Looks like the Obama stimulus package will be largely in the form of tax cuts.
Of course, they’re not going to be able to do this and throw trillions at industries and states; Obama may already be looking at a $2 trillion deficit in 2009, by far the largest in both absolute terms and as a % of GDP in modern history, as expected tax revenues from corporate profits and capital gains evaporate.Â
A 5% of GDP deficit was a manageable problem, but a federal budget deficit that approaches a fifth of the nation’s entire economic output could be catastrophic.
And we see little sign as of yet that politicians understand that spending must be cut. It may take a catastrophe before that happens.
{ 1 trackback }
{ 9 comments }
Unless memory fails me, Bush took office in 2000 shortly after the dot-com bubble burst, and he inherited the blame for the recession that followed, despite all evidence that the seeds for the collapse were a) sown in his predecessor’s tenure and b) nothing a sitting President could have meaningfully affected one way or the other.
I don’t know who would want this job. I’m surprised there haven’t been in-office suicides.
At this point in the game, I think we’re just seeing trial balloons all around. Â
The United Kingdom’s public debt to GDP ratio is about 30%, France’s about 65%, and Japan’s 176%. While I think that a larger public debt relative to our GDP than we have now is undesireable for any number of reasons, "catastrophic" is hyperbolic.
Dave, that’s overall debt you’re talking about, not deficit, right? Very different things.
Just thinking one step ahead, Brian. When government expenditures exceed revenues the difference adds to the public debt. We have a way to go before we reach the level of Japan and the situation in Japan isn’t catastrophic.
Now I agree with Dave’s basic point: we should be more reluctant to spend beyond our means than we seem to be right now. I just disagree with his diction.
What is our debt-GDP ratio, anyway?
~10 trillion / ~14.6 trillion = 68%
That number will go up obviously, as GDP is technically going down or staying flat, and debt will rise as the government tries to spend us out of the recession.
Dave S,
No, that’s a $2 trillion deficit we’re looking at– before this bailout. Adding another couple trillion to that truly could be catastrophic.
If you think that’s hyperbolic, you don’t understand the numbers. That could mean potentially less than half of gov’t spending was actually paid for — and just when the Social Security surplus is starting to go negative. Ask Zimbabweans how that works out.
Adding 40% a year to the debt ratio is just not sustainable. People will stop lending Uncle Sam money if it looks like a bad investment.
If you think we have problems now, imagine a world in which Treasuries approach junk bond status. With no safe haven for money anywhere, we might be looking at the sort of economic panic not seen since the 1800s, perhaps even a collapse of major governments, including ours. It’s well nigh unimaginable.
All of this discussion makes me start to wonder how "real" the "cash" in our (or any other) economy really is. The whole concept of "borrowing" from our children forces me to think that if you can spend IOUs as if they were the real thing, then what are you really spending? And what do you really owe?
It’s not as if there’s a pile of gold coins somewhere anymore.
CosmicConservative’s last blog post..What good is a high school education?
Comments on this entry are closed.