Under the Obama Budget, the Congressional Budget Office estimates that the US deficit will be $1.8 trillion in 2009 (4 times the highest deficit under the Bush administration), decline to $658 billion by 2012 but then rise to $1.2 trillion (twice the Bush deficit) by 2019.
http://perotcharts.com/category/challenges/budget-deficit/
As long as the United States Government spends more than it takes in the amount we owe will continue to rise. The CBO estimates that US debt will rise from $5.8 trillion in 2008 to $17.2 trillion in 2019.
Data Source http://www.cbo.gov/ftpdocs/100xx/doc10014/03-20-PresidentBudget.pdf
Interest on that debt will reach increase from $253 billion to $806 billion, meaning an increasing portion of the US budget will go toward servicing existing debt.
Data Source http://www.cbo.gov/ftpdocs/100xx/doc10014/03-20-PresidentBudget.pdf
Since about a quarter of this debt is held by foreign governments, much of it by China, our economy depends on their willingness to hold US Treasuries. Long term this may be a problem.
http://en.wikipedia.org/wiki/United_States_public_debt
New York Times: China Losing Taste for Debt From U.S.
Politico: China 'worried' by U.S. debt
Huffington Post: China: US Debt Is Still A Buy
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Comments: 17
1) Eliminate classrooms, put it all on-line, and cut the number of teachers in half.
2) Wage and price controls is what other countries use to cut the cost of health care.
3) These rail projects use 40 year old technology, and new rail advocates (like me) are being shut out.
4) Can't argue with cutting the deficit (see above).
How about increase taxes on everyone. If we want all of these new programs, raising taxes on the top %5 and cutting them for everyone else isn't going to cut it.
I think you are reading me wrong. Education, health care, environment are all noble goals. We just need to be willing to pay for them. I am not saying you shouldn't raise taxes on the top 5% of earners. I am just saying this is not enough. We have to be willing to pay for what we want. Long term, continuing to run deficits (Republican or Democratic) is not the way to go.
Most, but not all, economists believe the stimulus package is necessary. However, when the economy recovers (which the Obama Administration says will be next year), we need to impose some fiscal discipline.
A few problems with a couple of your conclusions.
1) "much of it by China" ????
Japan holds nearly as much, yet you don't mention them at all. Back in the 80s it was going to be the Japanese that "owned" the USA. Then came the 90s and some hard realities for Japan.
Today, China is said to be the "booger man." I notice you post the percentages, but did you post HOW MANY DOLLARS China actually holds in their reserve???
The number is: China, which holds $US1.4 trillion in US treasuries, estimated to be around 65-70% of its total foreign currency reserves. SOURCE
That amounts to about 1/15th of the GNP for the USA last year. *yawn*
And, if you've followed the news from China lately, they've been laying off MILLIONS of workers to our hundreds of thousands. China needs to find 10 million jobs every year, to maintain the growth they've enjoyed the last decade or two. That was easy while they were entering the competitive arena, its' not so easy any longer.
It is in China's self interest to continue financing US debt. It is their ONLY viable option. This is PRECISELY why you hear whispers these days about changing the dollar as the international reserve currency.
Currently, our debt to GDP ratio is around 70%-- a full 40% lower than it's peak after WWII.
Are deficits sustainable ??? That depends. Yes, there is a limit.
Have we reached that limit yet ???
We're not even close.....
For the sake of our economy, I hope that you and President Obama are right.
Jack,
You are correct about the historical debt to GDP during the Second World War. Many economists believe this spending is what got us out of the Great Depression. In fact this is something I plotted last September.
After WWII we quickly reduced that number. It had a more or less steady decline until the Regan administration.
Well, some of the words you use, are open to disagreement.
"quickly reduced," for example. If you find 4 decades to be "quickly," okey dokey, but that represents a full 1/5th of our nations existence, by the time you get to 1976. Reagan was elected in 80.
Also, we were well out of the Depression by the time we entered the war in 41. Yes, the war no doubt accelerated our growth, but the worst was already over by the time we entered the war.
The government, media trots out a few Krugman types but refuses to allow more than a couple of the opposition to denounce the plans to spend our way out of a recession. Amidst a decline in tax revenue, the best most of your commentators can come up with is more tax increases completely ignoring the Laffer Curve (taught in all macro economic classes) about lowering rates increases revenues AND history of what people do when taxed more heavily than they feel is right-they stop working/investing OR move.
No, very few economists can be found to defend what is being done now and even fewer of those think that its even being done in the right way. Tightly focused spending was Keynes opinion, not the scatter shot Obama is doing.
jJack,
the Depression didn't end until 1944 according to most econ books and that only meant econ growth actually started to grow a bit in the private sector while unemployment disappeared. In 1941 we had more out of work than we had had in 1932. US growth did not return to pre 1929 levels until the 1950s
Jack
I think this is a pretty healthy decline.
Debt as % of GDP went down 41% under Truman, another 22% under Eisenhower and 30% under Kennedy/Johnson.
This bubble bursting, could merely be an adjustment to the new realities of an information society in the 21st century.
It is simply impossible to know what the next forty years could bring; complete catastrophe, or more "irrational exuberance."