Civil War, Part II

[kandrathe]

Wikipedia has federal spending at 3 trillion this year (Assuming you mean the last full fiscal year, 2008). Where does the extra trillion come from? Or is that projected 2009? Or last 12 months?

No, I mean 2009. It is a 3 trillion dollar budget, with about a trillion of unbudgeted emergency expenditures for bailouts, supplemental war spending, etc. (Table S-1 shows 3,998 Billion, so I hope you will forgive me rounding to 4 trillion) So for 2009 the US government will spend 4 trillion dollars, up from the 2.9 trillion in 2008. The budget documents I've seen show expenses for FY ending 2010 to 2019 being about 42 trillion, and about 35 trillion of that being covered. This is also known in accounting as "smoke and mirrors", since the GDP is in steep decline and there is no telling how far into decline we will go, nor how quickly we can turn that asymptote around and then how fast it will climb back up. But, I can be very certain about how much SSI, Medicare will cost, and then again, with the poverty programs I'm again pretty uncertain as to how many people will be driven onto the welfare and social service programs due to the nose dive in our economy. So, when the government says they are going to spend about 40 trillion over the next 10 years, I will assume they really meant about 60 or 75 trillion, and when they predict they can garner 35 million in revenue, I will assume they will get slightly less than that for the next 4 to five years. So, when they project a 7 to 8 trillion dollar deficit by 2019, I will assume they really mean 20 to 30 trillion. GDP will contract about 3.2 to 4 percent this year, and foreclosures will continue at the current rate at least for the next 8 to 10 months. Commodity prices and labor prices are falling which is actually causing deflation at this time. In my industry, many firms have cut their billing rates by 25 to 40 percent -- also large firms are demanding rate cuts. Unemployment may not hit its peak until mid 2011, and will hit 12 percent by December 2009, with some areas of the nation (Detroit) seeing 20% or higher. Raises will be pretty much non-existent, and I wouldn't be surprised to hear sometime in the next 10 months that firms are asking people to cut salaries.

Check out http://www.shadowstats.com/ as well. John Williams is a very respected economist, who dispenses with the voodoo statistics used by Congress to make things seem better than they really are.

Here is his analysis of the 2008 US budget -- http://www.shadowstats.com/article/gaap-ba...federal-deficit <blockquote>"An actual U.S. deficit of $5.1 trillion is uncontainable, and it is about to get a great deal worse. The shortfall cannot be covered by taxes, and the needed spending cuts tied to Social Security and Medicare cannot be worked politically. The rapidly deteriorating economic conditions promise reduced tax revenues, while the incoming Obama Administration has promised significantly increased spending. "</blockquote>

My other concern is that as recession spreads throughout the world, more and more the Federal Reserve will become the "last resort" buyer of US Treasury Bonds. Check out http://www.forbes.com/2009/03/18/federal-r...ington-fed.html

<blockquote>Printing new money for this purpose is known as monetizing the debt--"A strategy that appears in the encyclopedia under the heading, 'how to trigger inflation,'" says a note from Guy LeBas, a fixed-income strategist at Janney Montgomery Scott, "In any other environment, this monetization would be deeply troubling. The Fed clearly believes this is not a standard environment. "In light of increasing economic slack here and abroad, the committee expects that inflation will remain subdued," says the Fed statement."</blockquote>I would say that until the that GDP growth returns, inflation is not going to be a worry. Without income or growth in incomes, you cannot have growth in consumption. Without growth in consumption, you cannot have growth in the demand for commodities, or labor. Deflation is likely over the next two years, so monetizing the debt will only reduce the value of the dollar against foreign currencies. If I were a foreign investor in US Treasury bills, then I would be pretty concerned. Not only will you have a 4% annualized ROI for your 10 year bond, but also that profit will be in devalued dollars.