Deficit Watch thru Jan 2008

Bad news: The falloff in revenue growth now means the trends in revenues and outlays are diverging.  Translation: Don't expect a balanced budget any time soon, let alone in time to make the presidential campaign more interesting.  More bad news: It doesn't look good for my side of the bet I made a year ago (...wait, I take that back; that's good news to a lot of people).  Anyway, here's the disappointing chart; click to enlarge.

Let me be clear: I do NOT think a balanced budget would be good news, because I prefer a unified budget deficit that is just large enough to keep the debt/GDP ratio from increasing or decreasing.  It's the stuttering politicians a balanced budget would induce that would be good news to me.  I love a good laugh, and that would deliver plenty of good ones.  Unfortunately, it looks like it won't be happening.    

I'm thinking about adding a third line to this chart, if I can find the time: the receipts level required to maintain the current ratio of debt to GDP (...it would be lower than the actual receipts shown).  It certainly wouldn't make a dent in any political rhetoric on the right or left, but it might be helpful information for anyone who understands the 3rd grade arithmetic lesson that when the denominator grows faster than the numerator, the ratio shrinks. 

Feedback is welcome.  Again, be prepared to tell me your real name and background, privately, if I ask for it privately.  [And anyone who is clinging to the politically-convenient belief that the general fund deficit—not the unified budget deficit—is the more important number, should expect to be asked.]

Comments

[Mike H]

Chin up Steve, you only need it to converge by the end of 2009, right? Well, there should be some explosive economic growth coming this year, and if the Dems win it all they will probably change things enough to cancel the bet. I know that's not really the point, but I think your prospects are still looking good. I'll keep this view until the 2.5-3.5% GDP growth for this year doesn't materialize. Once people see the recession doesn't happen, and the fed is done cutting rates, things are going to be very very good.

[JIMB]

Just need to reduce government spending no matter how it's financed. After all, if the government borrows to destroy markets and property or taxes people to destroy markets and property, the issue is that the government *is* destroying markets and property, not that they pulled an amazing "sell the bonds to a foreign victim" act.

We need a reduction of consumption, more savings (which generates 3-4x the "spending" that consumption does because the spending it is sustained by increasing production where consumption spending dwindles quickly as real goods vanish without replacement and income then fall).

[Steve]

Mike:
For what it's worth, I hope the referee does not find a reason to cancel it.

[Grodge (aka, Tony)]

Why is the chart "disappointing", Steve? Your premise seems to be that 1.5% of GDP is a reasonable metric for the annual deficit to be. So why so glum?

Also, given that we are going to have "explosive economic growth" as Mike H opines (despite impending mortgage banking and insurance defaults and a probable recession), I would think that things are quite rosy.

Bush's most recent $3.1 trillion budget that slashes education, health care and infrastructure spending in order to finance more war and empire building seems quite prudent by the fiscal standard proposed here.

[Bob]

The Fed's latest moves, among other things, helps to increase demand....as Kudlow recently blogged
it's time to focus on increasing supply to keep inflation lower. That's the job of Congress, not the Fed.

And please, quit encouraging food to be used as fuel. Yeah, I know food and energy are not in the core inflation rate which is maddening since both are trending in nosebleed territory.

I don't get it. The left and the AGW zealots are the same people that lament the plight of the poor then increase the demand for foodstuffs (to be put in gas tank) so the poor have to pay more for food.

[Grodge]

Bob,
Since when do "AGW zealots" propose putting "foodstuffs" into the "gas tank"?

Maybe you need to review Steve's primer on what allegedly causes anthropogenic global warming. (Hint: it has something to do with carbon which is found in all "foodstuffs.")

[Steve]

Grodge:
I believe I answered your question in the paragraphs below the chart.

[Boghie]

Mike H,

Steve is wallowing a bit because I think his bet is due on August 2008 - not 2009.

The economy - and tax receipts - must turn around mighty quick for Steve to win his bet.

I made similar bets.

Now, however, with ObamaNomics seemingly gaining hold on our populace I think a loss is guaranteed. With Rangel yakking about wiping out the evil BusHitler tax code modifications I will start paying the Marriage Penaltly as of January 2009 – yup, tax increases can be retroactive. Preparing for such changes (rate increases, dividend tax treatment changes, capital gains increases, business tax increases, social security tax increases, etc.) changes economic behavior NOW – not next year (unless you are a fool). For example, should I still be investing in companies that pay a healthy dividend? Nope. Companies will once again be enticed to promote capital gains rather than dividends – here comes ENRON II.

So, the die has been cast.

And, the morons won.

It Happens…

[Steve]

FWIW, it runs through Dec 2009. Still looks bleak.

[CoRev]

Whenever I hear someone bring up tje importance of the General Fund Deficit I know I'm being played, again!. I always ask the same question. Which laws need to be changed to pay down the "General fund Deficit" without first paying down the "Unified Budget Deficit?"

Lessee, we can start with the SS law, their, the Dems, famous third rail, every other Trust fund Law, and any number of budget tracking laws. We can change the finance Act, and then we can watch how fast the "General fund Deficit" comes down. Not!

[CoRev]

Whenever I hear someone bring up tje importance of the General Fund Deficit I know I'm being played, again!. I always ask the same question. Which laws need to be changed to pay down the "General fund Deficit" without first paying down the "Unified Budget Deficit?"

Lessee, we can start with the SS law, their, the Dems, famous third rail, every other Trust fund Law, and any number of budget tracking laws. We can change the finance Act, and then we can watch how fast the "General fund Deficit" comes down. Not!

[CoRev]

Whenever I hear someone bring up tje importance of the General Fund Deficit I know I'm being played, again!. I always ask the same question. Which laws need to be changed to pay down the "General fund Deficit" without first paying down the "Unified Budget Deficit?"

Lessee, we can start with the SS law, their, the Dems, famous third rail, every other Trust fund Law, and any number of budget tracking laws. We can change the finance Act, and then we can watch how fast the "General fund Deficit" comes down. Not!