Published: Sunday, October 25, 2009
U.S. is destined to stay in debt
It took two people to make the announcement.
Treasury Secretary Tim Geithner and White House Office of Management and Budget Director Peter Orszag jointly released the number that defined the U.S. budget deficit for this fiscal year.
It was $1,417,000,000,000.
The word attached to the number with all those zeros is trillion, so we describe the federal budget deficit as $1.4 trillion. There isn’t a single word we attach to the number — as a deficit — but certainly “disastrous” comes to mind.
From an accounting standpoint, the number isn’t as bad as it looks. The federal budget is reported on what is largely a flow-of-funds basis. As a result, the deficit number does include some outlays that were used to purchase collateralized debt obligations (CBOs), mostly home-mortgage-based, from banks and other financial institutions. These assets are still troubled, but gaining in value every day and may even turn a profit for the taxpayer eventually.
From an economics standpoint, though, the number is even worse than it looks. Maybe next year’s Nobel committee should consider an economics prize for Billy Joel, who wrote the line in one of his songs, “Is that all you get for your money?”
Nominally, about half of the deficit can be traced to the ill-starred stimulus bill passed by Congress — or would be if it had all been spent by the end of the fiscal year. Instead, of course, over half of it will be back to haunt us next year. A massive person-hunt was launched recently to track down those jobs that were created or saved by the stimulus bill and, under generous definitions, was able to turn up 30,000. Thirty thousand is a lot of people, certainly, but as an employment statistic in a work force of 154 million, it could be lost in the margin of error. It isn’t much of a showing for spending so much money, especially since we didn’t have it to spend.
And the $1.4 trillion isn’t the total of what the federal government spent; that’s just how much it spent beyond the tax revenue it had coming in. The budget deficit is being used to pursue a lifestyle no longer supportable by income. In that respect, it’s like the nation’s credit card debt — and the similarities to overspending by individuals, including the psychology behind it, don’t stop there.
Certainly the confusion between needs and wants, between essentials and non-essentials, and, eventually, between fantasy and reality, are characteristic of advanced cases of credit abuse. And nobody does credit abuse better than Congress.
There are economic implications to the budget deficit situation, of course. Certainly an increased risk to the value of the dollar and, more significantly, to its role as a reserve currency — the standard used by most of the world to measure transactions and store assets. These implications are very much in the minds of some policymakers and the public alike, in no small part because of their potential effect on the ability of the U.S. government to finance our outstanding public debt.
The United States Treasury’s Bureau of Public Debt maintains a tally on our outstanding debt, and when I last checked, it the total was $11,946,703,132,807.34 — a number that takes approximately 11.4 seconds to say out loud and approximately forever to pay off.
Paying off the debt, or not, has implications that are a combination of economics and management, and both are pretty discouraging.
Many businesses and households run deficits at one time or another. Stuff happens in this world, and sometimes we are unprepared for events. The difference in this situation is that neither the White House nor Congress has any plan, or even any intention, of ever paying it back. This is bad economics, and even worse management.
In terms of the economic implications, time is not on our side. Credit and the ability to fund our debt is, in large part, a matter of psychology. And the longer we seem committed to endless deficits and accumulated, perpetual debt, the less enthused foreign governments and banks will be about underwriting our lifestyle by lending us more money.
The deficit and the accumulated debt are not really an issue of partisan politics. In the past 60 years, there have been only two brief, toe-dipping excursions into budget surplus land — one under President Richard Nixon and the other under President Bill Clinton. Neither had any lasting effect on federal spending.
Management skill has never been seen as much of a vote-getting asset by politicians, and in a world obsessed with celebrities, that assessment is not likely to change unless voters intervene. If we fail to manage our spending, though, we will succeed in managing to wreck our economy.
James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Snohomish County Business Journal.
Treasury Secretary Tim Geithner and White House Office of Management and Budget Director Peter Orszag jointly released the number that defined the U.S. budget deficit for this fiscal year.
It was $1,417,000,000,000.
The word attached to the number with all those zeros is trillion, so we describe the federal budget deficit as $1.4 trillion. There isn’t a single word we attach to the number — as a deficit — but certainly “disastrous” comes to mind.
From an accounting standpoint, the number isn’t as bad as it looks. The federal budget is reported on what is largely a flow-of-funds basis. As a result, the deficit number does include some outlays that were used to purchase collateralized debt obligations (CBOs), mostly home-mortgage-based, from banks and other financial institutions. These assets are still troubled, but gaining in value every day and may even turn a profit for the taxpayer eventually.
From an economics standpoint, though, the number is even worse than it looks. Maybe next year’s Nobel committee should consider an economics prize for Billy Joel, who wrote the line in one of his songs, “Is that all you get for your money?”
Nominally, about half of the deficit can be traced to the ill-starred stimulus bill passed by Congress — or would be if it had all been spent by the end of the fiscal year. Instead, of course, over half of it will be back to haunt us next year. A massive person-hunt was launched recently to track down those jobs that were created or saved by the stimulus bill and, under generous definitions, was able to turn up 30,000. Thirty thousand is a lot of people, certainly, but as an employment statistic in a work force of 154 million, it could be lost in the margin of error. It isn’t much of a showing for spending so much money, especially since we didn’t have it to spend.
And the $1.4 trillion isn’t the total of what the federal government spent; that’s just how much it spent beyond the tax revenue it had coming in. The budget deficit is being used to pursue a lifestyle no longer supportable by income. In that respect, it’s like the nation’s credit card debt — and the similarities to overspending by individuals, including the psychology behind it, don’t stop there.
Certainly the confusion between needs and wants, between essentials and non-essentials, and, eventually, between fantasy and reality, are characteristic of advanced cases of credit abuse. And nobody does credit abuse better than Congress.
There are economic implications to the budget deficit situation, of course. Certainly an increased risk to the value of the dollar and, more significantly, to its role as a reserve currency — the standard used by most of the world to measure transactions and store assets. These implications are very much in the minds of some policymakers and the public alike, in no small part because of their potential effect on the ability of the U.S. government to finance our outstanding public debt.
The United States Treasury’s Bureau of Public Debt maintains a tally on our outstanding debt, and when I last checked, it the total was $11,946,703,132,807.34 — a number that takes approximately 11.4 seconds to say out loud and approximately forever to pay off.
Paying off the debt, or not, has implications that are a combination of economics and management, and both are pretty discouraging.
Many businesses and households run deficits at one time or another. Stuff happens in this world, and sometimes we are unprepared for events. The difference in this situation is that neither the White House nor Congress has any plan, or even any intention, of ever paying it back. This is bad economics, and even worse management.
In terms of the economic implications, time is not on our side. Credit and the ability to fund our debt is, in large part, a matter of psychology. And the longer we seem committed to endless deficits and accumulated, perpetual debt, the less enthused foreign governments and banks will be about underwriting our lifestyle by lending us more money.
The deficit and the accumulated debt are not really an issue of partisan politics. In the past 60 years, there have been only two brief, toe-dipping excursions into budget surplus land — one under President Richard Nixon and the other under President Bill Clinton. Neither had any lasting effect on federal spending.
Management skill has never been seen as much of a vote-getting asset by politicians, and in a world obsessed with celebrities, that assessment is not likely to change unless voters intervene. If we fail to manage our spending, though, we will succeed in managing to wreck our economy.
James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Snohomish County Business Journal.
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