Ain't No Way Gonna Get the Budget Deficit Under Control Long-Term
President Obama and former President Clinton are adamantly warning that the devilish sequestering of the federal budget is a bout of austerity we should avoid at all costs.Think Britain,Italy, Spain, Greece. Think austerity equals slowdown equals unemployment equals expectation of lower profits. Sequester or no sequester the Congressional Budget Office(okay factor in grains of salt for predicting the future) heralds the first budget deficit under $1 trillion in 5 years if-- and that's the "if" Obama and Clinton want avoided-- in order to get down to a deficit of hallelujah! only $845 billion.(see the charts published by the Washington Post's Wonkblog) Herewith another bunch of ifs, ands or buts that impact the financial future: 1. CBO thinks the federal debt to GDP ratio will stick around 73% for the next 5 years-- and not creep up to the 90%-100% troubling level that Harvard economist Ken Rogoff views as certain to stall economic growth. Only thing is CBO thinks the "debt-to-gdp ratio will then start rising again in the latter half of the decade." 2. Here's how that will happen. There will be more spending than revenues. So that the necessary match-up won't take place and leave the deficit to keep growing. The only times they matched up was in 1965, 1968, and 1997, according to the CBO, which is considered politically independent, I am told. 3. The reason for the spread are two; the rise of health care and the net interest cost of servicing the increasing amount of federal debt. Indeed, they are both rising as a % of GDP, while "everything else is falling." by 2020 CBO believes the US will be "spending as much on interest payments as we are on the Pentagon's budget or on non-defense discretionary spending." Ouch! And that's even with interest rates on securities maturing in 10 years or less under 2%. 4. Here's the killer as far as I'm concerned. You won't hear this from Wall St. brokers flogging stocks. It will take 4 more years-- until 2017-- so a decade since the 2007 meltdown began-- for the "economy to return to its full potential." 5.Yes, growth will pick up AFTER 2014( you have to wait 2 more years) but unemployment won't reach the 6.5% target for ceasing and desisting from QE until maybe 2016. It will only be 6.8% in the 4th quarter of 2015. The message; expect low interest rates for some time to come. We seem to be mired for at least 5 more years in slow growth that might require further trillions increasing the deficit. David Stockman, who was chief of the Office of Management and Budget in the Reagan administration, flatly predicts a "permanent and insurmountable" fiscal cliff in his new book, " The Great Deformation, The Corruption of Capitalism in America." The culprit; the dug-in policies about taxing and spending by the two political parties. Guess I'd rather see sequestering in staggered amounts over the next 4 years.