United States budget deficit

[Wang]

I'm wondering what the United States is doing to turn the tide of it's huge and still growing budget deficit?

This is a interesting website about that.

You can see that the U.S. budget deficit has skyrocketed since George Walker Bush became president of the United States.

Here is a US national debt clock.

The estimated population of the United States is 299,022,026
so each citizen's share of this debt is $28,103.99.
The National Debt has continued to increase an average of
$2.44 billion per day since September 30, 2005!

At the time of writing this the U.S.A.'s national debt is $ 8,403,710,610,173.09.

The U.S.A.'s debt limit has been increased recently to 9 trillion dollars. You can read this article for more information.

Faced with a potential government shutdown, the Senate votes to raise the nation's debt limit for the fourth time in five years. The bill passed by a 52-48 vote, increasing the ceiling to $9 trillion. The bill now goes to the president. The debt now stands at more than $8.2 trillion.

Like many cash-strapped Americans who have maxed-out credit cards, the federal government has hit its limit for borrowing funds to keep operating. If the limit isn't raised, the government likely will run out of borrowing authority within days, risking a shutdown.

When President Bush took office five years ago, the national debt was at $5.6 trillion; since then, big budget surpluses have collapsed into huge deficits, and the debt has shot up nearly 50 percent.

This is not good for the American economy in the long term so something should be done to counter this trend, but what? I know the war in Iraq costs a lot of money especially the rebuilding phase. However how can you afford to wage wars if you have these huge national budget problems?

 

[nice gaijin]

We could always cause a "regime change" in the countries that we owe money to, then erase the debt from the books... That way we could have our war and fund it with their money.

The real sad part is, that probably wouldn't seem like such a bad idea to this administration.

 

[Wang]

Regime change to all those countries is not possible. I forgot to add that America also has a huge trade deficit.


This is what someone from NBER said about this. NBER is the nation's leading nonprofit economic research organization. Sixteen of the 31 American Nobel Prize winners in Economics and six of the past Chairmen of the President's Council of Economic Advisers have been researchers at the NBER.

America's Unsustainable Current Account Deficit

"Never in the history of modern economics has a large industrial country run persistent current account deficits of the magnitude posted by the U.S. since 2000."


The amount of foreign capital inflows required to sustain an American economy in which both the government and individuals eschew savings and spend beyond their means -- and imports far exceed exports --has soared to record highs. But even if the foreign appetite for U.S. Treasury securities and other U.S. assets continues to grow, a day of reckoning for what economists call our "current account deficit" is likely to arrive soon. And the price will be paid in a currency drop that will significantly reduce domestic economic growth.

That's the conclusion of a study by NBER Research Associate Sebastian Edwards. In Is the U.S. Current Account Deficit Sustainable? And If So How Costly Is Adjustment Likely to Be? (NBER Working Paper No. 11541), Edwards provides a detailed analysis that culminates in blunt answers to these questions: No, it is not sustainable and the adjustment, if history is any guide, is likely to be "painful and costly," causing U.S. economic output, measured as gross domestic product or GDP, to plummet. "The results from this investigation indicate that major current account reversals have tended to result in large declines in GDP," Edwards writes. "These estimates indicate that, on average?cthe decline in GDP growth per capita has been in the range of 3.6 to 5 percent in the first years of adjustment. Three years after initial adjustment, GDP growth will still be below its long-term trend."

The U.S. current account deficit essentially is a reflection of the fact that U.S. expenditure exceeds its income. Escalating federal budget deficits, an anemic national savings rate, and widening trade deficits all interact to produce a ballooning dependence on large inflows of money from abroad. Edwards points out that a number of experts are particularly concerned that the reliance on foreign central banks, especially those in Asian countries, to purchase U.S. Treasury securities has made America extremely "vulnerable to sudden changes in expectations and economic sentiments."

As of 2004, the net amount of U.S. liabilities, including Treasury securities, held by foreigners was equal to 29 percent of GDP. Our current account deficit was equal to almost 6 percent of GDP and growing, giving the United States the dubious distinction, Edwards observes, of being "the only large industrial country that has run current account deficits in excess of 5 percent."

"Never in the history of modern economics has a large industrial country run persistent current account deficits of the magnitude posted by the U.S. since 2000," Edwards writes. Edwards acknowledges that, in part, the current account predicament is a reflection of the fact that the United States sits at the center of an "international financial system where its assets have been in high demand." But he points out that its record-setting account deficit "also suggests that the U.S. is moving into uncharted waters."

Edwards notes in the near-term the sustainability of the deficit will "depend on whether foreign investors will continue to add U.S. assets to their investment portfolio." In his analysis of the situation, rather than assume (as some have) that the deficit has maxed out and a pullback is imminent, he crafts a scenario in which foreign demand continues to grow, with holdings eventually reaching an equivalent of 60 percent of GDP.

"What makes this approach interesting is that even under this optimistic scenario, it is highly likely that in the not too distant future the U.S. current account will undergo significant reversal," he writes.

In other words, even if the United States has special status in the global economy and is a very attractive place to park one's money, foreign investors are unlikely to keep propping up U.S. trade and budget imbalances and spending sprees indefinitely. Edwards describes a potential future in which the demand for U.S. assets continues to increase for the next four years until the value of foreign holdings peaks at 60 percent of GDP, but then falls back to 50 percent by 2010.

The result, Edwards believes, would be a 21-to-28 percent depreciation in the value of the trade-weighted dollar and a considerable slowdown of the American economy. And that may be a "best case" scenario. He warns that the damage inflicted on the U.S. economy by a sharper and/or more immediate correction in the current account deficit could actually be much worse.

"It is important to keep in mind that this simulation still assumes that the long run net demand by foreigners for U.S. assets (will be) significantly higher -- 20 percent of GDP higher, to be more precise -- than its current level," he writes. "I have not presented the results from 'pessimistic' scenarios, where foreigners reduce their net demand for U.S. assets below the current level (of about 30 percent of GDP). Suffice it to say that under that scenario the current account reversal is even more pronounced, as is the concomitant real depreciation (in the dollar).


Here is the article.

 

[nice gaijin]

sorry, I should have specified that I was just kidding. Whatever happens to the coalition of the willing when we start invading them!

 

[Frank D. White]

I Often Wonder....

how much of the paper money we print has substance to back its value? I think our inflated money system only keeps floating along because too many other countries would go down the drain with America if we went bankrupt. So everyone turns a blind eye to our inflated currency. Be interesting to see what finally collaspes the house of cards our economy is based on. No facts or intelligence behind my thoughts, just a "gut" feeling something is not right.

Frank

kashii:

 

[nice gaijin]

how much of the paper money we print has substance to back its value?

literally, none. We rescinded the gold standard in the mid 20th century, and now our paper money is worth no more than the value we assign to it. Its real value is completely subjective.

 

[Pachipro]

Also, the Federal Reserve, which is neither Federal or a Reserve, announced that, beginning this quarter, they will not publish M3 data. M3 is the total US dollars in circulation. This allows other nations to peg their currency rates against the US dollar.

Therefore, no one will know exactly how many US dollars are in circulation. This will open the door to massive printing of dollars with nothing to back it up. This is not a good sign. I think it is a sign that massive inflation in the US is ahead and they will continue to raise interest rates by 5 basis points each quarter for the remainder of the year.