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Deficits average close to $1 trillion over next 10 years
As of this week, total US debt is $11.3 trillion and rising rapidly. The Administration projects that to rise another $1.85 trillion in 2009 (13% of GDP) and another $1.4 trillion in 2010. The CBO projects over $9 trillion in additional debt from 2010 through 2019. Just back in January the 2009 deficit was estimated at "only" $1.2 trillion. Things have gone downhill fast.
The CBO assumes a rather robust recovery in 2010, with growth of about 3% and then up to 4.5% in 2011. But they also project that unemployment will continue to rise. It will be a strange recovery with the economy up 4% and unemployment isn't falling.
This year the Administration's plan is to borrow 50% of every dollar spent. The CBO projects that nominal GDP will grow about 50% over the next 10 years. But revenues are projected to double, which suggests massive tax increases in relation to GDP. The deficit in 2010 is almost 10% of GDP. Ten years from now the deficit is projected to be $1.2 trillion. And that is if government costs do not go up and inflation only averages 1.1% for the next few years.
Deficits are not necessarily a bad thing if kept in check and restraint is shown. But everyone cannot run deficits at the same time. Sooner or later the bond markets will call a halt to $1 trillion deficits. The deficits will not be funded at anywhere close to an interest rate that will not break the budget. (Pretty soon we could be spending 20-25% of our revenues on interest expense). We saw that happened with Britain's S&P rating last week and Bill Gross thinks the same thing will happen in the US.
With all the bad economic news out there, rates should be going down, not up. The bond market is telling us the deficit simply can't be financed down the road.
The game doesn't end if there are reasonable deficits. It ends with deficits that cannot be financed except by monetization. And that will tank the dollar, except against all the other countries that are monetizing their debt. When you run deficits that are 4-6-8% or more of GDP, at some point things simply back up.
If you can stomach it, all the data mentioned is avaialble on www.cbo.gov
The CBO assumes a rather robust recovery in 2010, with growth of about 3% and then up to 4.5% in 2011. But they also project that unemployment will continue to rise. It will be a strange recovery with the economy up 4% and unemployment isn't falling.
This year the Administration's plan is to borrow 50% of every dollar spent. The CBO projects that nominal GDP will grow about 50% over the next 10 years. But revenues are projected to double, which suggests massive tax increases in relation to GDP. The deficit in 2010 is almost 10% of GDP. Ten years from now the deficit is projected to be $1.2 trillion. And that is if government costs do not go up and inflation only averages 1.1% for the next few years.
Deficits are not necessarily a bad thing if kept in check and restraint is shown. But everyone cannot run deficits at the same time. Sooner or later the bond markets will call a halt to $1 trillion deficits. The deficits will not be funded at anywhere close to an interest rate that will not break the budget. (Pretty soon we could be spending 20-25% of our revenues on interest expense). We saw that happened with Britain's S&P rating last week and Bill Gross thinks the same thing will happen in the US.
With all the bad economic news out there, rates should be going down, not up. The bond market is telling us the deficit simply can't be financed down the road.
The game doesn't end if there are reasonable deficits. It ends with deficits that cannot be financed except by monetization. And that will tank the dollar, except against all the other countries that are monetizing their debt. When you run deficits that are 4-6-8% or more of GDP, at some point things simply back up.
If you can stomach it, all the data mentioned is avaialble on www.cbo.gov
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