The United States budget deficit will reach $1.48 billion in the 2011 fiscal year, according to the Congressional Budget Office.
The response: everyone seems to be pointing fingers at everyone else.
The President, on Wednesday evening in his State of the Union address, indicated that something needed to be done about the budget deficit.
Yesterday the CBO released its figures.
The evening news reported that the White House had some general things to say about the projection but would not come out with more specifics because they were waiting for the Republican response that they knew was coming.
There’s leadership for you.
No one in the top leadership positions in the country seem to be staking out a firm position on this. Like Health Care 1, the President is asking Congress to do something, but is not willing to step down from his intellectual tower to set out a path. As a consequence, like HC1, no one in the country really knows where he stands on containing and controlling the deficit.
As a consequence, no one really seems to be serious about the deficit.
The current estimate was constructed assuming that all current law will be used as the basis for the projection. If, for example, all the Bush tax cuts are allowed to expire, as is now the law, this will result in the budget deficit climbing to about 76% of GDP in 2020.
However, if Congress does not allow these tax cuts to expire and if Medicare programs are held constant, along with other spending and taxing programs, the budget deficit will rise to about 97% of GDP in 2020. This would place the cumulative total of deficits at around $12 trillion over the next ten years.
For the last 12-18 months, I have been arguing that the cumulative budget deficit for the next ten years will come in at least around $15 trillion, given the current attitudes about the budget deficit in Washington, D. C.. In my mind, Congress, given current attitudes, will not rescind the programs that are now in place, and, like always, will add more that will only cause the cumulative deficit to rise from current projections.
It seems as if the Congressional Budget Office is coming toward my forecast as time goes forward.
And the Gross Federal Debt continues to climb: the year-over-year rate of increase is now close to 20%. The compound rate of increase in the Gross Federal Debt between 1960 and 2007 was in slightly above 7% which some of us felt was excessive.
Since it took until fiscal year 2009 for the debt of the United States to approach $12 trillion, the idea that this figure would be doubled in the next ten years seems “unreal”. Yet, that is the way things look.
And, there are three major “holders” of this debt…Japan, China, and the Federal Reserve. Going forward it seems almost surreal the proportion of the new debt the Federal Reserve may have to acquire. There is, of course, the $900 billion that the Fed is intending to acquire as a part of QE2. But, what will the Fed have to do after that? With so much government debt coming on board it is frightening to speculate.
Why am I so pessimistic? Well, we really don’t know how much the health care program is going to cost us. We don’t know what military challenges we are going to be facing. The world is very unsettled now and I don’t see how commitments are really going to be lessened over the next ten years given all the turmoil taking place around the globe. We don’t know how the budget crisis affecting state and local governments is going to work out. Many are saying that the federal government will not play any role in state or municipal bailouts, yet, can you imagine the federal government not playing a role? And, what about the housing market and the government agencies called Fannie Mae and Freddie Mac? How much is this area going to impact the federal budget? One last unknown here is the cost of getting the commercial banking system back to full solvency. No one knows what these costs might be.
The problem with debt is that the more you have the fewer choices you have. Debt reduces your room to maneuver. And, as with Europe, it seems to me that the options are running out.
The other thing about creating more and more debt is that the options become less and less desirable.
That is why you don’t want to get yourselves “head-over-heels” in debt…you want to be able to make your own choices and you want the alternatives available to you to be desirable ones.
Right now, the choices are not good! And, we don’t seem to have any real leaders around in positions of authority that will step up to the table to take charge.
Funny, but the two Presidents that did take a leadership role in budget containment were George H. W. Bush (Bush 41) and Bill Clinton. Bush 41 made some decisions with respect to taxes that arguably cost him a second presidential term. But, Bush’s efforts set the stage for the Clinton era of strong economic growth and shrinking federal deficits.
There just is no leadership on this issue coming from the places that should be exercising leadership. To be more specific, in my experience, the top person, the CEO, the person where “the buck stops”, must take a leading role in getting something done or it just does not “get done” right. Secretary of the Treasury Robert Rubin was a major force behind the Clinton move on the budget, but the effort would have gone nowhere without Clinton getting on board and taking the lead.
As with the health care bill, people are not seeing Obama carrying the flag. Oh, he talks and talks, but where does he really stand? Tim Geithner has all but disappeared. The only real spokesperson for the administration on economics and finance seems to be Ben Bernanke and his “talk” has been getting lost in all the attention being given to other members of the Board of Governors of the Federal Reserve System.
The deficit problem is not going to be brought under control immediately. But, the lesson we can learn from the situation going on over in Europe is that someone eventually must take the lead. If no leader steps out in front of the crowd, the misery just drags on and drags on. The debtors just keep banging on the door. And, what happens during periods like this? Well, you lose focus.
I have seen this doing business “turnarounds”. When things start going downhill in a business and the debtors, or regulators, keep banging on the door, you stop doing what you should be doing in order to run a good business. You just have to “put out fires.” Thus, your organization continues to go downhill.
Likewise with a government: if the focus of the government is diverted from doing what it should be doing in order to resolve budget and debt issues, the government continues to experience problems in areas it should be focusing on.
It is past time to “get serious” on the federal government’s deficit problem. Are there any leaders in the room?