Tag Archives: national debt

Persistent U.S. Federal Budget Deficits

In various posts as well as seen in the “America’s Trojan Horse” discussion, I have discussed various aspects of both the federal deficit and federal debt.  Both of these issues remain highly problematical in many ways.  At the same time, many aspects of the problems and their future implications lack recognition, either partially or fully.

One notable chart that I recently came across depicts, on a long-term basis, the level of the federal deficit as a percentage of GDP.  This chart is from the Peter G. Peterson Foundation, and is dated March 10, 2016:

deficits as a percentage of GDP

I find the depiction above to be notable in many ways.  As one can see, prior to 1950 (substantial levels of) deficits corresponded with wartime periods, and many other periods showed budget surpluses.  Beginning at around 1950, deficits became not only commonplace but also increasingly larger as a percentage of GDP.

Also notable is that over (roughly) the last 15 years, the U.S. has been unwilling and/or unable to produce a federal budget surplus.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2082.78 as this post is written

Four Erroneous Phrases

Over the last few months, four phrases have been used frequently in describing our economic condition.  I find these phrases to be inaccurate and misleading.

Here are the four phrases (in italics) and some brief commentary:

“the Great Recession”

Many people have labeled the economic weakness (ended by the subsequent purported economic recovery) as “the Great Recession.”  This appears to be in recognition of a deep recession that in many ways seemed to be second only to The Great Depression as far as severity.

I believe the phrase to be inaccurate as my analysis indicates we have yet to experience the full extent of the economic weakness –  and as such categorizing weakness to date is premature.  Also, I find the term “Great Recession” to be rather glib and flippant, as it minimizes the extent of our economic difficulties.

“employment is a lagging indicator”

This phrase is heard constantly.  It seems as if the more it is said, the more accepted it becomes.  I believe that although employment may have been a “lagging indicator” in the past, during our current period of economic weakness it is either a coincident or leading indicator, depending upon the time horizon and other guidelines used.

“saddling our children / grandchildren with debt”

This phrase, and variants, is often heard in relation to the expansion of deficits and national debt.  While I don’t believe it is wholly inaccurate, I think it embodies various mistaken beliefs.  Among these mistaken beliefs are that we as a country will not face near-term repercussions from our amassing of debts; and that the worst consequence (and only one worthy of mention) of our current economic actions with regard to future generations’ prosperity is our amassing of debt.

The broader, and more important question –  which is seemingly never mentioned – is whether we are acting as “good stewards” in relation to the economic condition that will be faced by future generations.  In essence, is the current generation promoting an economic environment that will bode well for future generations?  I will likely discuss this topic in the future.

the “Flash Crash”

This phrase has been frequently used to describe the sudden, deep decline of the stock market on May 6.  I don’t think the phrase is accurate for a number of reasons.  Again, the phrase sounds glib and implies that the decline lacked (lasting) significance or happened without significant reason or provocation.

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There are many other erroneous phrases used frequently to discuss our economic condition.  In the future I will highlight others that I believe have outsized significance.

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SPX at 1074.33 as this post is written

“Is America In Decline?”

I found this exchange on last Sunday’s (May 9) “60 Minutes” to be interesting.  It is between Scott Pelley of “60 Minutes” and Hillary Clinton.  For now I will simply post the exchange, and may comment upon it later:

Pelley:  “Larry Summers, the president’s economic advisor, asked this question: ‘How long can the world’s biggest borrower remain the world’s greatest power?’ Is America in decline?”

Clinton:  “No. We’re not. But it’s a question that has to be answered.”

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SPX at 1157.44 as this post is written

Editorial Of Note: “Greece’s Crisis: A Warning To Profligate U.S.?”

On February 10th an editorial by Scott S. Powell appeared in Investor’s Business Daily titled “Greece’s Crisis: A Warning To Profligate U.S.?”  The link can be found here.

I am highlighting this editorial as it discusses many important issues, most of which I have previously mentioned on this blog.  As well, it compares our current financial situation to that of Greece’s.

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SPX at 1099.51 as this post is written

Tax Increases And Our Economic Situation

Lately there has been quite a bit of activity in either increasing or proposing increasing taxes (also increases in fees, fines, etc).  This activity is occurring at all levels, i.e. local, state, and national.

These tax increases are very noteworthy given our current period of economic weakness.  I will be addressing various aspects of this in the future.

For now, I would like to highlight the dynamic between taxes and the national debt, which is especially important.  I discuss this in the “America’s Trojan Horse” article that can be found here, for those who haven’t read it:

https://www.economicgreenfield.com/americas-trojan-horse/

 

SPX at 1086.22 as this post is written

Healthcare – A Few Thoughts

As President Obama said during his July 22 Press Conference, healthcare is “a problem that Washington has failed to solve for decades.”

I want to make a few random comments about healthcare.  Any substantive discussion on my part would be exceedingly lengthy as this is a complex subject.

I do believe that there has to be major changes made, and quickly.  There are many large problems with the healthcare system in a variety of areas.

However, I think that in order to make effective changes, there has to be a greater understanding of the problems inherent in the current system.  As well, there should be an examination of some of the current assumptions being made.

Some questions I would ask are:

Should government be involved in healthcare?  Why?

What are the underlying problems of the healthcare system?

Do we fully understand the problems of the healthcare system?

What would be the attributes of a perfect healthcare system?

Are there models analogous to the healthcare scenario that a person faces?  What can we learn from them?

Also, I wanted to exhibit this recent op-ed from The Wall Street Journal.  John Cochrane makes some interesting points that are worthy of contemplation:

http://online.wsj.com/article/SB10001424052970203609204574316172512242220.html

 

SPX at 982.51 as this post is written

The FDIC Situation

Ever so often I come across a story concerning the FDIC and its wherewithal to be able to cover its potential commitments.

It appears to be exceedingly thinly funded in relation to potential liabilities.  This may not be a big issue going forward if the economy improves; however, it could become a very large issue if the economy deteriorates from here.

While there is little doubt that the government would lend additional funds to the FDIC, if needed, it is one more item that could serve to significantly bolster the nation’s level of indebtedness.

One is led to wonder how purchasers of U.S. debt view the rising level of indebtedness, as well as the potential for all of the various federal “guarantees” of assets to add to the debt level.

 

SPX at 997.08 as this post is written

The National Debt and Deficits

John Taylor wrote the following article “Exploding Debt Threatens America”:

http://www.ft.com/cms/s/0/71520770-4a2c-11de-8e7e-00144feabdc0.html?nclick_check=1

Although I don’t agree with some of his figures and reasoning, the central point is important:  This debt level is a serious problem.

It also illustrates the difficulty of  ridding ourselves of this level of indebtedness.  

These issues will likely get greater attention now that sovereign debt levels are coming under renewed scrutiny.

Furthermore, a question that should be asked is whether amassing ever-greater deficits and debt levels is compatible with the concept of sustainable prosperity.

I’ve been meaning to write an article about our national debt, as I think the topic deserves much greater discussion.

SPX at 944.37 as this post is written