Global Economics

Rosy Look of the Ballooning Deficit

Thanks to tax cuts and spending increases, US deficit estimates are spiraling up. Let's investigate some estimates.

Bipartisan Deal Makes Shows Republican Hypocrisy

The deficit projection chart is from the New York Times article Budget Deficits Are Projected to Balloon Under the Bipartisan Spending Deal

Spending Projections

$716 billion dollars a year for "defense" is absurd.

US drone policy, dropping bombs indiscriminately, and never ending wars are all extremely counterproductive.

Republicans are only interested in spending cutbacks when they do not control the White House.

Compromise is as it always was: reckless spending by both parties.

Big Government is Back

The New York Times proclaims Republicans Learn to Love Deficit Spending They Once Loathed.

Big government is officially back in style. Republicans propelled themselves to power in Washington by promising an end to fiscal recklessness. They are now embracing the kind of free spending and budget deficits they once claimed to loathe.

On Friday, Congress passed a bipartisan spending deal that blows through the caps imposed by the 2011 Budget Control Act, unlocking $300 billion in additional spending for the military and domestic programs over the next two years. That comes on top of last year’s $1.5 trillion tax cut package and as the White House prepares to unveil on Monday a $1.5 trillion infrastructure plan that would require $200 billion in government funding.

While the White House says it plans to offset that $200 billion through unspecified cuts, none of the other spending is paid for at a time when the nation’s debt already tops $20 trillion.

“With this deal, we will experience trillion-dollar deficits permanently,” said Andy Roth, vice president of the conservative Club for Growth. “That sort of behavior, the last time I checked, is not in the Republican platform.”

“I think it’s a little bit surprising and puzzling,” said Jason Furman, a former chairman of Mr. Obama’s Council of Economic Advisers, noting that trillion-dollar budget deficits is uncharted territory during a period of full employment. “We’ve never had anything like that outside of a war or a recession.”

Rosy Look

I promised a "rosy look" at this grim pictured. Here it is:

The nonpartisan Committee for a Responsible Federal Budget projects that the United States will run $2 trillion annual budget deficits by 2027 and have a debt-to-gross domestic product ratio of 105 percent — a level not seen since the end of World War II.

That rosy look assumes no recession, no additional spending "compromises", no infrastructure spending impact, and $200 billion in unspecified cuts that will never happen or will be quickly unagreed to.

With those rose colored glasses on, deficits will run "only" $1.2 to $1.5 trillion, increasing to $2 trillion by 2027.

That should have been $716 not $761 in my Tweet.

Reader Dave, a friend, pinged me with his comments on the above stories. "The deficits right after the 2008 financial crisis were a combination of safety net spending and countercyclical spending. I think that the addition to national debt will be at the upper end of the estimates (close to $3 trillion) rather than the commonly cited figure of $1.5 trillion."

I agree, but add this caveat: Both of us may be quite a bit optimistic.

Mike "Mish" Shedlock

20 Responses

  • stillCJ

    Feb 9, 2018

    My biggest disappointment with The Donald is the continuing useless, wasteful and often illegal foreign military excursions.

  • El_Tedo

    Feb 9, 2018

    Rand Paul is the only patriot in the Senate, in my estimation.

  • Curious-Cat

    Feb 9, 2018

    What else could you have possibly expected?

  • tedr01

    Feb 9, 2018

    You nailed it Mish. I hope you will be a guest on Coast to Coast AM soon.

  • channelstuffing

    Feb 9, 2018

    Would you expect anything less from anyone who's proud of the moniker "king of dept",talk bout a 180!damn,he'll rack up as much dept in four as barry did in eight lol

  • Kinuachdrach

    Feb 9, 2018

    So we are talking about $1,000 Billion deficits -- and defense spending is projected to be only $716 Billion. So if we shut down the military, closed down Veterans Administration hospitals, stopped paying pensions to military retirees (all part of that projected $716 Billion), then the Federal Government would still be running an unsupportable deficit. Cutting military spending is fine -- as long as obligations are cut first. (E.g., let the Russians have Europe; they are welcome to that headache). But we need to remember that something like 2/3 of Federal spending is on "Entitlements". The Political Class is not willing to countenance any reduction in their Rob Peter to Pay Paul game. The question is how to get Congress (Democrats as well as Republicans) to behave responsibly and make the tough choices they were elected to make.

  • AWC

    Feb 10, 2018

    No, wait,,, but, I thought we owed it all to ourselves? Oh, forgot. It's not denominated in real money. Carry on.

  • AWC

    Feb 10, 2018

    But, do get back to me when the Federal Funds rate is 21% and real rates are at Minus 16% or so.

  • Carl_R

    Feb 10, 2018

    So far as I know, the last President that actually read the budget and attempted to balance it, was Jimmy Carter. Before that, it would be Eisenhower.

  • QTPie

    Feb 10, 2018

    It often claimed that the guiding principles of post-Great Depression economies are based on Keynes’ economic theory. THIS IS PATENTLY FLASE. Keynes was very clear about the role of government: It should utilize deficit spending to stimulate aggregate demand through deficit spending at times of economic recession BUT run surpluses when the economy is performing positively. That is a much more productive and durable mechanism of evening out of the economic cycle than the current modus operendi which involves running constant, endless deficits with central banks then papering over the rot in the economy during times of recession with massive amounts of printed money, which then just sets up the next giant bust... that is invariably described as “nobody saw coming”.

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