Except of course that your starting point is the situation we are in now, not the once we had before Bush II. The economic figures for the late 2000s were inflated by the real estate bubble creating paper profits, just like the late 1990s when we balanced the budget on the back of largely illusory dot-com profits. In 1998 and 1999 I paid tens of thousands of dollars in capital gains taxes as I exited positions in the technology sector. ALL those gains, and then some, turned into losses for the people who I sold the stock to in the 2000-2001 meltdown.
The CBOs estimate for 2010 is that revenues will be $2,143 Billion and outlays will be $3,485 Billion. Revenues would need to increase by 25% AND expenditures cut by 25% in order to make that happen.
Just mentioning the numbers because people don’t seem to appreciate how precarious our situation is. The CBO report I got these figures from projects that the debt will grow from 36% of GCP to 69% of GDP from 2010 to 2020, even if we assume some (to me) pretty impressive growth numbers in the 2012-2014 period.
I don’t have an easy solution, but this is a hard problem. You can never find a solution if you are denying the nature and extent of the problem.
I was taking the one we had during Bush II, not before. I think it makes a lot more sense to take those numbers then the ones from the Recession years. Certainly if spending doesn’t drop and revenues don’t recover and we get stuck in some sort of permenant recession, then we’re screwed. But in that case, deficit spending will be the least of our worries.
But they will recover, revenues already have largely back to what they were in '07, and this is (unfortunately) the last year of the Stimulus spending, which was driving a large chunk in the increase in spending over '07.
And they will grow/be cut by almost that amount over the next few years, not by legislative changes but by the ending of stimulus spending and revenues returning to their previous levels. CBO projections for 2012 are a deficit deficit of 4% GDP, compared to something like 10% this year. Which also underscores how minor likely changes in spending and revenue due to changes in law are compared to those due to the changes in the overall economy.
The big drop in spending is due to the ending of the stimulus spending and the expiration of the Bush II tax cuts, right? Both of those are changes in fiscal policy (the only definition of “the law” that make sense in the current context) not the performance of the economy. While both of those are “automatic” in the sense that absent any congressional action, both will happen, does anyone actually believe this will happen?
I would love to see both the expiration of ALL the Bush II tax cuts and the end of the stimulus happen, but I am not optimistic.
The quick way to solve the fiscal issue is with another asset bubble, but we are being viewed with some suspicion in the air, water and soap markets at the moment.
Bumping this for this story that shows that the Republicans certainly intend to SAY they’ll hold the debt ceiling “hostage.” But how far will they actually take it? How far will the opposition?
IF the government is forced to shut down due to congressional failure to raise the debt limit and IF it is necessary to furlough government employees, how about congressional pay and benefits are stopped until an alternate plan is reached? I have yet to hear any sort of reasonable plan to reduce the deficit; I think my idea is as reasonable as any I’ve heard put forward. For that matter, we might consider reducing their pay and benefits without actually stopping them. It seems that more and more, “their” solutions involve penalizing “us”, with no sacrifices on “their” part.
There are two issues at work here that confuse people.
[ol]
[li] Most, if not all of the federal government, does not have a final budget with which to operate. Congress is required to pass about a dozen appropriation bills every fiscal year for the government to function. That has not happened for this fiscal year (FY2011 - 01 Oct 2010 to 30 Sept 2011). Instead Congress has passed several continuing resolutions (CRs) to keep the government operating at FY2010 budget levels and requirements. The latest CR expires in March. If Congress fails to pass a final budget or another CR by the March deadline, government agencies are required to shut down (except for essential military and public safety areas). This is what happened back in 1995. In 1995 federal employees were furloughed. Federal employees were later paid for their furloughs. However, this may not be the case. There are reports if there is another government shutdown, furloughed employees will not be paid after the fact. At the same time, furloughed federal employees may be non-contiguously be furloughed to prevent them from being qualified to receive unemployment insurance. The hit on the economy could be pretty bad, we will probably get through it but it could drive us into a “recession” greater that what we recently endured.[/li][li] At the same time, Congress still has to pass a bill to raise the debt ceiling. Regardless of whether the government operates under a CR or final budget, the government cannot borrow money beyond its legal authority. If Congress fails to raise the debt ceiling, the government effectively defaults on its obligations, and that includes paying foreign governments who service our debt. Defaulting on the debt might very well be a paper exercise and some headaches. However, defaulting on the debt will instill a psychological problem that the US Government is longer seen as a stable political and economic force. In turn that can affect the holders of our debt to take some real economic action. And that can be catastrophic and lead to a world wide economic mess the modern world has never seen. We are not talking a game changing event. It’s more like a game ending event for this country as we know it.[/li][/ol]
Full disclosure. I am a federal employee. I’ve seen some of the budget spending cut scenarios coming out of DC because we’ve had to prepare budget/work forecasts based various benchmarks. In the past, with similar issues we prepared two percent, five percent up to ten percent across the board budget scenarios. This time we are being asked to prepare budget impacts using unbelievable budget cutting numbers. Even with the lowest spending cut scenarios we cannot sustain basic life support essential government operations government-wide. If people think these two budget issues are like 1995 all over again, you will be sadly mistaken.
Given that refusal to raise the debt ceiling would cause all those consequences in the previous post, why would noises about doing so NOT have the same effect? Has there ever been such a threat before? Do the Republicans think they can refuse, and successfully blame Obama for whatever negative consequences may follow, or is this a bluff?
I believe real Republicans appreciate the gravity of this. On the other hand, I believe the Tea Party Republicans have no honest grasp of reality but are driven by their ideological dogma. The TPs are pushing their Pubbie leadership into a corner akin to are you with us or against us. It would not be the first time that pragmatic thinking is beaten down and the extremists drown them out.
The GOP aren’t serious about defaulting. They may pretend to be but come on, the consequences of default would screw them electorally for some time. They’ll threaten to do it and create a whole circus around it and try and put the entire blame for raising the debt ceiling (when it is eventually raised) on the Dems, they’ll basically play it for as much political advantage as they can get, but they won’t actually force a default.
Why couldn’t a faction of the GOP defy everyone else (even within their own party) and do it anyway? Why can’t they all do it in the confident assumption they can blame Obama for any consequences, especially given that some conservatives think that default could be a good thing, especially if it draws attention to spending and the deficit? That’s certainly what others are concerned about.
The new senator from Utah has said he would support expanding the debt limit as long as everyone agreed to enacting a balanced budget amendment to the Constitution this very year. Seems reasonable…
Yeah, it’s a horrible idea. The government has to be able to react to emergencies and maintain basic services, even when the economy is bad. A balanced budget amendment would merely mean that when there are recessions, the government would make the problems worse by being forced to shed tens to hundreds of thousands of good jobs – to say nothing of going without the benefits to society that those jobs create – when employment is what the economy really needs.
The senator from Utah should be ignored on this point. If he wants to play a game of political chicken and risk the good credit of the United States, he has nothing useful to add to the adults working to solve the problem.
Sorry, I thought it was really obvious that (1) it would be practically impossible to pass an amendment of this type in one year, or ever really, and (2) the guy from Utah is an idiot. I’ll try to snark it up more next time.
A more serious question – do both the House and the Senate have to agree to a rise in the debt limit? I think the House would be fine (assuming, say, all the Democrats agree, then you only need a handful of Republicans), but I can’t figure out how it plays out in the Senate.