Government programs & regulations, spending, deficit, and budget process

[ccp]

Let's look at a few statistics. A stack of one billion dollars bills would be 67.9 miles high. A trillion dollar bills would reach 67,866 miles into space. A trillion dollar bills, laid end to end, would stretch 96,906,656 miles—further than the distance of the earth to the sun.

[Body-by-Guinness]

We don't need no stinkin' austerity....

The CBO Budget and Economic Outlook: Debt Projected to Grow to Record Highs
CBO projects worsening fiscal outlook
•Cato @ Liberty by Romina Boccia / Feb 8, 2024 at 11:26 AM


Romina Boccia and Dominik Lett

The Congressional Budget Office (CBO) released its annual Budget and Economic Outlook, providing 11‐​year fiscal projections for 2024 to 2034. The CBO’s new report arrives as Congress gears up for another budget fight with annual discretionary spending and a supplemental Ukraine‐​border security deal hanging in the balance. While these issues capture headlines, the real drivers of the growth in federal spending that the CBO highlights are Social Security and Medicare, which neither Democrats nor Republicans are ready to address. As a result, the current fiscal situation is unsustainable. Excessive spending and rising interest costs will drive debt to record‐​high levels within the decade, threatening America’s fiscal and economic security.

Last year, we witnessed the official end of the COVID-19 pandemic national emergency (one of the most expensive emergencies ever), the adoption of new discretionary spending limits that have yet to be enforced, and the downgrading of the US debt by a major credit rating agency for the second time in history (the first was in 2011 by S&P). In its press release, Fitch Ratings explained, “The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance.”

Not much has changed since Fitch’s acknowledgment of what fiscal experts, including yours truly, have been pointing out for some time now. The CBO’s latest report reinforces that the US fiscal health is worsening, and congressional budgetary mismanagement and an abdication of responsibility for automatic entitlement spending growth are at fault. Here are some key highlights:

Debt Grows to 116 Percent of GDP by 2034

Federal publicly held debt (debt borrowed from credit markets) is currently $27.1 trillion. Here are a few debt milestones the United States will hit:

2025: public debt exceeds the annual economic output of the entire country, measured by gross domestic product (GDP)
2028: public debt exceeds the World War II record high of 106 percent of GDP
2034: public debt rises to an unprecedented 116 percent of GDP
The fiscal picture becomes far more dire when extended beyond the traditional 10‐​year budget window. The CBO projects that debt will reach a jaw‐​dropping 172 percent of GDP by 2054 (see Figure 1). The long‐​term debt trajectory is unsustainable, as CBO Director Phillip Swagel, Federal Reserve Chair Jerome Powell, and many others attest.

Debt is likely already harming the economy. Most economic literature suggests a debt‐​to‐​GDP ratio above 78 percent slows economic growth. As debt rises, it creates burdensome consequences, crowding out private investment, reducing incomes, and increasing interest rates. Without a course correction, the United States risks either a depressed economy below its full potential with recurring bouts of inflation that eat away at Americans’ savings and incomes or a sudden and severe fiscal crisis where bondholders lose confidence in the Treasury’s ability or willingness to service debt. One likely path: a depressed economy and excess inflation will eventually trigger said crisis, with that outcome becoming increasingly likely over the next 15–20 years.

Trillion‐​Dollar Deficits Are Here to Stay

For fiscal year (FY) 2023, the budget deficit (how much spending exceeds revenues) was $1.7 trillion. That’s an increase of $320 billion, or 23 percent, over the FY 2022 deficit. If the CBO excludes “savings” from the Supreme Court’s strike down of President Biden’s proposed student loan forgiveness scheme, the FY 2023 deficit is $2 trillion. As a percentage of GDP, FY 2023’s deficit was 6.2 percent. That’s the largest deficit‐​to‐​GDP ratio observed in US history outside of major wars or severe recessions.

Over the next decade, excessive spending is the primary cause of elevated deficits. The CBO projects outlays growing from $6.5 trillion in 2024 to $10 trillion in 2034, a 54 percent increase. Meanwhile, revenues increase from $4.9 trillion in 2024 to $7.5 trillion in 2034, a 51 percent increase. The gap between spending and revenue becomes more apparent when comparing projections to historical averages (1974–2023). As shown in Figure 2, projected outlays are significantly higher than the 50‐​year historical average.

These estimates are likely optimistic as the CBO isn’t in the business of making realistic fiscal assumptions that reflect political history. Rather, the CBO takes current policy and legislative deadlines as a given and simply extends these assumptions over time. As former CBO Director Doug Holtz‐​Eakin points out:

“The CBO assumes that current law will evolve over the next 10 years exactly as it is currently written down. So, for example, nearly all provisions of the 2017 Tax Cuts and Jobs Act will sunset at the end of 2025, raising taxes by about $3 trillion over the next 10 years. From a budget perspective, this produces a sharp reduction in the deficit and a more favorable overall debt picture. From an economic perspective, this sharp tax increase will be a strong headwind to growth. There is, however, no way that this will happen, so both the budget and economic outlooks will be misleading. Interpret the CBO projections accordingly.”

Entitlements and Interest Costs Dominate the Long‐​Term Fiscal Picture

Entitlements, including Social Security and health care programs, are the largest cause of spending‐​driven deficit growth. Between 2024 and 2034, Social Security spending will grow from $1.5 trillion to $2.5 trillion. Over the same time frame, major health care programs, including Medicare and Medicaid, will grow from $1.6 trillion to $2.8 trillion. Combined, Social Security and major health care programs represent 63 percent of spending growth.

The two largest entitlement programs, Social Security and Medicare, are on the path to insolvency. Medicare’s hospital insurance trust fund will be exhausted by 2031. Social Security’s Old‐​Age and Survivors Insurance Trust Fund will be exhausted by 2033. Without reform, beneficiaries will face indiscriminate cuts.

Interest costs are the other major driver of higher spending over the next decade. From 2024 to 2034, interest costs will increase from $870 billion to $1.6 trillion, an 87 percent increase. According to CBO’s projections, interest costs will exceed discretionary defense spending next year. As interest costs consume a larger share of tax revenues (22 percent by 2034), and as non‐​interest spending continues to grow, the government will end up borrowing yet more money at an accelerating pace just to fund program spending that’s already on the books.

Over the long‐​term 30‐​year spending window, Social Security, health care programs, and interest costs boost federal spending to 30 percent of GDP. These three budget categories will grow by 8 percentage points of GDP from 2024 to 2054. Every other major budget category declines or stays flat as a percentage of the economy over the same period, under current policy. Figure 3 displays major budget categories as a share of GDP.

Cultivating a Culture of Fiscal Responsibility

As bleak as the US fiscal outlook is, there is some light at the end of the tunnel. The House Budget Committee recently passed the Fiscal Commission Act, which seeks to stabilize the debt over 15 years, educate the public on the nation’s deteriorating fiscal state, and improve the Medicare and Social Security’s trust funds’ solvency over a 75‐​year window. A well‐​designed fiscal commission, alongside other budget reforms, could put the United States on the right path. If Congress kicks the can down the road yet again, it will only make the necessary reforms more severe and invite economic deterioration. Let’s hope legislators will choose to work together to make the compromises needed for a sustainable fiscal future that enables this and the next generation to enjoy a freer, more vibrant, and stronger America.

https://www.cato.org/blog/cbo-budget-economic-outlook-debt-projected-grow-record-highs

[Crafty_Dog]

https://www.foxbusiness.com/economy/interest-costs-us-national-debt-set-exceed-defense-spending-year

[Body-by-Guinness]

MSNBC discovers that the national debt rises $1 trillion every 100 days:

https://www.cnbc.com/2024/03/01/the-us-national-debt-is-rising-by-1-trillion-about-every-100-days.html?taid=65e207d3372ad400018dc669&utm_campaign=trueanthem&utm_medium=social&utm_source=twitter%7Cmain

[ccp]

right

after we watched it balloon over 40 hrs  yrs

I recall Dick Cheney saying something to the effect that national debt is meaningless.. or blowing it off totally basically.

[Body-by-Guinness]

I recall Dick Cheney saying something to the effect that national debt is meaningless.. or blowing it off totally basically.

Sure thing, Dick, and once interest payments exceed GDP or whatever that will be meaningless too....

[ccp]

https://archive.thinkprogress.org/six-years-after-cheney-said-deficits-dont-matter-the-national-debt-hits-a-50-year-high-40193bdadd2e/


A democrat who agreed with Cheney:

https://truthout.org/articles/cheney-was-right-about-one-thing-deficits-dont-matter/

" Fortunately, there is a more satisfactory solution. We can sit back, relax and concede that Cheney was right. Deficits aren't necessarily a bad thing! They don't matter, so long as they are at very low interest rates; and they can be kept at these very low rates either by maintaining our triple A credit rating or by borrowing from the Fed essentially interest-free. "

Famous last words now that our credit rating is downgraded and as BBG points out the debt in dollars is 4,000 x's the # of human beings on the planet.

[DougMacG]

From the far-Left Thinkprogress link:

"Allegedly, Cheney replied by saying that “deficits don’t matter.”"

Then they link today's Wash Post front page as the source? Maybe it was a story that disappeared. Someone said someone said that.

I wasn't there but know the honesty of our journalism. That isn't what he said. If it was it means he was interrupted without finishing the context of that thought.

It was 2002. We were in the recession that followed the stock market crash triggered by Bill Clinton's justice department attacking the world's most successful company at the time, Microsoft. An example of stocks crashing was Lucent Technologies (Bell labs), the world's greatest research and development company falling from 160 to 2. In that recession, revenues were already falling. It was also the year following 9/11 and continued American economic weakness was not what we needed.

The context of the alleged quote, deficits don't matter, was a discussion of a policy that did not add to the deficit. Revenues bottomed out in the year the cuts were passed and grew at record rates from that point until Democrats took Congress.

It's obvious he was saying that CBO static economy estimates of deficits increasing if we cut tax rates don't matter because they're wrong. Dynamic scoring would show that, and what happened next did show that.

https://www.statista.com/statistics/200405/receipts-of-the-us-government-since-fiscal-year-2000/

"From 2005 to 2007, tax revenues grew faster than the economy.  The ratio of receipts to GDP rose to 18.8 percent in 2007, above the 40-year average.  Between 2004 and 2006, capital gains realizations grew by approximately 60 percent.  Growth in corporate income tax receipts was especially strong in the President's second term, nearly doubling between 2004 and 2007 and contributing a full percentage point to the increase in the total federal receipts-to-GDP share."
https://georgewbush-whitehouse.archives.gov/infocus/bushrecord/factsheets/taxrelief.html

(Doug) Note the part I put in bold, the rate cut by the most yielded the highest increase in revenue. Who knew. Certainly not any Washington Post or New York Times reader. That's the rate that economic illiterate Barack Obama wanted to double.

Deficits are caused by government stifling the productive economy, and by excess spending. The under-taxed angle is left-wing bullsh*t.

Notice it's always the ones paying the highest rate that are "undertaxed", not the ones paying nothing.

[ccp]

You are right here is a better context of what he meant:

https://www.youtube.com/watch?v=5D5ruUmFRmo

[DougMacG]

You are right here is a better context of what he meant:

https://www.youtube.com/watch?v=5D5ruUmFRmo

He says he identifies with the Jack Kemp, Arthur Laffer part of economics in terms of supporting tax rate cuts to spur economic growth, but he doesn't shoot Jake Tapper down on the repeated accusation that tax cuts added to the deficit. They both acknowledge two wars and a prescription drug benefit, meaning new spending, played a role.  Cheney hints he didn't favor more domestic spending, the new prescription drug benefit was a promise the President made before he came on board. 

Spending on national security, which is how he sees the wars, is something you have to do.  It costs too much at least partly because it was neglected through the Clinton years ("peace dividend") and our weakness was exploited. We didn't all know then these were going to be endless wars, winless wars.

At the end he says the wars were paid for, well at least they were appropriated.  He is, after all, originally from the Gerald Ford wing of the party.

Others say of the W. Bush administration, he gave supply side economics a bad name - without ever trying it.  In other words he cut tax rates but he didn't cut government spending.  Government spending takes resources from private sector as much as taxes do.

[Body-by-Guinness]

Many a truth bomb here. They will be ignored:

Washington’s worst-kept secret
The Hill News / by Rep. Andrew Clyde (R-Ga.) / Mar 4, 2024 at 6:20 PM

With a ballooning national debt, out-of-control deficit, and soaring interest payments, there is no denying that our nation’s economic outlook is in bad shape.

Despite alarming projections and dire warning signs, the federal government continues to steamroll its way to fiscal ruin — rapidly barreling toward an economic cliff that will devastate Americans for generations to come. Given Washington’s reckless spending habits, it’s plausible to assume that our nation’s leaders are blindfolded by blissful ignorance as the U.S. economy heads off the tracks.

But you would be mistaken. It’s not blissful ignorance, it’s willful negligence.

Washington’s worst-kept secret is that our national debt is the $34 trillion problem that nobody cares about.

For years, politicians on the campaign trail have insisted they’re champions of fiscal responsibility. Yet once arriving in Washington, few truly bear the voting record to substantiate their empty claims. Most lawmakers quickly accept that it’s far easier to rub shoulders with leadership and cozy up to K Street lobbyists than to unapologetically reject the Swamp’s status quo spending habits.

This foolish tendency, which runs deep in both chambers and across both parties, becomes most apparent when Congress considers “must-pass” legislation, such as government funding. When push comes to shove, most lawmakers abandon their alleged economic concerns, toe the line, and pat themselves on the back as they dig America deeper into debt.

Decades of these disastrous spending decisions have left us in an abyss of economic despair.

Since last June, the U.S. national debt has swelled by more than $2.4 trillion, setting an alarming pace of racking up roughly $1 trillion in debt every hundred days. Higher interest rates are only making matters worse. Not only are interest payments on the national debt projected to eclipse defense spending in the coming months, but almost $8 trillion of our national debt must be refinanced at higher rates this year. This spike in interest is largely to blame for the soaring deficit, which economists like E.J. Antoni of the Heritage Foundation are now predicting will jump to $3 trillion this fiscal year.

Unsustainable is an understatement.

The culpability transcends political parties; both sides of the aisle have prioritized pork projects over people, justified unnecessary expansions over commonsense cuts, and welcomed bigger budgets over dismal economic projections. Maintaining these selfish, reckless, and misguided habits will only exacerbate the United States’ economic woes.

But Congress has the power to avoid the impending, tumultuous train wreck.

Governing with a slim majority in a divided government isn’t easy. But House Republicans have the opportunity to fight for transformational change. After all, our constituents are counting on us to handle appropriations in a conservative and fiscally responsible manner, not to serve as a rubber stamp for President Biden and Senate Majority Leader Schumer’s (D-N.Y.) pricey, radical agenda.

This means lower spending levels and real policy wins — a challenging but imperative feat.

Our next best option is passing a year-long continuing resolution, which would trigger a 1 percent across-the-board cut, save Americans nearly $100 billion, and eliminate all the pork-barrel earmarks for the year. There is simply no reason to approve appropriations bills that advance President Biden’s destructive policies and spend more than Speaker Nancy Pelosi’s (D-Calif.) Fiscal Year 2023 funding levels.

Yet that’s exactly what congressional leaders agreed to behind closed doors, with rank-and-file members and appropriators alike kept in the dark.

I expect many of my colleagues will stick to their old ways when the first batch of spending bills comes before the House in the coming days. But for the sake of future generations, I hope more of my fellow House Republicans will refute Washington’s worst-kept secret. It’s time to unite behind the critical goal of getting our fiscal train back on track. Otherwise, we’ll continue hurtling toward fiscal calamity, and no amount of empty promises or phony anxieties will save us from falling off the cliff of perpetual debt. 

Rep. Andrew Clyde represents Georgia’s 9th District and serves on the House Appropriations Committee.

https://thehill.com/opinion/congress-blog/4507676-washingtons-worst-kept-secret/

[DougMacG]

"Unsustainable is an understatement."

  - Maybe that's the bumper sticker we were looking for.

[Body-by-Guinness]

"Unsustainable is an understatement."

  - Maybe that's the bumper sticker we were looking for.

Mebbe we should set up a side hustle: Fire Hydrant branded goods. I've a contribution:

Think pompously, act parochially.

Alas, as with most my subversive humor those that need to hear it won't get it....

[Body-by-Guinness]

2nd post. Back in my misspent, kitchen managing youth I'd get disgusted with the restaurant biz for a spell and so strike off in a new vocational direction occasionally, working as a third shift checker at a 24 hour grocery for a year, for one. We wee hour checkout staff had a friendly competition going: see who could glom onto a register receipt of the most ridiculous stuff paid for with food stamps.

In those days register systems were pretty rudimentary so it was hard to disqualify most food types, so program participants would do their shopping late nights where Joe citizen types wouldn't be standing behind them noting how many Twinkies their tax dollars were paying for. Grad school/college boho types were some of my favorites, purchasing tinned oysters, caviar, high end chocolates, and good cuts of meat while on the dole. Remember one couple earnestly shopping for a dinner party their thesis advisor had been invited to. IIRC one of my championship winning receipts was for ~$150 (in late '80s dollars) of crap, with some Hawaiian Punch being the closest thing to nutritious food in the cart.

Another fave were those in need of cigarettes or or a quart of Schlitz Malt Liquor coming in and asking for help finding candy or whatever eligible food item that cost $.51 cents, as $.49 was the most we were allowed to return as cash money to someone using food stamps. We were dicks, and proudly so, as we would not allow someone to stand there and purchase one $.51 item after another until they had enough in hand for their preferred vice, making them instead pass by the register once their transaction was completed and walk around to the checkout line again before making the next $.51 sale.

Many of those leeches were eating better than those of us on the night crew were. Well it appears as though the dole has gotten far better since then, particularly if you can figure out how to spell your name backwards:

https://howiecarrshow.com/from-the-frontline-of-massachusetts-descent-into-the-third-world/

[Body-by-Guinness]

SEC proposed “climate change” self-reporting that some estimate would cost businesses $1 million or more each, with those self-reports providing fodder for endless “climate justice” or whatever litigation, with all the above running contrary to the SCOTUS ruling stating regulators can’t be de facto legislators. It’s just a coincidence, I’m sure, that constituencies like trial lawyers would see huge paydays off these regs, too.

https://the-pipeline.org/the-secs-full-employment-for-lawyers-gambit/?fbclid=IwAR3uBtvWKyo7Ky_gF8m4l9WcayHgJSvcSlIBhlOvXUF_1d1JpP2Tns12mE0

[ccp]

more laws, more regulations more income for lawyers

I suppose that is why most are crats I am thinking

[Body-by-Guinness]

Clarice lays it out, and perhaps provides reason to hope:

We Could Use a Man like Calvin Coolidge Again

By Clarice Feldman

A day after his pumped-up divisive State of the Union address, unsurprisingly headlined “fiery” by the copycat media lackeys, President Biden, speaking in Pennsylvania, reverted to his old befuddled self.

"Pennsylvania, I have a message for you: send me to Congress!"

"Last night [at] the U.S. Capitol -- the same building where our freedoms came under assault on July the 6th!"

"We added more to the national debt than any president in his term in all of history!"

Well, the last statement is true. I’ll give him that. And large budget deficits are a pattern in Democrat-run cities and states. Democrats pay off cronies and constituencies with government money and then raise your taxes because they’ve spent more than they were able to squeeze out of the economy.

Nearest to me, that pattern is evident in Maryland and Washington, D.C.: They look the other way at rising crime because they defunded the police and decriminalized conduct and then bemoan empty purses as people and businesses flee. They locked down their states and were surprised to learn that capped the revenue spigot. They made ridiculous, frivolous expenditures like bike lanes and street cars and painting BLM on a major street and then can’t pay for necessities like cops, road repairs, and schools.

Maryland’s budget problems worsened Thursday with tax receipts failing to hit estimates for the fifth consecutive time since the pandemic ended. The news quickly ratcheted up the rhetoric among Democrats, who are divided on whether now is the time to raise taxes.

Democrats, who have controlled the State House for decades and usually deploy a united front, are ensnared in a behind-the-scenes fight over how to pay for policies that are driving multibillion-dollar deficit projections not seen since the Great Recession.

The latest bad news comes from lackluster income tax receipts, which are now expected to bring in $255 million less than projected over the current and incoming fiscal years, state economic forecasters said Thursday. Tax collectors are seeing less money withheld from Maryland residents’ paychecks than anticipated over the past three quarters, despite record-low unemployment, which suggests a strong labor market.

D.C. is no better:

D.C. leaders are bracing for another tight budget -- and a possible tax increase -- for the next fiscal year, as the city continues to feel the effects of the pandemic on office vacancies and tax revenue.

D.C. Council Chairman Phil Mendelson (D) estimated that the deficit for the city’s fiscal 2025 budget could be in the

range of $600 million to $800 million, while Mayor Muriel E. Bowser (D) has told lawmakers to focus on core services and not as much on new spending. Chief Financial Officer Glen Lee recently released modest revenue growth projections for the city, but he also cautioned the council and the mayor about long-term economic risks as they begin drafting the budget while the commercial real estate market continues to face headwinds. [snip]

Combined with Lee’s relatively flat revenue projections, Mendelson said that other financial hurdles include leaders’ stated commitment to increase Metro funding by up to $200 million, to help stabilize the transit system and avoid extreme cuts; $300 million needed to replenish reserves; and the mayor’s request to increase the per-pupil funding formula for D.C. Public Schools by 12.4 percent, among other major expenses.

California also comes to mind.

SACRAMENTO — California faces a $54.3 billion deficit as the coronavirus pandemic hammers the economy, the state’s worst budget gap since the Great Recession, state finance officials said Thursday.

The shortfall is almost 37 percent of the current $147.8 billion general fund budget and foretells widespread program cuts absent a federal bailout. K-12 schools and community colleges stand to lose $18 billion alone and are clamoring for money to adapt campuses to a new social distancing reality.

The Department of Finance released its projections in a rare fiscal update a week before Gov. Gavin Newsom is expected to roll out his May budget revision, his first post-coronavirus spending plan. The deficit projection extends to the remainder of this fiscal year and through the 2020-21 period that starts July 1.

Newsom said Wednesday that he expects a prolonged economic downturn. The Finance document suggests that income losses will be far deeper than during the Great Recession more than a decade ago...

“We’ve never experienced anything like this in our lifetime,” he said, adding that the national unemployment rate will soar to “Depression-era numbers.”

The bulk of the deficit comes from a projected $41.2 billion revenue decline over the next 14 months, a drop from the ebullient outlook the state had just four months earlier, according to the Department of Finance. Forecasters believe the state’s big three tax sources -- personal income, sales and corporations -- will plunge about 25 percent.

The deficit grows as businesses abandon the state, but the cornucopia of largess never dries up as California now intends to extend health insurance to the large number of illegal aliens flooding the state. In some states, voters seem to be catching on to this scam. Believe it or not, Washington State is one of them:

Washington state lawmakers pulled off a hat trick Monday, approving three initiatives that push back the progressive policy tide in the state. The new laws will ban a state income tax, make it easier for police to chase suspects, and enshrine a bill of rights for parents whose children attend public school.

That’s good news for residents who have experienced the harmful side effects of progressive policies. In 2021 lawmakers restricted police officers’ ability to pursue suspects in vehicles on grounds that car theft is merely a property crime. Motor vehicle theft in the state increased 73% between 2019 and 2022, according to Washington state House Republicans.

The Washington state constitution forbids a graduated income tax, but last year Democrats in the Legislature approved a tax on capital-gains income, claiming it’s an excise tax. The state Supreme Court upheld the tax, 7-2, and this week’s initiative is an attempt to placate angry voters.

The initiatives are half of a slate of six that were initiated by citizens who gathered signatures and had the measures certified by the secretary of state in January. Under Washington state rules, when a voter initiative is approved by the Legislature, it is enacted without requiring approval from the Governor. The remaining three, including efforts to repeal the capital-gains tax and end cap-and-trade climate regulation, will go before voters in November.

It wasn’t on anyone’s bingo card, but Argentina, long the most profligate of fiscal deadbeats, has adopted fiscal responsibility. On Javier Milei’s first day in office, he eliminated half of the government’s cabinet-level ministries.  Argentina now has a budget surplus:

Argentina, under newly-elected President Javier Milei, is in the black for the first time in nearly 12 years, as its first monthly budget ended with a surplus of $589 million, at the official U.S. exchange rate.

The country’s economy ministry announced the milestone on Friday, adding the surplus also includes payments on interest accrued on the public debt.

This is "the first (monthly) financial surplus since August 2012, and the first surplus for a January since 2011," the Economy Ministry said, as reported by the Telam news agency.

Since taking office on Dec. 10, Milei has made good on many campaign promises to fundamentally overhaul the historically socialist federal government of Argentina.

Of course, there are leftist protests against the loss of easy money, but he won overwhelmingly on a pledge to cut federal spending by 14% of the country’s GDP and he set about doing it.

5% of GDP to be cut from federal government transfers to provinces
2% of GDP to be eliminated by privatizing public works
5% of GDP to be adjusted in an overhaul of the subsidies program, directing support to the neediest households, rather than companies
1% of GDP to be cut by eliminating privileged retirement packages granted high-ranking government officials 1% of GDP to be reduced by selling or closing unprofitable state-owned companies

It may be harder under our system to achieve as rapidly here what Milei did in Argentina, but we could do more to emulate what President Calvin Coolidge did.

The period from 1919 to 1922 has striking parallels with our own time.

The 1919–1922 period had a significant pandemic -- the influenza pandemic...

Both periods also brought a massive expansion of government budgets and publicly held debt... Federal outlays grew by 2,493 percent from 1916 to 1919. Why was that? Because we were fighting the Great War, and we went from low to extremely high outlays overnight.
Yet in 1923, federal outlays were still 340 percent higher than they had been in 1916. So although the war had ended, spending did not come back down to pre-war levels. This is the ratchet effect of federal outlays: they just keep increasing.

Publicly held debt grew from $3.6 billion in 1916 to $22.3 billion in 1923, which is a 519 percent increase...
Coolidge put Washington on a diet and deficits disappeared. Coolidge reduced federal debt by a third…  But it wasn’t just about starving the Beltway beast. In a separate piece for the Coolidge Review, John Cochrane explains
 
the beautiful, peaceful revolution that only occurred because Washington did not interfere. Without government interference, private enterprise quickly electrified the country and created a transportation revolution as more Americans could drive their new automobiles.
Average earnings rose 30 percent in a decade. Gross domestic product (GDP) rose by a third... This great economic and lifestyle revolution for Americans of modest means happened with basically no guidance from the federal government. The government largely stayed out of the way.

We can dream, can’t we?

https://www.americanthinker.com/articles/2024/03/we_could_use_a_man_like_calvin_coolidge_again.html?fbclid=IwAR3IQxXjhhym9vu49TfpMdmsHo5G1aBsHrnDhdfewtETEEvU1a2xIu73Fyg

[Crafty_Dog]

https://nypost.com/2024/03/11/us-news/biden-unveils-massive-7-3t-budget-with-5-5t-in-tax-hikes-post-state-of-the-union-address/

I watch VDH who has shown he is becoming more cynical and more pessimistic about the future of the USA then ever.

I am agreeing with him.

It is hard sitting here watching the Democrats throw this country into the drain and feel like I am watching national suicide in slow motion.

[DougMacG]

(over 5 years)

https://issuesinsights.com/2024/03/12/bidens-budget-proves-what-an-epic-disaster-hes-been/

[Crafty_Dog]

Biden Offers a Budget Fantasy
His outline for fiscal 2025 supposes a world that doesn’t exist.
By The Editorial Board
March 11, 2024 6:19 pm ET

Most U.S. presidential budgets are exercises in fiscal deception, but even by that standard President Biden’s Monday proposal for fiscal year 2025 sets a record for unreality. It proposes defense spending as if the world is at peace, entitlement spending that isn’t sustainable, and tax increases that would hurt the economy if they passed, which they won’t. Congratulations, Team White House.

Start with the proposal for national defense, which would increase a mere 1% to $895 billion next fiscal year. That number includes various and sundry Energy Department programs related to national security. The Pentagon gets only $850 billion, which is a real cut in military muscle after inflation.

The $895 billion was part of the debt-limit deal with former Speaker Kevin McCarthy, and we warned the number for 2025 was inadequate. We’ll elaborate on the defense-budget details later in the week, but suffice to say the budget doesn’t come close to matching Mr. Biden’s rhetoric in last week’s State of the Union about the global threats to democracy. He talks like it’s 1941, but his defense budget suggests it’s 1991 at the end of the Cold War.

Mr. Biden would spend only 3.1% of GDP on defense in 2025, falling through the rest of the 10-year budget window to 2.4% of the economy in 2034. This makes it appear that overall outlays are lower than they would be if defense stayed constant, but at the cost of reduced security in a world that is certain to grow more dangerous. The only people delighted to see these numbers are the Democratic left in Washington and the rulers in Beijing.

Meanwhile, the overall spending numbers fly in the face of fiscal reality. Mr. Biden proposes spending of $7.3 trillion in 2025, which is an increase of $1.1 trillion in two years. For those scoring at home, that’s 18%.

As a share of the economy, Mr. Biden wants spending to reach 24.8%, or a quarter of national wealth. The 1974-2023 average was only 21% and, as Mr. Biden told the country last week, the Covid crisis is over. But instead of letting outlays fall as a share of GDP, as they always have after a recession or crisis, the President wants the government to stay at a new and higher spending plateau.

As for revenue, Mr. Biden is counting on more and more. Tax receipts will hit 18.7% of the economy in 2025, and they’ll keep rising every year for the next decade—to 20.3%. The 1974-2023 average was 17.3%. Mr. Biden is proposing about $4.9 trillion in net tax increases—mostly on business and those making more than $400,000 a year, which is his definition of rich.

But notice the tax sleight of hand with that $400,000 level. That's the number below which he said no one would pay more in taxes during his first campaign in 2020. He’s using the same number now, despite four years of inflation running as high as 9%. That $400,000 spin zone isn’t indexed for inflation, so it means that each year more of the middle class climbs into his tax-increase maw.

The White House claims the budget would reduce the deficit by some $3.3 trillion over the next decade, but that’s only if his tax increases pass and don’t hurt the economy. Mr. Biden’s spending boom means that the annual deficit barely falls at all in 2025—to $1.78 trillion from an estimated $1.86 trillion in 2024. That would be 6.1% of GDP, despite the growing economy that Mr. Biden keeps boasting about. Mr. Biden keeps racking up unprecedented non-crisis or non-recession deficits, and his budget doesn’t foresee a deficit below 4% of GDP until 2034.

Mr. Biden’s deficits mean that debt as a share of the economy also keeps rising. He foresees debt held by the public rising to 102.2% in 2025, though it was only 79% as recently as 2019. Covid spending by Donald Trump and Mr. Biden caused the debt to explode to levels not seen since the end of World War II.

But unlike after that war, Mr. Biden is making no attempt to control the debt. Public debt in his budget keeps growing and growing—to 106% of GDP in 2030. Interest on that debt will surpass defense spending this year when it hits $890 billion, and it keeps climbing to $1.57 trillion over the next decade.

This is a budget for a world that doesn’t exist, and Americans can hope it will never become law.

[Body-by-Guinness]

… and won’t tell congress what he spent it on, though it is required by law:

https://www.theepochtimes.com/us/bidens-treasury-hiding-40-billion-in-outlays-law-requires-to-be-disclosed-on-usaspending-gov-sen-ernst-5605897?welcomeuser=1

[ccp]

O'Reilly pointed out on his show
the largest budget prior covid was 4.75 trillion and Biden now wants a budget of 7.3 trillion!

Of course in the election yr it is we can be sure it is crammed with redistribution

I just did search online  and all the left wing media have headlines like more money for the border more money for health care
Soc Sec and Medicare not to be touched ......

Here is a Fox news mention on it:

https://www.msn.com/en-us/news/politics/house-gop-leaders-tear-up-bidens-new-73t-budget-proposal-reckless-spending/ar-BB1jI1pz


now compare this to the CNN version:

hhttps://www.msn.com/en-us/news/other/what-s-in-biden-s-budget-proposal/ar-BB1jIiDmttps://www.msn.com/en-us/news/other/what-s-in-biden-s-budget-proposal/ar-BB1jIiDm

stifling corporations taxing the producers who will of course shift the costs to us, and slow the economy
does not seem like a recipe for success.

BTW no military increases in his budget........

all at the same time flooding the  country with illegals  that could cost hundreds of billions of our money.
we have to at least increase the retirement age
we cannot have people retiring at 45 to 55 with pensions etc.

Bill O says if we don't win this election we will be a socialist country

it sure looks like that to me.

he also asks if the average person even knows what the budget proposal is and what it all means other then looking for the goodies in it for themselves.

[DougMacG]

"Balancing the budget is like protecting your virtue, you have to learn to say no."

  - Ronald Reagan told Johnny Carson, 1975

https://youtu.be/H1aKYs82CGo?si=YQEDeOgzB6l5YpHY

[ccp]

Most of what Reagan said holds true today
If only Trump had his temperament.  He would be up 10 to 15 points.

I wonder what Johnny was really thinking during the interview.
I recall when it became public that Johnny was a die hard Democrat how surprised and disappointed I was.

Same with Cronkite.

And I might add Johnny was an equal employment opportunity provider in that nonetheless apart from his personal political views he would make jokes on both parties and Presidents.
Not like today.

[ccp]

act that Biden so proudly he hails

https://thehill.com/opinion/4517470-dei-killed-the-chips-act/

how utterly stupid is this ?

[Body-by-Guinness]

Claims reductions by embracing accounting tricks and unlikely circumstances. Rather, his budget proposal put us on a glide path toward a $45 trillion deficit:

https://www.cato.org/blog/bidens-phony-deficit-reduction

[DougMacG]

https://twitter.com/WallStreetSilv/status/1767626651213426979

This is an amazing number to watch in the next few years. Individual income taxes are about 1/2 of the govt revenue.

For February, the US govt collected $120 billion from individual income taxes. They had to spend $76 billion in February to pay interest on the nation debt.

E.J. Antoni, Ph.D.
@RealEJAntoni
It took 63% of all personal income taxes in Feb to pay the interest on the debt - no roads, no military, no schools, no social security - JUST INTEREST

[ccp]

The debt is now more than the entire defense budget

and climbing

defense spending bill from Biden shows a slight increase but adjusted for inflation it is actually a cut.

[DougMacG]

At the heart of their lying is for someone with one year left on a 4 year term to tell us how things will be in 5 years and 10 years.  How about fix what you can now and we'll have someone else lead us in 5 or 10 years. 

The budget is completely our of control and NOTHING is being cut.  If he did cut anything it would be our ability to defend ourselves.

Crafty has been pointing out for years that "baseline" budgeting is the biggest of big government scams.  Zero based budgeting is how common sense works.  To every agency, show us your positive results.  And show us the damage you are doing so we can compare.  Show us the difference in positive results for every additional dollar you receive above zero, or zero it is.

Of course it's a political trap.  Biden didn't cut the deficit by a trillion.  He didn't cut the new budget by anything.  Anyone see that in the top line number 7.3T in spending when we are taking in 4.8T in taxes at maxed out rates.  But if Trump comes forward with real cuts, watch what happens.  Starving the poor and taking Grannie off her meds one more time.

Biden is failing and losing so he goes back to the old play book one more time.  These plays got a lot of Democrats elected for a lot of years.  Not one new idea in it, just more money for every key interest group and more talk of soaking the rich.  How can we oppose that?

We oppose it by pointing out failure after failure.

[Body-by-Guinness]

Gent makes great hot sauce he can’t sell due to state and local regulations. Some interesting, unrelated graphs at the bottom of the piece:

https://www.cato.org/commentary/i-make-great-hot-sauce-state-regulations-ensure-youll-never-taste-it

[Body-by-Guinness]

Unfunded obligations will equal %500 of GDP by 2098:

Medicare and Social Security Are Responsible for 100 Percent of US Unfunded Obligations
Cato @ Liberty / by Romina Boccia / Mar 20, 2024 at 8:34 AM
Romina Boccia

A grayscale picture of a cracking dam.
The Financial Report of the United States Government (also known as the Financial Report) raises significant concerns about the country’s long‐​term financial health. Unsustainable deficits contribute to rising debt levels as spending growth outpaces revenue growth at an accelerating pace. Over the next 75 years, US taxpayers face over $73 trillion in long‐​term unfunded obligations. What’s more, this unfunded obligation is entirely driven by only two federal government programs: Medicare and Social Security.

Here are key takeaways from the Financial Report (all figures are in net present value terms over the 75‐​year horizon) with additional details below:

Total unfunded obligation: $73.2 trillion.
Medicare and Social Security are responsible for 100 percent of the unfunded obligation.
Current policy is unsustainable as debt would exceed 500 percent of GDP by 2098.
Closing the fiscal gap will require annual deficit reduction of 4.5 percent of GDP, assuming Congress acts immediately.
The US government’s unfunded obligation totals $73.2 trillion. The unfunded obligation is the difference between the present value of projected non‐​interest spending of $433.1 trillion (see Figure 1) and the present value of total receipts of $360.0 trillion over a 75‐​year period. Present value means that future cash flows have been discounted to adjust for projected interest rates. The discount rate reflects the expected rate of return taxpayers could have received over the next 75 years if they invested the 2023 value in US Treasury bonds.

Medicare and Social Security funding shortfalls comprise 100 percent of the total unfunded obligation. As shown in Figure 2 below, over the next 75 years, Medicare and Social Security’s funding shortfalls will amount to $78.3 trillion, which is $5.1 trillion more than the total unfunded obligation. This indicates a $5.1 trillion surplus in other parts of the budget, over the same projection period. In other words, under current policy, the entire US unfunded obligation is due to Medicare and Social Security spending. Certainly, if Congress chooses to increase spending, whether on defense, other health care programs, or to subsidize particular industries, as the Biden administration has been fond of doing, Congress could increase unfunded obligations from the other parts of the budget over that time horizon. Regardless, given the sheer size of the Medicare and Social Security unfunded obligation, it’s clear that legislators will make little progress on averting a fiscal crisis until they grapple with excess spending growth in old‐​age benefit programs.

Debt will exceed 200 percent of GDP by 2047 and reach 531 percent of GDP by 2098. The report’s authors state the obvious, albeit in muted terms: “While this estimate of the ’75‐​year fiscal gap’ is highly uncertain, it is nevertheless nearly certain that current fiscal policies cannot be sustained indefinitely.” While economists cannot predict country thresholds for when a debt‐​to‐​GDP ratio will trigger a fiscal crisis, Congress shouldn’t try to find out what that threshold is for the US by blasting past it. The prudent path is for Congress to correct unsustainable fiscal policies before a severe crisis forces their hands.

Closing the fiscal gap requires primary (non‐​interest) deficit reduction of 4.5 percent of gross domestic product (GDP) over the next 75 years. The fiscal gap is an estimate of what it would take, over the next 75 years, to stabilize fiscal policy. A sustainable fiscal policy means the ratio of debt, which the US government is borrowing in credit markets, is stable or declining over the long term. The Financial Report indicates that closing the fiscal gap would require non‐​interest spending reductions and or revenue increases of 4.5 percent of GDP annually, over the next 75 years. Any delays in adopting this deficit reduction would substantially increase required future deficit reductions.

If legislators delay reforms for 10 years, to begin in 2034, closing the fiscal gap will require 5.3 percent of GDP annually. Delaying reforms by 20 years increases the required deficit reduction to 6.5 percent of GDP. The fiscal gap is an effective way to measure the burden that current US government budget policy will impose on younger and future generations and what it would take to stabilize fiscal policy.

Financial Report Assumptions Are Overly Optimistic

Mark J. Warshawsky from the American Enterprise Institute (AEI) suggests that the Financial Report’s projections are based on overly optimistic assumptions, such as steady increases in income tax revenues, unchanged Medicaid spending despite an aging population, and unchanged defense spending despite growing geopolitical threats. Warshawsky and his colleagues developed a model to project the fiscal gap under alternative assumptions. It offers a much graver outlook, projecting that the debt‐​to‐​GDP ratio will increase “to 132 percent in 2032, 268 percent in 2053, and 785 percent in 2095 under current policy.”

The Financial Report Deserves More Attention

The Financial Report of the United States Government received a silent reception in Washington and across the country when it was published on February 15. Readers of this blog will be hard‐​pressed to find mention of it among any of the major news outlets. The Financial Report deserves more attention. The report’s findings are especially relevant in today’s political climate where politicians from both parties feel pressure to distance themselves from benefit cuts to Medicare and Social Security.

The report makes it painfully obvious that Medicare and Social Security spending are the primary drivers of government debt. Adopting sensible reforms to old age entitlement programs is both necessary and urgent.

Thanks to Ivane Nachkebia for his support in updating graphics and data for this post.
For more on the costs of high and rising debt and the implications of a severe fiscal crisis, see “Bankruptcy—Gradually, Then Suddenly?” For last year’s coverage of the Financial Report see here.

https://www.cato.org/blog/medicare-social-security-are-responsible-100-percent-us-unfunded-obligations

[ccp]

https://www.breitbart.com/entertainment/2024/03/24/hollywood-studios-reap-25-billion-from-states-film-tax-credits-taxpayers-see-massive-losses/

claims local economies lose money and negative ROI

governments lose 100% get back ~ 20%.

what a joke

[DougMacG]

https://www.breitbart.com/entertainment/2024/03/24/hollywood-studios-reap-25-billion-from-states-film-tax-credits-taxpayers-see-massive-losses/

claims local economies lose money and negative ROI

governments lose 100% get back ~ 20%.

what a joke

It also happens to be the exact opposite of equal protection under the law.

And tax cuts fot the wealthy that they rail against all the rest of the time.

[DougMacG]

Joe's new "budget" is 7.3T.

Roughly 130 million households in US.

Federal spending is 57,000 per household.

Are you getting your share?

Revenues are at about $5T.

Isn't it a stretch to even call this a "budget"?

How do we get through to people that government spending IS a tax. It takes resources out of the private productive economy in much the same way taxes do, and drives up the cost of everything.

[Crafty_Dog]

And deficits are future taxation.

[DougMacG]

https://www.thegatewaypundit.com/2024/03/watch-illegal-alien-lists-all-things-new-york/

Free Hotel, free breakfast, free lunch, free dinner, free smartphone, free healthcare, free lawyers, I might want to try leaving and coming back in.

Can you see how this drives up the cost for everyone else?

(Recording is in Spanish.)

[Body-by-Guinness]

Local government pensions were a major recipient, w/ those commitments correlating w/ strong government union presence:

Fiscal Federalism Turned Upside-Down

The Beacon / by Peter C. Earle and Thomas Savidge / Mar 26, 2024 at 5:32 PM

A recent study from the American Enterprise Institute (AEI) found that many states misused federal aid related to the pandemic. Instead of using funds for projects related to healthcare, education, and infrastructure, state politicians used the lion’s share of federal funding for the general fund and public pensions.

Aside from the blatant misuse of federal dollars, this study highlights another important issue: state and local government dependence on funding from the federal government. The more states are dependent on DC, the more control DC has over state and local fiscal affairs. When DC inevitably cuts funding to the states, fiscal crises are bound to occur.

AEI’s study found that state government revenues and spending “increased by around 70 cents per incremental windfall dollar of committed federal funds by 2022.” States where public employees had the most influence over pension fund boards saw the largest increases in pension contributions with those federal dollars.

While this misuse of funds is no surprise to many of the critics of federal pandemic aid, it should be shocking to the average American. Despite the US Treasury explicitly banning the use of federal funds for pensions and tax cuts, it still occurred. Evidence from the research shows “no observed increases in liquid cash positions and essentially full spending of received aid.”

In this case, states must obligate federal money from the American Rescue Plan (ARPA) by December 31, 2024. They then have until December 31, 2026, to spend it or give it back to the federal government. Incentives matter, and in a case of “use it or lose it,” states will find ways for the money to be spent. The latest data show that the average state gets 38 percent ($21.6 billion) of its revenue from federal funds, the largest single category. Expenditures funded by general fund revenue make up the second largest category of expenditures ($20.9 billion). Other funds include revenue sources that are restricted by law for specific functions or activities (gas taxes for a transportation fund, tuition and fees for higher education, or provider taxes for Medicaid) make up the third largest category ($13.5 billion). Bonds make up the smallest category of expenditures ($1 billion), although bond types included in the calculations vary by state.

State Budget Expenditures (Capital Inclusive) by Source, 2022 (50 State Average)



(Source: Authors’ Calculations, National Association of State Budget Officers State Expenditure Report Historical Data)

Unfortunately, this is not a new development. Since 1991 (the earliest data available), federal funds have steadily increased as a share of total expenditures at the state level. The chart below shows that the largest increases in federal funds to the states occurred immediately following recessions. Out of fear of losing revenue, state officials seek aid from the federal government, which is more than happy to oblige.

It is a manifestation of the Public Choice concept “the ratchet effect,” where federal spending spikes immediately after a recession or emergency, then lowers when the crisis subsides, but never down to pre-crisis levels.

State Budget Expenditures (Capital Inclusive) by Source as a Percentage of Total Expenditures, 1991-2023



(*2023 totals are projected
Note: Shaded areas indicate periods of recession
Source: Authors’ Calculations, National Association of Ste Budget Officers State Expenditure Report 2023 and Historical Data)

The National Association of State Budget Officers (NASBO) also projects that 2023 data will show that general fund expenditures will exceed federal fund expenditures for the first time since 2020, yet it is not expected to return to 2019 levels. With federal money from ARPA still left to spend, federal funds will likely still make up at least a third of the average state budget.

Like so much else in government spending, the trend is unsustainable. The most recent Financial Report of the United States Government concludes by saying that “[t]he projections in this Financial Report indicate that if policy remains unchanged, the debt-to-GDP ratio will steadily increase throughout the projection period and beyond, which implies current policy under this report’s assumptions is not sustainable and must ultimately change” (emphasis added).

That untenability, furthermore, has not gone unnoticed. In August 2023 Fitch Ratings downgraded the US credit rating from AAA to AA+, the second following the August 2011 lowering by Standard and Poor. In November 2023, Moody’s Investment Service changed the US credit outlook to negative. Lower credit ratings threaten higher interest costs on an already massive amount of government debt. These rising costs and debt will force lawmakers in Washington to make some difficult cuts to spending. When the time comes to make painful cuts, politicians in DC will cut funding to the states, expect state leaders to deal with the funding issues, and let them take the blame for the inevitable tax hikes and spending cuts.

Most US states ended FY 2021, 2022, and 2023 with budget surpluses. Many states took the opportunity to focus on tax relief, switching from graduated income taxes to flat income taxes. While the flat tax revolution helped many Americans keep more of their hard-earned money, the gains will be for naught if states do not properly control spending.

The best way for states to rein in spending is by enacting constitutional rules at the state level such as the Taxpayer’s Bill of Rights (TABOR) in Colorado. TABOR limits the growth of government to the maximum growth of population plus inflation, requires any taxes collected in excess of that limit to be refunded to taxpayers with interest, and requires voter approval before new taxes. This rule also applies to local governments, so the state cannot grow government by way of unfunded mandates on local governments. TABOR, however, does not apply to federal funds given to Colorado.

Another example is provided by Utah, which established the Financial Ready Utah program in the wake of the Great Recession. This package of bills requires state agencies to have emergency plans in place for anywhere between a 5-percent to 25-percent reduction in funding and requires state agencies to seek legislative approval before applying for federal funds.

State-level constitutional limits on taxes and spending provide greater protection from reckless government spending than relying on the “right” candidates to win elections or the “right” bureaucrats to be appointed. When government actors are bound by strong institutional constraints regarding political instincts and incentives toward reckless spending, already-overtaxed citizens needn’t rely on wishful thinking.

This article was originally posted on AIER.org. You can read the original here.

The post Fiscal Federalism Turned Upside-Down appeared first on The Beacon.

https://blog.independent.org/2024/03/25/amendment-california-constitution-housing-affordability-crisis/?utm_source=rss&utm_medium=rss&utm_campaign=amendment-california-constitution-housing-affordability-crisis

[Body-by-Guinness]

If only congress would listen to the Congressional Budget Office:

Tipping Point: CBO Director’s Warning on America’s Fiscal Path

US debt risks market shock

•The Beacon / by Craig Eyermann / Mar 28, 2024 at 1:36 PM

The director of the Congressional Budget Office is sounding the alarm on the U.S. government’s unsustainable fiscal path. Philip Swagel issued his warning in an interview with Claire Jones of the Financial Times.

Phillip Swagel, director of the Congressional Budget Office, said the mounting US fiscal burden was on an “unprecedented” trajectory, risking a crisis of the kind that sparked a run on the pound and the collapse of Truss’s government in the UK in 2022.

“The danger, of course, is what the UK faced with former prime minister Truss, where policymakers tried to take an action, and then there’s a market reaction to that action,” Swagel said in an interview with the Financial Times.

The US was “not there yet”, he said, but as higher interest rates raise the cost of paying its creditors to $1tn in 2026, bond markets could “snap back”.

Swagel refers to the U.S. government’s net interest payments in that last paragraph. The CBO projects these net payments to the U.S. government’s creditors will rise to $1 trillion in 2026. The U.S. government’s gross interest payments to its creditors started exceeding that level in 2023. If not for a Supreme Court ruling rejecting student loan forgiveness last year, the U.S. government’s net interest costs would soon be nearing that $1 trillion level.

Fear of a Bond Market “Snap Back”

Swagel’s bigger message is that the growing cost of financing the national debt increases the risk of a government-debt-induced fiscal crisis in the United States. The “snap back,” he fears, would be in the form of a sharp increase in interest rates should the bond market become reluctant to loan money to Uncle Sam. That scenario played out in the United Kingdom in 2022 under Prime Minister Liz Truss, which led to her resignation in very short order.

Can something similar happen in the U.S.? It may be more likely than many would like to admit. The United States experienced a more minor debt scare in October 2023, when interest rates briefly spiked upward. The event rattled markets and prompted action by U.S. Treasury and Federal Reserve officials to mitigate its impact.

Fortunately, that interest rate spike didn’t last long. However, the potential for a fiscal crisis to develop from such an event is real. The risk of such an event is increasing because of the unsustainable path of the U.S. government’s fiscal policies and spending in particular.

What happened in October 2023 was just a small taste of what a fiscal crisis could be. I don’t think anyone of sound mind would want to go back for seconds, much less larger portions.

The post Tipping Point: CBO Director’s Warning on America’s Fiscal Path appeared first on The Beacon.

https://blog.independent.org/2024/03/28/tipping-point-cbo-directors-warning-on-americas-fiscal-path/?utm_source=rss&utm_medium=rss&utm_campaign=tipping-point-cbo-directors-warning-on-americas-fiscal-path

[Body-by-Guinness]

Why worry about debt when we can just print more money with which to service it? After all, it's kinda worked for other nations, so long as we don't get worked up about hyperinflation:

The Threat of Fiscal Dominance: Will the US Resort to Money-Printing to Finance the Rising Debt Challenge?

Cato @ Liberty by Romina Boccia / Apr 4, 2024 at 6:07 AM//keep unread//hide

With entitlement spending growth driving a worsening fiscal picture, the US could enter a new period of fiscal dominance where monetary policy serves fiscal ends, threatening central bank independence and America’s economic future. Following aggressive fiscal and monetary stimulus during the pandemic, legislators should avoid the siren’s call of elevated deficit spending or risk higher inflation.

During the COVID-19 pandemic, Congress unleashed a deluge of emergency spending—roughly $6 trillion, according to the Committee for a Responsible Federal Budget (CRFB)—bringing deficits to new heights. For context, the deficit in 2020 was nearly 15 percent of Gross Domestic Product—deficits haven’t been that severe since World War II.

At the same time, the Federal Reserve increased the broad money supply (M2) by 40 percent and massively increased its asset holdings, including government bonds and mortgage‐​backed securities, by $4 trillion. Record‐​high deficits and an intense bout of inflation accompanied the unprecedented fiscal and monetary expansion as the pandemic came to an end.

Eventually, the Fed responded to elevated inflation with interest rate hikes and by reducing its asset holdings. While inflation appears to have slowed, it remains a problem, underscoring the challenge of using monetary instruments to deal with a fiscally driven problem. The pandemic episode illustrates an example of fiscal dominance whereby, as the Mercatus Center’s Eric Leeper puts it, “some fiscal action forces the central bank to react in ways that it otherwise would not.”

With Congress currently unwilling to seriously address the entitlement spending problem that’s driving the US toward a fiscal cliff, it’s worth evaluating the possibility of more frequent episodes of fiscal dominance and their consequences.

History as a Guide

To understand whether we live in a fiscal or monetary dominance regime, we should ask: is the central bank’s prime directive to maintain an inflation target, or is the central bank primarily focused on accommodating government spending? When fiscal dominance reigns supreme, countries experience higher inflation and sometimes hyperinflation (high and accelerating inflation). Several historical examples illustrate the dangers of fiscal dominance.

During emergencies, central banks may temporarily accommodate expansionary fiscal policy, such as during World War II or the COVID-19 pandemic. As Cato’s James Dorn points out, “Fiscal authorities normally dominate central banks during wartime. That was certainly the case during the two world wars. The Fed kept yields low on government securities by monetizing a large share of the US debt.” Dorn further highlights the 1960s and early 1970s, when the “Fed engaged in easy monetary policies to fund fiscal deficits, which led to inflation.”

Fiscal dominance can also be observed abroad. According to Greg Ip, writing in the Wall Street Journal, Argentina is a textbook case of fiscal dominance. To finance fiscal deficits, the Argentine treasury issues bonds that are bought up by the central bank. This debt monetization has led to devastating inflation, reaching a 12‐​month rate of 276 percent in February.

Leeper identifies two more examples of fiscal dominance overseas. After World War I, Germany realized it could not pay off its debts through conventional taxes alone, so it rapidly printed money to finance new spending. Likewise, President Erdoğan of Turkey eroded central bank independence, pushed for lower interest rates, and expanded government spending in recent years. As Leeper stated, “Erdoğan effectively converted an independent inflation‐​targeting central bank into a fiscal ATM.” In both cases, fiscal dominance resulted in severe and economically damaging inflation.

The US Threat of Fiscal Dominance

Fiscal dominance has a track record of triggering severe inflation and leading to economic decline. With US deficits at crisis levels in the face of rising entitlement spending, and with the federal debt‐​to‐​GPD ratio exceeding its record high of 106 percent in 2028 (Figure 1), the risks of fiscal dominance in the United States are rising. An excessive and rising debt, high interest rates, and a political landscape hostile to entitlement spending reductions create a dangerous fiscal environment that may exhaust the US fiscal space over the next 15–20 years.

If Congress leaves spending corrections to the last minute, legislators may perceive the draconian fiscal consolidation necessary to bring debt under control as less desirable than monetizing the debt. In such a scenario, printing more money might become the easiest or only politically feasible way out.

At a recent House Budget Committee hearing on the need for a fiscal commission to resolve the US debt challenge, former chairman John Yarmuth suggested just such a policy, stating on the record,

We are a sovereign currency, we can print all the money we want to serve the people whom we serve. … [W]hy are we paying interest on the money we borrow? And why do we borrow money anyway? We can print it and put it in the Treasury.

No amount of balance sheet manipulations will allow the US to print more money ad infinitum with no adverse consequences. Should this type of thinking become more mainstream, it is not entirely unrealistic to think that fiscal dominance and debt monetization might be willingly undertaken under the right political circumstances.

Avoiding Fiscal Catastrophe

Rising US spending and debt in light of heightened political polarization and congressional budgetary gridlock raise concerns about the sustainability of government finances. The recent credit downgrade by Fitch Ratings and Moody’s Investors Service lowering its outlook on the US credit rating is a reflection of the nation’s concerning long‐​term fiscal trajectory and poor fiscal governance. Without a political willingness to reduce the growth in old age benefit programs, the erosion of central bank independence to finance future spending represents a growing risk. Argentina, Germany, Turkey, and other historical cases serve as stark reminders of the dangers of fiscal dominance. Central bank money printing to finance government spending can lead to hyperinflation and economic ruin.

Fiscal dominance could also deteriorate the reputation of the US as a guarantor of its credit. The perception of Treasury securities as safe assets undergirds the entire financial system. US policymakers should not clumsily waltz into additional periods of fiscal dominance that could contribute to economic instability and reduce the global standing of the US dollar.

As Charles Calomiris notes, “Ultimately, the US may face a political choice between reforming entitlement programs and tolerating high inflation and financial backwardness.” Confronting the entitlement spending behemoth is politically daunting but necessary and can be done through a well‐​designed fiscal commission. Establishing smart fiscal guardrails, backed by a shared understanding of the budgetary future the US faces, can similarly reduce the risk of a fiscal crisis.

Time is of the essence to slow the growth in spending before fiscal dominance becomes the seemingly more attractive option.

https://www.cato.org/blog/threat-fiscal-dominance-will-us-resort-money-printing-finance-rising-debt-challenge

[DougMacG]

Don't we already have catastrophe?  What would a guardrail look like?  Slow the rate of spending increases?

Updates from usdebtclock.org today:

Deficit actual, current, 1.944 trillion

Revenues: 4.712 Trillion

We are spending 41.2% more than we take in.

Do people believe we are even borrowing all that?  Who is lending it?

[Crafty_Dog]

Pithy datum.

[ccp]

https://townhall.com/columnists/bobbarr/2024/04/04/crony-capitalism-targets-latest-victim-fantasy-sports-players-n2637400

[ccp]

https://www.usaspending.gov/search?hash=1881222a672d3e33600f710f4e21e4c9&tab=map

https://en.wikipedia.org/wiki/List_of_U.S._states_and_territories_by_population

not clear why some states get disproportionately more than others.

For example, Indiana and Minnesota seem to get why more than their population.

North Dakota too.

[ccp]

more information

according to them spending is down as comparted to GDP.

debt now over 34.5 trillion

overall spending breakdown

and debt graphs

https://fiscaldata.treasury.gov/americas-finance-guide/national-debt/#funding-programs-and-services

some ways to reduce debt proposals:

https://www.cbo.gov/system/files/2020-12/56783-budget-options.pdf

[DougMacG]

https://www.foxnews.com/media/denver-migrant-advocates-six-months-free-rent-food-not-enough-slap-face-offensive

6 months free housing and food is not enough?

Seriously, what is the matter with us that we do things like this?

We are a nation of immigrants and this is NOT how we did it.

[DougMacG]

Niall Ferguson (Bloomberg.com)

My sole contribution to the statute book of historiography — what I call Ferguson’s Law — states that any great power that spends more on debt service (interest payments on the national debt) than on defense will not stay great for very long. True of Hapsburg Spain, true of ancient régime France, true of the Ottoman Empire, true of the British Empire, this law is about to be put to the test by the US beginning this very year, when (according to the CBO) net interest outlays will be 3.1% of GDP, defense spending 3.0%. Extrapolating defense spending on the assumption that it remains consistently 48% of total discretionary spending (the average of 2014-23), the gap between debt service and defense is going to widen rapidly in the coming years. By 2041, the CBO projections suggest, interest payments (4.6% of GDP) will be double the defense budget (2.3%). Between 1962 and 1989, by way of comparison, interest payments averaged 1.8% of GDP; defense 6.4%. (Sources: niallferguson.com, bloomberg.com)

[Crafty_Dog]

The Ongoing Rise of U.S. Debt Amid Geopolitical, Financial and Economic Constraints
Apr 3, 2024 | 18:10 GMT



Political, financial and economic constraints will continue to limit the U.S. government's flexibility in adjusting spending in view of rising defense spending requirements, likely resulting in rising debt levels. In its most recent update of its long-term projections released in March, the Congressional Budget Office projected large fiscal deficits and a continued increase of the debt-to-GDP ratio in the United States driven by increasing entitlement and net interest expenditures. It is unlikely that the projected increase in government spending over the next two decades will cause any financing difficulties, let alone a financial crisis. This is because of the pivotal role of the dollar in the global financial system, the relative attractiveness of U.S. assets and a more favorable growth outlook than in most other advanced economies. Continued large deficits could, of course, lead to higher long-term interest rates, which might then lead the government to rein in the fiscal deficit to prevent too rapid an increase in the debt-to-GDP ratio. The current trend of more modest economic growth, at least compared to two decades ago, and large fiscal deficits will, however, translate into greater constraints on defense spending.

U.S. federal government debt stands at $35 trillion, which translates into more than $100,000 per citizen. U.S. federal government debt has more than tripled since the beginning of the century, increasing from 32% of gross domestic product in 2001 to 96% of GDP in 2023. The CBO currently projects the debt-to-GDP ratio will reach 116% of GDP by 2034 and 166% of GDP in 2054. Federal budget deficits will average about 6% of GDP.

Mandatory spending will increase from 13.9% of GDP to 15.1% of GDP over the next 10 years, while discretionary spending is projected to decrease from 6.4% of GDP to 5.1% of GDP, which would represent a substantial squeeze should it come to pass. If the decline in discretionary defense and nondefense spending were to be evenly split, U.S. defense spending would fall to less than 3% of GDP by the middle of the next decade — close to a post-World War II low.

A fiscal adjustment involving reforms to Social Security would help create more space for significant defense expenditure increases, but such reforms are highly unlikely in the short or medium term. Mandatory spending covers expenditures on entitlement and other programs, including Social Security, Medicare, Medicaid and several other programs related to health care or the elderly, which require Congress to approve separate legislation and cannot be modified as part of the annual budget process. Discretionary spending, on the other hand, is controlled by the annual budget process and pays for the operations of most federal agencies and national defense. It requires annual authorization. Discretionary spending as a share of GDP has declined gradually over time, while nondiscretionary (or mandatory) spending has continued to increase. An aging population makes it more difficult to substantially reduce entitlement spending, as the elderly account for a more substantial share of the electorate each year. Moreover, U.S. voters regard Social Security as almost on par with constitutionally guaranteed rights, making it very difficult to cut benefits or otherwise reform the entitlement program. At a minimum, this will require any entitlement reform to phase in a reduction of expenditure (relative to the baseline) very gradually so as not to upset actual and potential beneficiaries in terms of their accrued welfare benefits — and even this will prove politically difficult. That neither party supports reforming social security and other programs is evidence of these political constraints, with the last significant entitlement reform that sought to balance the books having taken place in 1983.

In FY 2023, the U.S. federal government spent $6.1 trillion. The U.S. federal government spends more than what the Japanese economy, the world's third-largest, produces.

Mandatory spending accounts for 60% of federal spending, discretionary spending for 30% and interest on debt 10%. Discretionary spending includes defense and nondefense spending with defense spending accounting for 13-15% of federal spending (or roughly half of discretionary spending).

As per the 2020 census, 17% of Americans were aged 65 or older. This share will increase to 23% by 2050. In absolute terms, this age group will increase from 58 million to 82 million.

The political, financial and economic constraints on U.S. defense spending will strengthen over time. Economically, high levels of defense spending are detrimental to long-term growth if spending reduces the availability of national savings and investment, which is typically the case. Even if investment represents a significant share of defense spending, it tends not to have much of an impact on civilian economic productivity. In the short run, however, a sharp increase in defense expenditure can help boost economic growth, particularly in the presence of ample spare capacity. Increased defense expenditures need to be financed through higher debt, increased revenues or budget cuts in other areas. With more resources allocated to consumptive defense spending and no offsets elsewhere, savings and investment will fall, and economic growth will suffer over the medium to long term. Faced with increased geopolitical competition, the need for increased defense spending will make for painful economic, financial and political choices, while increased defense spending (as a share of GDP) will weigh on the longer-term growth outlook. While none of this means that the United States will not be able to increase defense expenditure, it does mean that the economic, financial and political trade-offs and constraints will become more important over time.

In the short run, the government can almost always mobilize massive resources to support defense spending if flanked by appropriate economic and financial measures, such as capital controls, central bank purchases of additional debt issuance, increased taxes or reduced expenditures elsewhere. In 2023, U.S. defense spending (including Department of Energy spending on nuclear weapons) was 3.5% of GDP. In 1953 (during the Korean War), U.S. defense spending reached 11.3% of GDP; in 1968 (during the Vietnam War), 8.6% of GDP. In 1999, it fell to a post-1940 low of 2.7% of GDP before increasing again to reach 4.5% of GDP in 2010 (during the Afghanistan and Iraq wars). Defense spending exceeded 40% of GDP during World War II.

In the long term, however, there are economic limits to defense spending. The reduction of defense spending following the end of the Cold War led to the so-called "peace dividend" that allowed for lower government spending, higher national savings and lower interest rates. Unsustainable defense spending meanwhile drove the USSR into economic stagnation, financial failure and ultimately political collapse.
The United States remains the world's top military spender by a wide margin, but Chinese defense spending has been increasing rapidly on the back of rapid economic growth, which, in turn, is putting increased pressure on U.S. military spending. A decade or so ago, the United States spent more on defense than the rest of the world combined. Today, measured in current dollar terms, U.S. expenditure continues to account for nearly 40% of global spending, while China accounts for less than half of U.S. spending. The size of defense spending matters, but it is not everything. Several caveats apply. First, comparing military spending — even if adjusted for purchasing power parity to capture the effective spending power — is difficult, as different countries include and exclude different defense-related spending categories and items, and some countries' defense expenditure figures lack transparency. Second, even with a purchasing power parity adjustment, it is not obvious that one dollar of defense spending buys an equivalent amount of security. Leaving aside that security is a relative concept, even purchasing power parity is an imperfect metric to compare spending, both in quantitative and qualitative terms, even when adjusted for purchasing power. This is due to differences in terms of what the money is spent on as well as what adjusted dollars can buy, given that advanced military technology is not necessarily traded on international markets and local production costs differ, and sometimes certain defense-related technologies are unavailable for comparison. Moreover, not only what the money is spent on matters, but how it is spent, as well as the ultimate strategic value one gets. For example, directing funds to procurement and development rather than spending them on veterans' pensions or outdated platforms is likely to increase security, particularly in the longer term, and translate to greater military effectiveness.

The United States accounts for almost 40% of global military spending. China and Russia account for a combined 17%, with China accounting for 13% and Russia for 4%. The so-called Big Four European countries account for 9.5%, compared to Russia's 3.9%.
In 2023, U.S. defense expenditure accounted for 3.5% of GDP and China's official defense expenditure for less than half at 1.6% of GDP. Due to much more rapid underlying economic growth, Chinese defense expenditure has been growing much more rapidly in dollar terms without translating into higher expenditure as a share of GDP.

When comparing U.S. and Chinese defense expenditures, it is important to take into consideration differences in terms of force structure and military posture. The U.S. has worldwide commitments and a costly and extensive global security footprint. China does not, and its military forces are geographically much more concentrated. Military spending should therefore at best be seen as a proxy for defense capabilities. In this sense, the political and economic costs the United States faces to increasing defense expenditure act as a constraint. Yet this constraint can be alleviated, at least partly, via means other than increasing defense spending, including better resource allocation. In the long term, however, significant differences in spending will affect the military balance, especially in East Asia.

In current dollar terms, the United States spent a little less than $900 billion and China $300 billion on defense. In 2010, the United States spent $740 billion, compared to Chinese spending of $100 billion. In purchasing power parity terms, Chinese defense spending was about two-thirds of U.S. spending.

In addition to faster economic growth, China has also greater scope to increase defense spending as a share of GDP without jeopardizing its long-term economic outlook because it has excess savings and limited profitable investment opportunities. This should allow it to convert its excess savings into military consumption without unduly undermining the long-term growth outlook; the United States is far more constrained in this respect.

[DougMacG]

"U.S. federal government debt stands at $35 trillion"


 - Seems like just a minute ago we were troubled by debt reaching 30 31 32 33 34 Trillion.

Does anybody know how much is too much?

Does anybody know about the law of holes.  When you find you're in one, stop digging.

These projections of rising debt to GDP ratios fail to take into account:
a) The ruling party Democrats are proposing more new spending every waking day of every year.
b) What happens to that rising debt to GDP ratio when GDP collapses??


"In FY 2023, the U.S. federal government spent $6.1 trillion. The U.S. federal government spends more than what the Japanese economy, the world's third-largest, produces."

 - Sure that sounds like a lot but it's only the half of it.  We are a nation of states.  Those federal government expenditures are (supposedly) just the ones for things like providing for our common defense.  We still have to build roads and run schools.  None of your property taxes, sales taxes or state income taxes count in that number that is already higher than the world's third largest economy.

[Crafty_Dog]

(1) FTC VOTES TO BAN NON-COMPETE AGREEMENTS NATIONWIDE: The Federal Trade Commission (FTC) voted yesterday on a new rule to ban non-compete agreements nationwide in a 3-2 party-line vote.
FTC attorney Ben Cady said the new rule will allow existing non-compete agreements for senior executives, but once it is implemented, all other current non-compete agreements will become unenforceable.
The U.S. Chamber of Commerce said the new rule is “blatantly unlawful” and said it will file a lawsuit to block the rule.
Why It Matters: Previous arguments say that non-compete agreements undermine the economy by locking former employees out of new jobs and economic opportunities, while opponents say these agreements are intended to protect businesses from unfair practices. This new rule is likely to be impacted by Supreme Court decisions expected this session that could strike down Chevron Deference. – R.C.

[DougMacG]

"In FY 2023 the federal deficit was $1.69 trillion. But the gross federal debt increased by $2.15 trillion."

"For FY 2024 the federal budget estimates that the federal debt will increase by about $2.12 trillion."

(What the President calls "reducing the deficit")

https://www.usgovernmentspending.com/federal_deficit
https://usgovernmentspending.blogspot.com/2017/01/the-feds-borrow-more-than-deficit.html

It's strange that we can't or don't measure the deficit accurately. 

Growth came in way below estimates which could mean future deficits worse than expected.

Interest expense on the debt passed $870 Billion/yr, up 32% in one year, and now the second largest federal government expense, (poised to pass up social security in Joe's second term).
https://www.cbsnews.com/news/federal-debt-interest-payments-defense-medicare-children/

Thanks Joe, and all the script writers.  "4 more years, pause" or 'vote them out.'