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Showing posts with label deficits. Show all posts
Showing posts with label deficits. Show all posts
Op-ed at RealClearMarkets: Austerity Works: It's Time to Give It a Try

Op-ed at RealClearMarkets: Austerity Works: It's Time to Give It a Try

This piece is with my son Sherwin. The graphs are pretty powerful. The piece starts this way:
Austerity or growth, is that the choice facing Americans and others around the world?

The debate never seems to abate. European Union finance ministers last week gave Spain permission to delay cutting some government spending and reducing its deficit, though many such as The Economist magazine fear that even the cuts that will be made go too far. A similar decision may soon have to be made for Greece. Even though the pro-bailout parties won the June Parliamentary election, they too are asking for a two-year delay in cutting spending and reducing their budget deficit.

The Obama administration has put increasing pressure on German Chancellor Angela Merkel to ease up on Germany's austerity prescription. President Obama continually touts more government spending as the cure, and derided Republican "let's cut more" spending strategy as the cause of Europe's economic problems.

Last month, German Finance Minister Wolfgang Schäuble was having none of it, telling Obama to fix the U.S. deficit before giving Europe advice: "Herr Obama should above all deal with the reduction of the American deficit. That is higher than that in the euro zone." . . .

Social Security is $20.5 trillion in debt

Social Security is $20.5 trillion in debt

Larry Kotlikoff has this warning in Sunday's New York Post:
Social Security’s trustees say the system needs only “modest changes.” In fact, the system is desperately broke. The proof is buried deep in the trustees’ own 2012 report in a complex table, numbered IV.B6. Table IV.B6 is a long-run balance sheet for Social Security. It shows that the system’s $88.9 trillion in liabilities exceed its $68.4 trillion in assets by $20.5 trillion. The $20.5 trillion fiscal gap separating Social Security’s liabilities and assets — its unfunded liability — is enormous; it is 1.4 times US gross domestic product and 34 times annual Social Security taxes. Because $20.5 trillion is equal to 31% of the projected taxes, the system is 31 percent underfunded. To pay all promised benefits would require immediately and permanently raising Social Security’s 12.4 percent payroll tax (split evenly between employer and employee) by 31%, or 3.9 percentage points. . . .
Will President Obama think differently about his temporary cut in Social Security taxes? Temporary tax cuts aren't particularly beneficial, and it would be better to cut income tax rates, but for about half the population their federal income tax rate is already zero.
Obama tries to sell himself as a deficit cutter?: Is this serious?

Obama tries to sell himself as a deficit cutter?: Is this serious?

I didn't think that I could be so stunned by Obama's claim in Colorado.  At the US Air Force Academy Obama today claims: "After inheriting a $1 trillion deficit, I signed $2 trillion of spending cuts into law. My opponent won't admit it, but it's been starting to appear in places -- real liberal outlets like the Wall Street Journal."  What Obama is referring to is the absurd claim that government spending has grown less under Obama than any other president since the 1950s.  I had a post up on this yesterday available here.  The problem with the Rex Nutting WSJ article is that it assumed that Bush was responsible for all the spending increases up until October 1, 2009.


Just remember that Obama is the candidate in 2008 who kept promising a "net spending cut."  For example, in the third presidential debate he claimed: "Now, what I've done throughout this campaign is to propose a net spending cut."  Obama was accurate in saying that he made this promise through out the campaign.  After all, Obama argued that Bush's big spending increases during the last decade caused the big deficits that Obama said caused the 2008 financial crisis.  If Obama had really cut spending from 2008 levels to say those in 2007, we wouldn't have a deficit today.


Who can forget that in last year's budget Obama claimed that he was cutting the deficit over 10 years by $1.1 trillion when the CBO claimed that he was actually increasing it by $2.3 trillion.  Or this year's budget where he claimed that he was cutting the deficit over 10 years by $3.2 trillion when CBO found that he was increasing it by $3.5 trillion.


Additional note: Krauthammer says that Obama's claim of fiscal discipline is "Whopper Of The Year" 
"So what he is talking about really is a false impression. There was no intention ever by any administration of repeating the bailouts that you have to have in September, October, and November of 2008 and then the beginning of 2009. And if you count it in it's deliberately distorting the facts. And I'm not sure if there is anybody who believes it because it's so obvious, If an administration starts with the largest stimulus spending bill in galactic history, it obviously is not cost-cutting administration."
Democrats think that the French and Greek votes are good news?

Democrats think that the French and Greek votes are good news?

Do voters just want to spend more money without worrying how to pay for it?  Dems think so.  From the Washington Examiner:

Democrats say that the angry, anti-austerity elections this week that saw voters throw out reform-minded French and Greek leaders could be good news for them, a signal that their plan to spend billions more than the Republicans is a vote winner.
Those elections “confirm the position that many of us have taken, which is the most important thing right now is to sustain and nurture the very fragile economy,” said Rep. Chris Van Hollen, D-Md., the ranking member of the House Budget Committee.
“While we have to develop and implement a long-term deficit reduction plan, we should be very careful in designing that, that we do nothing to hurt the fragile economy. In fact we believe that we should make some additional investments,” he added.
For example, he’s pushing for the passage of a massive $50 billion-plus infrastructure spending bonanza offered by President Obama, as well as spending on education, science, research and Middle Class programs. The reason: it would inject money into the economy and cut the 16 percent unemployment in construction and fix roads and bridges. . . .
New National Review piece: Defending Fiscal Insanity “Demagoguery” is not too strong of a word to describe Obama’s speech

New National Review piece: Defending Fiscal Insanity “Demagoguery” is not too strong of a word to describe Obama’s speech

My National Review piece starts this way:
In President Obama’s address to the Associated Press Luncheon on Wednesday, he claimed that he is preventing disaster. Republican congressman Paul Ryan’s proposed budget cuts would still allow publicly held debt to increase by $5.5 trillion over the next ten years, but to Obama, they mean Americans will be dying from starvation and defenseless from hurricanes and other natural disasters. “Demagoguery” is not too strong of a word to describe Obama’s speech. Two million mothers and young children will be left without “access to healthy food.” Violent crime will soar and illegal aliens will flood across our borders because of cuts in law enforcement. “Hundreds of national parks” will close. We won’t be able to “protect the air we breathe, the water we drink, or the food that we eat.” Airline flights will be cancelled or delayed, and safety will be threatened in parts of the country. “Weather forecasts would become less accurate.” Governors and mayors will “wait longer to order evacuations in the event of a hurricane.” The list went on and on. . . .
Big tax increases in a few states doesn't seem to have closed deficits

Big tax increases in a few states doesn't seem to have closed deficits

The six states with the biggest increases in taxes in 2009 were Delaware, California, Illinois, New York, Rhode Island, and West Virginia.  From Fox Business:

In 2010, California, Illinois, New York and Rhode Island, all of which increased revenue from taxes by over 9%, had among the highest deficits, exceeding 30% of general funds. California faced a gap of more than 50%, second only to Arizona. Despite cutting spending and increasing tax revenue, many of these states have continued to experience major shortfalls. Projected budget deficits for California, New York and Illinois remain among the highest in the country. . . . .

California for 2012
The State ended last fiscal year with a cash deficit of $8.2 billion. The combined current-year cash deficit stands at $21.6 billion.  Those deficits are being covered with $15.2 billion of internal borrowing (temporary loans from special funds) and $6.4 billion of external borrowing. 

Illinois for 2012
The Institute for Illinois’ Fiscal Sustainability at the Civic Federation released its analysis of the enacted FY2012 State budget today. The report found that the spending plan will increase Illinois’ total general operating deficit to $5.0 billion by June 2012. . . .

New York was expected to still have a large deficit, but it had to raise yet more taxes.
The budget closes what was once a $3.5 billion deficit, a process made easier when lawmakers in December approved a Cuomo- backed tax increase on joint earners making at least $2 million annually. That lowered the gap to $2 billion. The remaining savings were reached mostly by consolidating agencies. . . . 
Rhode Island
Although Rhode Island’s economy is beginning to recover after multiple years of economic distress the House Fiscal Staff estimate a FY 2012 budget shortfall of roughly $300 million, which is projected to grow to approximately $375 million by FY 2016. . . . 

How the costs of Obamacare are going to ramp up quickly



Over the eleven years from 2012-2022, Obamacare will add an average of $114 billion a year to the deficit. From 2015 to 2022, the average increase in the deficit rises to $148 billion a year. The CBO numbers can be found in Table 2 is available here. Of course, if the Supreme Court strikes down the individual mandate, that will increase the average annual deficit over the 2015-2022 period by about $7 billion a year.

Thanks to Tony Troglio for the link.
Record Federal Deficit in February

Record Federal Deficit in February

From the CBO's monthly budget review:

Receipts in February 2012 were about $5 billion (or 5 percent) lower than those in February 2011, CBO estimates. The decline resulted primarily from an increase of $25 billion (or 47 percent) in refunds of individual income taxes. Roughly three-quarters of that increase stemmed from shifts in the timing and recording of refunds and from the additional day in February this year: A delay in processing refunds caused some to be paid in February that would, in past years, have been disbursed in January; February 2012 included one more business day than February 2011; and some refund payments that ordinarily would have been recorded in March were reported at the end of February. . . .


Here is the reference to this being a record amount.
Ben Bernanke warns of big deficits

Ben Bernanke warns of big deficits

I guess that I have no clue why deficits as opposed to government spending levels are important. Taxes are a drag on economic incentives. But both current and future taxes can create that drag. From The Hill newspaper:

“Under current law, on Jan. 1, 2013, there’s going to be a massive fiscal cliff of large spending cuts and tax increases,” Bernanke told the House Financial Services Committee. “I hope that Congress will look at that and figure out ways to achieve the same long-run fiscal improvement without having it all happen at one date.
“All those things are hitting on the same day, basically. It’s quite a big event.”
The tax hikes and spending cuts could knock GDP growth in 2013 down from 2.6 percent to 1 percent, according to Andrew Fieldhouse, a federal budget policy analyst with the liberal Economic Policy Institute .
“There is obviously a huge fiscal drag pending if Congress adheres to existing law,” he said. . . .
The US will hit the debt limit by mid-October

The US will hit the debt limit by mid-October

Well, this should keep a few politicians in Washington DC right before the election. Didn't Obama promise that the agreement last year would put off the next battle until after the 2012 election? I wonder how the additional increase in debt from extending the unemployment insurance and the Social Security tax cut going to change this calculation. From the Washington Examiner:

The United States Department of Treasury will reach the the statutory limit it is allowed to borrow money before election day, according to a new study by Sen. Rob Portman, R-Ohio., former director of the U.S. Office of Management and Budget.

“Following the contentious debt ceiling last August, President Obama promised that he would take action to address the country’s fiscal crisis. He has failed to do that," Portman said. "In fact, his new budget increases spending and projects that Washington will be hitting the debt ceiling again in mid-October – burning through a $2.1 trillion debt limit increase in just over 14 months."

Portman's office notes that according to Obama's budget, total debt subject to the statutory debt will reach limit will reach $16.334 trillion by September 30, 2012. This is just $60 billion below the 16,394,000,000 debt limit. Since the federal government is adding to the national debt at a rate of $132 billion a month, the debt ceiling is on schedule to be reached by October 15, 2012. . . .


Of course this wouldn't have been a problem if Obama had kept this promise:

In an interview with Atlanta's local Fox affiliate WAGA-TV President Obama explains why he was unable to cut the deficit in half in his first term, a promise he made as a candidate.

Obama was lobbed the question by a sympathetic reporter who said he is getting "pelted in the media" for making a campaign promise he did not keep.

"Well we're not there because this recession turned out to be a lot deeper than any of us realized," Obama said about his inability to cut the deficit in half. . . .


I have a whole book that is forthcoming in about 10 days that examines this claim by Obama that he was surprised by how bad things were.
Germany's unemployment rate continues to fall

Germany's unemployment rate continues to fall

Remember Krugman's attacks on Germany over the last couple of years? Here is something from a piece that he wrote in June 2010:

And here in Germany, a few scholars see parallels to the policies of Heinrich Brüning, the chancellor from 1930 to 1932, whose devotion to financial orthodoxy ended up sealing the doom of the Weimar Republic.

But despite these warnings, the deficit hawks are prevailing in most places — and nowhere more than here, where the government has pledged 80 billion euros, almost $100 billion, in tax increases and spending cuts even though the economy continues to operate far below capacity.

What’s the economic logic behind the government’s moves? The answer, as far as I can tell, is that there isn’t any. Press German officials to explain why they need to impose austerity on a depressed economy, and you get rationales that don’t add up. Point this out, and they come up with different rationales, which also don’t add up. . . .

But German politicians seem determined to prove their strength by imposing suffering — and politicians around the world are following their lead.

How bad will it be? Will it really be 1937 all over again? I don’t know. What I do know is that economic policy around the world has taken a major wrong turn, and that the odds of a prolonged slump are rising by the day. . . .


Yet, Germany's unemployment rate keeps falling:

Spain and Italy creaked under record unemployment rates at the end of 2011, while the German jobless rate fell to historic lows — results that put the onus firmly on Germany, with Europe’s biggest economy, to take the lead in steering the euro zone back to recovery.

Joblessness in Italy rose to 8.9 percent, its highest level since current records began in 2004, the country’s statistics institute said Tuesday. Spain ended the year with unemployment at a 17-year high of 22.85 percent.

German unemployment, by contrast, fell to 6.7 percent in January, a decline of a tenth of a percentage point from December. . . .


Germany's manufacturing sector is pulling Europe's along.

Markets were buoyed by manufacturing data from Germany, the U.K. and the euro zone, released Wednesday morning. The German Purchasing Managers Index rose to 51.0 in January from 48.4 in December, slightly beating consensus expectations. The euro-zone PMI rose to 48.8 in January, which was above the earlier flash estimate of 48.7, also a little above consensus. In the U.K., PMI rose to an eight-month high of 52.1 in January, up from a revised reading of 49.7 in December. . . .
For fourth year the deficit will exceed $1 trillion

For fourth year the deficit will exceed $1 trillion

So much for Obama's promise to cut government spending and the deficit. From the Washington Post:

The federal budget deficit will top $1 trillion for a fourth straight year, congressional budget analysts said Tuesday, the smallest since the Great Recession hit in 2009.

The nonpartisan Congressional Budget Office projected that the gap between government spending and tax collections would continue to fall, dropping sharply in 2013 and through the decade if policymakers follow through with major changes in both tax policy and government spending now on the books.

The $1.1 trillion deficit is the smallest deficit figure — both in nominal terms and as a percentage of the economy — since the Great Recession. . . . .

While private sector debt gets under control, public sector debt explodes

America's insolvency?

America's insolvency?

I noticed that Rick Perry was reading Kotlikoff's book "Jimmy Stewart is Dead." He was also reading James Rickards’ ‘Currency Wars’ and Gretchen Morgenson and Joshua Rosner’s ‘Reckless Endangerment.’ I am sure that Paul Krugman will view anyone thinking Kotlikoff as right as more evidence as Rick Perry as delusional, but at least someone is paying attention to Kotlikoff taking into account the huge liabilities that the government has accumulated.
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