Debt Commission is preparing the bad news

[HK in AK]

The Obama administration's Debt Commission is preparing the US for austerity. In a meeting with governors, the two key members of the commission, Erskin Bowles and Alan Simpson, talked about how the future of the US is increasing in uncertainty. They mention the level of spending and the growing national debt.

The one factor that they failed to discuss is the growing cost of entitlement programs. The programs, Medicare, Medicaid, Social Security, and Federal Pensions, are all growing and will be consuming greater percentages of the budget to the point where tax receipt will not be enough to even support their payments.

The full story: http://news.yahoo.com/s/ap/20100711/ap_on_bi_ge/us_governors_debt_commission

Buckle up........please put all electronic devices way, and make sure your seatbelt is on, and your tray table is up in the locked position.......The turbulence is about to hit.

[Mein Teil]

Buckle up........please put all electronic devices way, and make sure you seatbelt is on, and your tray table is up in the locked position.......The turbulence is about to hit.

...but if I still have checks in my check book I'm not really broke right?

[NineLine]

The Obama administration's Debt Commission is preparing the US for austerity. In a meeting with governors, the two key members of the commission, Erskin Bowles and Alan Simpson, talked about how the future of the US is increasing in uncertainty. They mention the level of spending and the growing national debt.

The one factor that they failed to discuss is the growing cost of entitlement programs. The programs, Medicare, Medicaid, Social Security, and Federal Pensions, are all growing and will be consuming greater percentages of the budget to the point where tax receipt will not be enough to even support their payments.

The full story: http://news.yahoo.com/s/ap/20100711/ap_on_bi_ge/us_governors_debt_commission

Buckle up........please put all electronic devices way, and make sure your seatbelt is on, and your tray table is up in the locked position.......The turbulence is about to hit.

It's not nearly as bad as you think it's going to be...it's going to be a kick in the balls...but don't be sensational.

[HK in AK]

Nine,

Actually it is ............I will dig out the analysis of the necessary spending that is tied to pension costs between state and federal programs. The red herring in this whole mess is the focus on the federal debt.....it is the unfunded cost of the entitlement programs that are the source of problems.

[Kilgor]

It's not nearly as bad as you think it's going to be...it's going to be a kick in the balls...but don't be sensational.

Its really bad.

There is simply no way the US can spend at the rate it is. Politician's cant and won't make the cuts that are needed, unless you like being a one termer. It will be bond and debts as usual until collapse.

[Flagg]

Personally, while I think it's going to suck on supercharger...but it will not be as bad as say the UK....where it will probably suck quite badly....economically, politically, militarily coming down a notch or three in the coming decade.

The biggest things the US has going for it is:

There is NO immediate or quickly conceived alternative(meaning less than a decade) to the US Dollar

There is no military opponent now or in the immediate future(meaning less than a decade) to the US that cannot be instantly smoted as if by some angry god.

There is NO immediate or quickly conceived alternative(meaning less than a decade) to the US Dollar.

So while lots of common folks will suffer with their homes worth less than nothing, no REAL(or even possibly nominal) wage increases for the employed, their 401K funds shriveling in REAL(and possibly nominal as well) value, they can all take heart in the national ability for the US to forcibly share the worst of the suck with the rest of the planet(China + oil states) or risk being freedomized by the world's awesomest military power projection capability paid for with their borrowed monies..........the US is awesome at prison rules capitalism.

But yeah...it's gonna keep sucking.......and while everyone will get a taste......some will have to drink from the firehose of suck on full noise.

It's certainly not going to be boring....anything and everything BUT boring.......I think previous riot training and experience will be quite valuable on the CV/Resume in a good number of places for the many unemployed as we reboot the game of global monopoly.

[IconOfEvi]

Personally, while I think it's going to suck on supercharger...but it will not be as bad as say the UK....where it will probably suck quite badly....economically, politically, militarily coming down a notch or three in the coming decade.

The biggest things the US has going for it is:

There is NO immediate or quickly conceived alternative(meaning less than a decade) to the US Dollar

There is no military opponent now or in the immediate future(meaning less than a decade) to the US that cannot be instantly smoted as if by some angry god.

There is NO immediate or quickly conceived alternative(meaning less than a decade) to the US Dollar.

So while lots of common folks will suffer with their homes worth less than nothing, no REAL(or even possibly nominal) wage increases for the employed, their 401K funds shriveling in REAL(and possibly nominal as well) value, they can all take heart in the national ability for the US to forcibly share the worst of the suck with the rest of the planet(China + oil states) or risk being freedomized by the world's awesomest military power projection capability paid for with their borrowed monies..........the US is awesome at prison rules capitalism.

But yeah...it's gonna keep sucking.......and while everyone will get a taste......some will have to drink from the firehose of suck on full noise.

It's certainly not going to be boring....anything and everything BUT boring.......I think previous riot training and experience will be quite valuable on the CV/Resume in a good number of places for the many unemployed as we reboot the game of global monopoly.

Freedomized...I like that word.

Well, hope all those who got us into this mess can look at what they did. Im sure though the Commission will be biased though.

[DaveDash]

Its really bad.

There is simply no way the US can spend at the rate it is. Politician's cant and won't make the cuts that are needed, unless you like being a one termer. It will be bond and debts as usual until collapse.

Err in terms of Federal Budget, yes it can.

For example, if GDP Growth is 3.5%, the Federal government can quite happily increase deficit spending SO LONG AS ITS (more than slightly) BELOW the GDP growth rate, e.g 1%. This will REDUCE debt. If the US kept its current spending and GDP growth continued for the next 8 years, the amount of debt would be significantly smaller percentage wise. 3.5% increase of 14 Trillion GDP is also a hell of a lot more than 1.5% of 4 Trillion Federal Budget spending or whatever the current Federal Budget is. See how this works?

The only pain thats going to come is that interest rates in the US/UK/Europe NEED to go up, because if there is GFC V2 those countries cannot slash interest rates and have no where to go. They also cannot spend their way out of it. That's the worry. But increased deficit spending is not the main worry (as long as there are no trillion dollar spends any time soon), and a certain amount will be required to fuel GDP growth in the future. The trick is going to be balancing interest rate increases that do not slow down the rather lacklusture GDP growth at the moment.

[Mackie]

Err in terms of Federal Budget, yes it can.

For example, if GDP Growth is 3.5%, the Federal government can quite happily increase deficit spending SO LONG AS ITS (more than slightly) BELOW the GDP growth rate, e.g 1%. This will REDUCE debt. If the US kept its current spending and GDP growth continued for the next 8 years, the amount of debt would be significantly smaller percentage wise.


I am sceptical about it. With 3.5% the job market would look different. Normally the US job market should be a sharp down when the economy cools down and a sharp up in the boom years. With a small delay.
But this time it's different.

[Mein Teil]

I am sceptical about it. With 3.5% the job market would look different. Normally the US job market should be a sharp down when the economy cools down and a sharp up in the boom years. With a small delay.
But this time it's different.

I'm with you, I think we're in for a nose dive pretty soon.

[DaveDash]

I am sceptical about it. With 3.5% the job market would look different. Normally the US job market should be a sharp down when the economy cools down and a sharp up in the boom years. With a small delay.
But this time it's different.

Yes at present growth is 2.7% projected, which isn't enough to reduce unemployment. Deficit spending however is 1.5% or so last I saw, so that is still actually enough to reduce (slowly) debt. The problem is there is NO room to move if another GFC hits due to interest rates being low (due to low GDP growth) and sh*tloads of incurred debt already.

I was just illustrating to Kilgor that the US can continue deficit spending and actually reduce debt. Whether the US economy picks up and grows at 3-3.5% in the next 8 years is definitely something I am sceptical about also.


I'm with you, I think we're in for a nose dive pretty soon.

I think we will make it through the year. Unemployment will remain a problem and inflation will slowly creep up (which will be good). Baring some unfortunate world event that plunges us into a recession, 2010 will be a slightly precarious but small and steady growth. This is in the US of course. Here in Australia we are looking comparitavely peachy.

[Mackie]

It should be enough to reduce unemployment. But it isn't real.
There is also a relation between the US unemployment and the trade defict.
The US heatens up China and China Germany. But this isn't a long term cycle.

I am not a religious person. But God help us that the Asian markets and the business real estate will not blow up together.
We have enough problems with the credit market. I don't remember any good news from the ECB.

[Ought Six]

15¢ of every dollar the fedgov spends already goes just to pay the interest on the national debt. In a decade, it will approach 50¢ of every dollar; half of the entire budget. Yet there are people who are actually advocating even more spending to 'save' us. :cantbeli:

I see no hope of avoiding an eventual default. None.

[Alfacentori]

Can't say In understand this issue. Even during the Cold War U.S debt wasn't as high as it is now, it has been higher (as GDP %) before in the 1940s, but is spiralling upwards. What's been the primary factor, cost of Iraq/A'stan, reduced revenue, lower taxation, increased welfare?

A few interesting graphs on the wiki page btw

http://en.wikipedia.org/wiki/United_States_public_debt

Alfa

[Kilgor]

I wasn't just referring to raw debt alone, but also pension and SS liabilities.

[DaveDash]

15¢ of every dollar the fedgov spends already goes just to pay the interest on the national debt. In a decade, it will approach 50¢ of every dollar; half of the entire budget. Yet there are people who are actually advocating even more spending to 'save' us. :cantbeli:

I see no hope of avoiding an eventual default. None.

Whats your basis for that? Current levels of interest is around 6.6% of the Federal Budget. So to increase to 50% of the Federal Budget that would indicate either a 750% increase in debt between now and 2020 or 750% increase in Interest Rates or something in the middle. Given that debt will be at 100% GDP by 2020 I don't see this happening in the slightest. Also, who is going to demand higher interest on US treasuries etc if it will in turn cause a default? Nobody wins.

You do realise there are lots of other countries in the world, Italy, Japan,etc that have more debt that you as % of their GDP right?

Again chalk one up for fearmongering.

Yes debt is going to have to be reduced, but 'no hope of avoiding and eventual default' is not going to happen any time soon, baring something unusual.

[BlackFlag]

Queue the Hyper-Inflation, and kiss the Dollar goodbye as the world's reserve currency.

[Mackie]

I see no hope of avoiding an eventual default. None.

Image how a Japanese feel. p-)

Nothing is to late but some people have to accept that national security is not only a bout the bang. The cold war was not finished with bombers and fleets.
It simply collapsed. They weren't able to produce enough food and only survived by selling oil to the enemies. I was in East Germany in the mid 90s in my uncles business and I saw how bankrupt the GDR was. The reason was a short term policy. The never planned with reinvestments.
But we did the same mistakes in the west. The shareholder value was the fail in the 90s.

And as long as people like Krugman are accepted in the world, thing will not change.

[Brasi]

Very interesting thread gentlemen. Question; what has to be done immediately in order for the U.S. to cut it's deficit in half by say 2016? lastly, is it possible to do?

[HK in AK]

Right now Social Security, Medicare, Medicaid, and federal pensions total about 47 of federal spending. Interest cost on debt is a little over 6 percent. The US debt totals just over $13.1 trillion, of which $8.6 trillion is held by the public, and $4.5 trillion is held in intragovernmental holdings. The interest being paid is hovering around 2.4 percent. It is anticipated that another trillion is going to be added to the 2010 budget deficit. If interest rates rise to say what they are in Greece, at 5 percent, our interest cost doubles to an annualized rate of about $520 billion. With higher payouts in Social Security, you could add another $300 billion in payouts for 2011. So with those two items you are running another trillion in the hole per year. The numbers do not get any better.

[TheBroncos]

Very interesting thread gentlemen. Question; what has to be done immediately in order for the U.S. to cut it's deficit in half by say 2016? lastly, is it possible to do?

Depends on 2012 I'd say. But what do I know.. IRS is on my butt no matter what.

[Kangars]

Very interesting thread gentlemen. Question; what has to be done immediately in order for the U.S. to cut it's deficit in half by say 2016? lastly, is it possible to do?

Basically the gradual devaluation of dollar can do it. If this process spirals out of control then you will face hyperinflation. The best you can expect for the next 5 years is stagnation because : taxes up, government control up, consumer spending down, fuel cost up.