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!

Broken Debt

from Maudlin Economics,

There is no positive benefit to compounding interest rates below the rate of inflation. My last letter explained how official government inflation measurements are low in part because our benchmarks distort some important costs like housing. Today I’ll show how the same applies in healthcare. Then we’ll ask cui bono—who benefits—from persistently low interest rates. The answer is borrowers, which is problematic when the biggest borrowers (the Fed and the US government) of all both control rates and provide the data to justify it. Is it any wonder we have a debt problem? And a lot of the debt comes from healthcare, so it’s all a big circle. The outlook is bad and getting worse. Of course the market, in the forms of TIPs and similar instruments, projects inflation higher than the government measures. They can’t both be right. We are going to look at broken debt and broken measurements, and then look at how Fed leaders painted themselves into a corner by shifting to a reactive stance this week.

...the broader point is that the Fed relies on PCE to measure inflation, and we know PCE significantly understates housing and healthcare costs as experienced by typical families.

This is one reason Fed officials see little inflation and expect little more in the future, and thus keep interest rates low. They encourage and subsidize excessive debt… and the biggest debtor is taking full advantage of it. Thus when they say they want inflation to average 2%, they’re using a false measure,

Debt Trap One of my favorite sites is also one of the most terrifying: US National Debt Clock. It has real-time, running tickers showing government debt and literally scores of other related statistics. Here’s a screen snap from earlier this week.

Last September in Great Reset Update, I estimated a $50 trillion federal debt by 2030.

This week I noticed the US Debt Clock has a 2025 projection page, which simply presumes everything continues at today’s rates for four more years. It puts the debt at $49.7 trillion in March 2025.

I am asked all the time how long this can go on. Is there an end in sight? The simple and honest answer is that we don’t know. The US dollar is the world’s reserve currency. Japan is a secondary reserve currency, as is the euro. Japan and many European countries, (and strangely, Singapore) are all running debt-to-GDP ratios higher than the US is today.

This is a massive poker game. The market knows the Fed has a strong hand, but doubts the Fed’s willingness to play it. The Federal Reserve hopes markets will fold. Maybe, if the stock market falls 20% (a real possibility if inflation reaches 3.5% and the 10-year yield exceeds 2% this summer). We don’t know yet how much effect the stimulus will have. Will recipients save most of it like they did last time? Will they put it in stocks? Will consumer spending and supply chain problems push prices higher? The Fed is betting the market will tolerate higher inflation.

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