. Our hypothesis is that all the damage done by COVID-19… and by the government’s disastrous Universal Lockdown… is only prelude. The economy has been shrunk. But all of that is just the warm-up act… like second-string entertainers preparing the audience for the real tragedy to come. Yes, as dumb as it was to shut down the whole economy, it is even dumber to pretend that you can replace real economic losses with empty, worthless paper money. We’re running out of metaphors to describe it. The old standards – printing money “out the wazoo”… “to beat the band”… “like nobody’s business” – just don’t seem up to the challenge. The wild money-printing began, you’ll recall, back on September 17, 2019. That was when the big banks discovered that they needed more cash to buy the government’s bonds. The Federal Reserve stepped into the overnight funding markets with their Repo Madness program. In the weeks since then, buying bonds with fake money, they’ve added $3 trillion in new money to the U.S. financial system. And everybody knows where this is leading. Corporate debt issuance, for example, is expected to double this year. But let’s backtrack and look at how we got here…

After World War II, interest rates were bouncing off a generational bottom. Thereafter, they rose for about 36 years. America’s paper money system began on August 15, 1971. The whole fake-money scam probably would have blown up in the 1980s, but for then Fed chair Paul Volcker. In a rare display of courage and fortitude – for a public official – he forced the dollar to act AS THOUGH it were real money. That is, while inflation and interest rates rose to double-digit levels in 1980, he put the Fed’s key lending rate up to 20%. This caused a recession. But it saved the fake-dollar system. This “save” by Volcker gave the dollar a longer lifespan than expected… and led people to think that the dollar was a reliable currency for the long-term. If ever there were another crisis, they said to themselves, there would surely be another stiff-necked public servant like Volcker to set it straight.

More From Bill Bonner's Diary:

What to Expect Next in The U.S. Economy


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