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It's the Deficit, Stupid
Projections suggest the federal budget deficit could exceed $500 billion next year, complicating the debate between Barack Obama and John McCain over how to strengthen the economy while not worsening the nation's finances.
Deficit projections are ballooning because of lower tax receipts and government spending on economic-stimulus programs. The gap increasingly is threatening to play havoc with the two presidential candidates' domestic-policy plans, particularly Sen. McCain's big tax cuts and Sen. Obama's promised health-care expansion, and could force major changes in the winner's agenda.On Monday, Sen. McCain, the Republican candidate, sought to turn the new deficit numbers to his short-term political advantage, without conceding much to those longer-term realities. Democratic rival Sen. Obama sought to keep the focus on the current shaky economy, economic inequalities and worries over job and retirement security.
The sparring came as the White House budget office boosted its estimate of the federal deficit for fiscal 2009 to $482 billion. With the full costs of the wars in Iraq and Afghanistan added in, the deficit for 2009 likely would exceed $500 billion, analysts said. The deficit projection for 2008 fell somewhat from the last official estimate in February, to $389 billion from $410 billion. Fiscal 2008 ends Sept. 30.
Expect to hear more of these stories come out as the economy worsens.
I wrote an article a few weeks back called "My Conversation With the Next President." In the article I highlighted the basic problem the next president faces. Here is the short version. The Bush administration has mis-managed the federal budget situation to an alarming degree. Although they inherited a budget surplus, they have continually spent more then they have taken in. As a result, the US is issuing debt like its going out of style. Total debt outstanding has increased from $5.8 trillion in 2001 to the current total of $9.5 trillion.
As a result of this problem, the currency markets have sent the dollar lower for six years straight.
If you were wondering why commodities in general and oil specifically have bee rallying for some time, you can thank the cheap dollar as a primary cause. While a stronger dollar alone would not solve the problem of expensive oil, it would definitely help. Consider the dollar chart above. Note it has gone from peak to trough from 130 to its current level of $72.75 -- or a drop of 44%. Also note that most world commodities (like oil) are priced in dollars. As the dollar has dropped in price, so have these commodities. One of the primary reason traders are bidding them up is as an inflation hedge. While that appears to have waned for now, the damage has already been done in the form of higher prices being passed on to the consumer.
And that's not all. The US has been issuing a ton of debt every year during the good economic years. This means that going into the bad years we have a ton of more debt on our books and a culture of not making the tough political decisions (like, for example, raising taxes on the upper-income levels to help pay for a war). As a result, the US is entering a period of economic hardship with both hands tied behind its back.
Theoretically, a government should help to mitigate the effects of a recession with increased spending on programs like unemployment insurance extensions, job retraining, tax credits to start new economic sectors and the like. This goes a whole lot better if the government managed the budget well during the times of growth. However, the US has not done that. Instead, we have loaded up the federal government with a large amount of debt which has helped to devalue our currency which is increasing inflation. Issuing more debt will add further downward pressure on the dollar adding to the current inflationary pressures. In short, doing what the government should do during this time is exactly what the government has been doing for some time and it has led to problems.
It's not a pretty picture, is it?
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Don't vote out the incumbant Democrats. Once we get a democratic president things will change. If they don't do better after the next election, then we can impeach them. We will have lots of republican help for that.
The republicans say to vote out the incumbants but they won't vote their incumbants out.
Many companies are writing off big losses this year and for years to come. That means even if their taxes are raised next year, they won't have to pay many taxes.
The oil companies are leasing land in every state and crying for more. That is another tax write off.
No taxes for income and deep in debt. What is a country to do?
Here, on your way to the poor house take this $600.00 and give it ti some businesses along the way.
See ya there, (sure you will).
If no one wanted and gained from huge federal deficits, they wouldn't happen. So somebody gets rich off them. Who? The top 10% who hold the paper on the debt, that's who.
It's a reverse income redistribution scheme. The bottom 90%, who don't hold large investments in treasuries, pay taxes so the interest on the debt can be doled out to the top 10% who do hold large investments in treasuries.
When the big mortgage lenders, Freddie and Fannie, are bailed out, the money should pass through the mortgage accounts of the debtors who owe on their primary residence mortgages on the way, lowering their debt. This one measure would make all homeowners with a mortgage wealthier. It would also provide, as a cost free benefit, a big boost to the revenues of the federal government, because mortgage interest is deductible, and if everyone's mortgage was lowered by passing the money headed for Freddie and Fannie through those accounts along the way, there would be less deductible mortgage debt. This would lower the deficit and thereby strengthen the dollar.
But the Republicans like debt because it further enslaves the bottom 90% in debt slavery. Which is the same reason they would not want to pass the money to Freddie and Fannie through the individual mortgage accounts. And big deficits and a weak dollar are actually seen by the Republicans as GOOD things.
The RICO anti gangster laws should be used to disband the Republican Party as a criminal organization.
Well written. Only problem is, the gangsters have taken control of the so called "Justice" Department as well. If that institution can ever be remade into the non-partison organization it should be, perhaps the RICO anti-gangster laws will be enforced. Until then, it's a free for all for the gangsters.
Revamping the medical system, after 3 decades of inflation of costs, may save the taxpayers a bundle. Let's hope so. Getting the docs to go along may be tough. Now many physicians are earning 1M+ and
working 2 days a week - a far cry from yester-year. Faced with going without government subsidies, they might easily elect to drop rates for services and pharmaceuticals. Let's hope so.
Most docs would gladly get rid of the insurance co middle men if they could, and many are willing to do it via a single payer system.
However, the average American is not willing to do so. Can't let those commies get into our government. I'm being cynical.
" Many physicians are earning 1 M + and working 2 days a week " ----- Can you name one ?
What the government should have been doing is exactly what the government
HAS NOT been doing for some time and this has led to problems.
Those last four words are understatement.)
Even under our Constitution, the organization declines with an incompetent CEO. Our treasury is empty. Our country is bankrupted from bottom to top. And there is no possible way that any change in our Nation's posture can be affected without a competent President. so, our Country weakens ever more. Our friends are appalled. Our detractors shout "Well deserved." Our enemies tighten their economic choke on our future self determination. We are the Carthage of the modern world brought on by a perfect storm of wanton, careless, corrupt leaders. When we are finally introduced to honorable leaders who tell us of our peril, the die will already have been cast by emerging empires who will deign to cast us as subservient debtors and vassels of ownership.
There is no change possible without replacing the entirety of the current leadership, both financial and political. Both have been married to each other for too long. How many Americans still believe they are middle-class despite the obvious? Too many. Better to have a dream than live in the current?
Mr Stewart,
Are you saying that Bush and the Republicons are trying to "kill the beast" and thus make their progressive successors look bad trying to solve all the intractable problems?
Rhetorical question. Look at Republican obstructionism in Congress.
Time to bring back an old Roosevelt campaign jingle (slightly paraphrased):
"The president gave a whistle
Wall Street rang the bell
The speculators gave the signal
and the country went to hell"
Question: What do you get when you mix arrogance and incompetence?
Answer: The current administration's economic policy.
I grew up in a rural Midwestern household where stories of the Depression abounded. As a result, my siblings and I were taught the value of hard work, how to save for what you wanted, and to eschew debt. I cannot tell you how thankful I am for the "tough love" and wisdom doled out by my parents and grandparents.
When hard times come, and they surely will, I'm prepared.
My father and mother went through the GD. While we lived very frugal in a neighborhood where gunfire was common along with houses burning down, the frugality didn't pay off. Frugality can only go so far, when you loose your job and property taxes along with the cost of living sky rocket. Well the story about the lady committing suicide, unfortunately will play out over and over again.
Rather than the government taking care of its people with Single payer insurance versus lining the pockets of middle men pharm and medical sales reps, taking control of energy versus lining the pockets of T Boone Pickens (natural gas has sky rocketed), or taking care of our brave men and women versus lining the pockets of KBR, Blackwater, Halliburton etc.
But there is no Constitution, No Government here anymore. Maybe Bush will learn something from Red China as he visits. (Or perhaps he will beg them to loan us more $)
You're right. IT's anarchy
CORRUPTION! CORRUPTION! CORRUPTION! CORRUPTION! CORRUPTION! CORRUPTION!
When will it ever End, the ARROGANT RICH and the WEALTHY keeps spending monies we don't have and WE are paying the taxes to keep these bureaucrats and politicians live in style.
Of all the things progressives are angry for Bush about this should certainly be in the Top Three.
How immoral is it to leave your children unnecessary debt?
Sad. Makes the tragicomedy of the last 7 years less comedy.
Neither of the two "major" Presidential contenders has a clue. Both are covered in the muck of their own Party's prejudices. One would spend money he doesn't have while the other would spend money he doesn't have. Both have promised their base more undeserved largess. Both would continue, in different formats, the failed Foreign Policies of Empire. Neither would make hard choices and neither would speak the truth to the Nation. There are subtle differences but the change espoused by one can be measured in millimeters when what is needed should be measured in miles. One plans to stay the course into Hell while the other would change the course into wide eyed oblivion. One Party presides over criminality while the other presides over cowardice. All of this is presided over by a Corporate News Media that has failed beyond all belief in its Constitutionally protected role as the eyes and ears of the people.
The Nation is looking for greatness and is offered mediocrity.
Absolutely spot on, olephart. In order to stop the bleeding, the candidates need to understand how the economy works, and the startktruth is neither have a clue and neither has economic advisors who have any interest in making it better for American citizens. They have their masters to serve and set up with NEW avenues of opportunity to steal the little that remains before the contraction begins.
Where have all the leaders gone?
Where have you been?
$1 trillion dollars every two years. There are still countries that have not gone through a trillion dollars since their inception. Yet, we are now going to spend $10.6 trillion next year and give a trillion away.
A fair trade agreement is not one where we buy their stuff and they don't buy our stuff until we run out of money.
But the corporatists love it that way......
peace.
We will never have peace or freedom as long as we are controlled and enslaved by the corporates - oil, and the military industrial complex and their spin machines that feed us lies. It's truly time for the people to get off their fat asses and demand a noverhaul of the whole system. It is beyond a few corrupt bad apples. Today, the longest serving Repub - Stevens from Alaska, charged with felony coruption. Well, it's time to set term limits for Senators, so we can get rid of them before they get too comfortable in order to end up corrupt. The only way the people will get what they want is if we do what the French do- revolt! We've become a bunch of do-nothings and pass the bucks hopeing someone else will "take care of the problem". Demand the media start giving us the truth. The stupid polls they make up is trying to prepare us for them stealing the election for McCain and the Bush gang again. Watch out! We can't allow another "appointee to the throne. McCains true supporters- about 25%! Vote Peace not war!
We use our capital to generate yet more capital by employing whatever country offers the best bang for our buck - at least, that was the idea. Now it looks like other countries are about to exceed our ability to generate and employ capital productively.
It was only a matter of time.
Mr Stewart
You are correct tying the falling dollar to the federal deficit and the rising prices of oil and commodities.
Though the Iraq war, and Bush tax cuts worsened the deficit, the public's perception that pork barrel spending and congress is to blame for the increased spending is simplistic, when the majority of it is caused by entitilement growth.
Entitlement spending for Medicare is the culprit, and was only made worse by the creation of the Medicare pharmacy plan just before the last election. Our elected officials are too afraid of the AARP to enact any changes. This problem is hidden by counting the balances of the Social Security fund against the total deficit, but compounded even worse when the baby boomers retire, and SS runs out in 20 years.
The dynamics of the Federal debt is not properly explained in a concise way to the voting public. The Federal deficit, debt, is financed by loans auctioned by the Treasury Dept. The proceeds of these loans are then DOLED OUT TO THE CORPORATE WELFARE KINGS and the INTEREST AND PRINCIPLE IS PAID FOR BY THE American Taxpayers. It's a sweet deal whenever, whoever gets loan proceeds which are paid for by others. Next the debt itself, $9,500,000,000,000 trillion does not include the interest that has to be paid on the debt. The public isn't even upset about these dynamics. The debts loan proceeds go to pay corporate dividends and outrageous corporate salaries for top executives. Many of the CORPORATE WELFARE KINGS receiving the loan proceeds are private corporations, like Blackwater for example. I'll illustrate an example based on personal experience. I let someone use my credit card and for several months she paid it as agreed. Eventually she just used the card for cash advances and didn't pay for it. I had to pay and I was pissed. I filed criminal charges, but hand to settle on a civil law suit, which even if I get a judgment she won't pay. This is a micro, personal, example of what the loan proceeds from the Federal debt which is a macro, entire society, example. The worst part is that she wasn't even a good con artist, I was a bigger fool than she was a good con artist.
The facts don't back up your assertion. Medicare is no where near responsible for the Republican economic and budget mess. Bush inherited a surplus that would easily have paid for the Bush's fiasco in Iraq and Medicare. The Bush/Republican tax cuts are the main source of the problem. They weakened the dollar, they ruined the budget, and they weakened the economy.
The Medicare Drug Prescription Plan is designed to do one thing, and one thing only. Bankrupt Social Security so that money can be used in corporate finances fantasies. Social Security marginally benefits those that pay into it. It does nothing for finance and Wall Street.
Why do you think the Republicans push to have Americans abandon Social Security for private retirement investment accounts? We already have those. 401k's. Look how well those do. Imagine the fees investment banks would charge on all that money Social Security takes in every year? The profits would be gi-nourmous!
Of course, if we had the Republican way of doing things over the last several years, your grandmother would be out on the street in a cardboard box begging for money. I have seen the Republican plan in Eastern Europe with the babushkas lining the sidewalks. Compassionate conservatism, my bottom.
But, as what is her face in the Justice Department remarked: "God, guns + gays"
Medicare was designed to give affordable health care to the elderly and disabled. The plan was to pay for it while you worked, then you would be covered when you retired. The republicans and their enablers have turned it into a giant profit machine for the drug, medical supply and insurance companies.
Most on Medicare have to pay $300 a month for the supplemental, medicare and prescription plan for decent coverage and they keep dropping what they cover.
Medicare and Social Security are paying their way but they are being abused.
YOU CAN"T EAT A DOLLOR BILL.
I don't think people realize just how bad long term the falling value of the dollar is for America and Americans.
Money in today"s society has no value in and of itself. That is other then as a means of exchange money is good for nothing. You can't eat it and you won't get much fuel out of burning it.
For decades America has been able to have huge trade deceits yet a strong dollar. This has allowed Americans to trade there otherwise worthless dollars for all kinds of useful commodities.
The reason America has been able to get away with trading worthless dollars for useful commodities is the value people around the world has put on the good faith and credit of the USA. That is the backing of the dollar by the U.S. government made the dollar the most valuable and sought after currency on the planet. As a result America could export worthless dollars for all sorts of useful commodities.
This allowed America and Americans to live better. That is the result of being able to export worthless dollar bills for useful commodities resulted in an improved lifestyle for Americans.
The falling value of the dollar means that America will not long be able to continue living a lifestyle based on trading worthless paper for food, oil, TVs, cloths, cars and pretty much everything else.
Good post. I have believed for years that the standard of living in the USA will decline, perhaps very seriously, due to the federal deficits. The free ride is almost over. The current shakeup caused by the high price of gas will seem mild.
I know that's right, biwee.
What really frightens me is the possibility that the newest Big Ag and Big Oil consortium is poised to corner the world FOOD market!
http://www.iht.com/articles/ap/2008/07/24/business/NA-US-Biofuels-Lobbying.php
This has the potential to be the Godzilla/King Kong/Mothra of all lobbying firms...
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Posted July 29, 2008 | 08:05 AM (EST)