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America's finances

I O USA

Feb 18th 2011, 15:47 by The Economist online

America's government has little to say about tackling the budget deficit

EVER since the Democrats' poor showing in the mid-terms, the two parties have been engaged in a rather stiff dance. Both sides talk about cutting the deficit but are unwilling to risk losing voters by trimming the big budget items: pensions, Medicare, Medicaid and defence. Republicans, who were initially pushed to talk tough on cutting spending by the Tea Partiers, have backed away from what plans they had to take on entitlements since gaining control of the House. Meanwhile the White House appears to reason that making the running on cutting entitlements is a political loser, hence the lack of a medium or long-term vision for America's finances in the president's Budget Request, which was delivered to Congress this week with a complementary set of over-optimistic forecasts. For more on the federal budget see article.

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hedgefundguy wrote:
Feb 18th 2011 4:05 GMT

The big spike in 2009 un the Mandatory area...

Any guesses as to the cause?
Couldn't be the Health Care Act, as that wasn't passed until 2010.

Is it the Bush era Medicare expansion that took effect?

Regards

Spectacularj1 wrote:
Feb 18th 2011 4:31 GMT

Social Security and Medicare are not entitlements. If you pay into it your whole life how can it be considered an entitlement? It's insurance and it's solvent (for now), pre-tending that this is the source of our budget woes is ridiculous.

kyniskos wrote:
Feb 18th 2011 4:31 GMT

It looks more like 2008 to me, in which case it probably just signifies a drop in the GDP without a similar drop in the absolute expenses of federal spending. The big hit of the financial crisis.

Innominata wrote:
Feb 18th 2011 4:35 GMT

Neither party will cut the deficit because both parties know that the first party to cut entitlements will lose the next 2 elections. It's a downward spiral.

Spectacularj1: They are entitlements. The amount you pay in is only a small fraction of the amount you are promised to get out; it doesn't balance. It's also not "insurance" because insurance works by having a large pool of people subsidizing a tiny pool of people who are actually victims of something or other; but this doesn't work for pensions or health care because everybody inevitably gets pensions and old-age health care, not just a small victim pool. Hence not insurance.

hedgefundguy wrote:
Feb 18th 2011 4:38 GMT

Thanks kyniskos.

Mr. Dean wrote:
Feb 18th 2011 4:48 GMT

@kyniskos

2008 also saw a rise in mandatory spending as more people qualified for unemployment and welfare programs.

colm5 wrote:
Feb 18th 2011 4:52 GMT

The 2008 spike also had a fair bit to do with automatic stabilizers, such as unemployment benefits, food stamps and Medicaid. More poor and unemployed means more spending on services meant to help the poor and unemployed.

upwinger wrote:
Feb 18th 2011 5:02 GMT

Today's (2/18) Bloomberg Report has an excellent article on the the massive waste in the U.S. "defense" budget. There is a rapidly growing and bi-partisan movement in the U.S. that that is where the big cuts can and should be made.

http://www.bloomberg.com/news/2011-02-18/your-5-555-defense-bill-chokes-...

Warof2010 wrote:
Feb 18th 2011 5:10 GMT

Deficit http://bit.ly/aX6IuT

Federal Revenues, Spending, Deficit
YEAR........REV......SPDG....DEFICIT (IN TRILLIONS)
FY2008 -- 2.524 -- 2.983 = 0.459
FY2009 -- 2.105 -- 3.518 = 1.413
FY2010 -- 2.162 -- 3.456 = 1.294
FY2011 -- x.xxx -- x.xxx = 1.650est. 0.424 4 months

GDP-US $ Trillion
FY2007 14.078
FY2008 14.441
FY2009 14.258
FY2010 14.624

Lion Heart wrote:
Feb 18th 2011 5:13 GMT

Of course the White House does not want unpopular measurements in election times , the health care problem not only could be extremely popular but economically of a major positive impact but it has the shadow and big wall of greed not only of the medical institutions but the drug mercenaries with a good trans national name elaborating drugs to keep their customers not finding a definitive cure for the human suffering , who remembers now the swine flu and its armagedon consequence? it is nothing else but an elaborating orchestra to threat the world in the benefit of those sacred profits in the name of world health. Washington has to eliminate lobbies of any kind that are nothing else that "braveries" to politicians and put to work the tools or better jet the health reform that I agree was not the best and with errors from the start but at least is that, a so needed road to healthier economy.The health system is and economical terminal disease that we still have the time to cure

Warof2010 wrote:
Feb 18th 2011 5:20 GMT

upwinger, I couldn't agree more

Defense Spending http://bit.ly/cfaPg3

Cost of Defense (Trillions)
FY1998 .256
FY1999 .261
FY2000 .281
FY2001 .291
FY2002 .332
FY2003 .389
FY2004 .437
FY2005 .474
FY2006 .499
FY2007 .529
FY2008 .595
FY2009 .637
FY2010 .677
FY2011 .708

Warof2010 wrote:
Feb 18th 2011 5:27 GMT

Federal Spending http://bit.ly/ctfoRL

Spending in Trillions
............Dfenc..D Int.....SS....Mcare. .Mcaid..Unem..FdSt.. Welf..
FY1996 .255 + .344 + .314 + .281/+.xxx + .xxx + .xxx + .xxx
FY1997 .258 + .356 + .358 + .305/+.xxx + .xxx + .xxx + .xxx
FY1998 .256 + .364 + .372 + .314/+.xxx + .xxx + .xxx + .xxx
FY1999 .261 + .354 + .383 + .211 + .108 + .xxx + .xxx + .xxx
FY2000 .281 + .362 + .402 + .218 + .118 + .xxx + .018 + .xxx
FY2001 .291 + .360 + .426 + .241 + .130 + .xxx + .019 + .xxx
FY2002 .332 + .333 + .448 + .256 + .148 + .055 + .023 + .xxx
FY2003 .389 + .318 + .467 + .277 + .161 + .058 + .026 + .xxx
FY2004 .437 + .322 + .488 + .300 + .176 + .xxx + .029 + .xxx
FY2005 .474 + .352 + .514 + .335 + .182 + .xxx + .033 + .xxx
FY2006 .499 + .406 + .548 + .378 + .181 + .xxx + .035 + .xxx
FY2007 .529 + .430 + .577 + .374 + .191 + .037 + .035 + .xxx
FY2008 .595 + .451 + .607 + .389 + .202 + .047 + .040 + .122
FY2009 .637 + .383 + .659 + .428 + .251 + .120 + .057 + .xxx
FY2010 .677 + .414 + .696 + .450 + .273 + .162 + .070 + .022

Feb 18th 2011 5:48 GMT

The problem with enacting a realistic budget is "everyone" gets a little hurt, "everyone" has to give up something, which means that "everyone" dislikes it. "Everyone" needs to grow up.

TheGrimReaper wrote:
Feb 18th 2011 6:04 GMT

After the astounding failure of Mr Obama's repeated stimulus plans to jumpstart the economy and to recover from a giddy hangover, the public debt is whoppingly high (it rose up to 98% of GDP in 2010) and the budget deficit worse off.

Even though the American public debt is a "refuge benchmark" for hosts of investors as well as remarkably well-rated by the super trio (Fitch, Moody's and SP 500), another hammering wave of stimulus could definitely cause havoc and spook investors. Many economists are fretting about an unsure risk of a meltdown on the bond market. Thus, crazy jittery and a frantic folly would swamped the bondmarkets and, de facto, the rating agencies may downgrade the American public debt -graded AAA. Therefore, I think that the Democrats ought to intervene plainly in the economy in order to implement tight-beltenning policies as soon as possible. The situation could become unsustainable if the debt is to dig further, that is why I advise the government to make the economy much healthier and to start a brand-new policy to diminish the public debt.

nschomer wrote:
Feb 18th 2011 7:18 GMT

@upwinger
While I agree with the jist, I would hesitate to call that Bloomberg opinion piece an "excellent article". Nothing new, and no specifics, I want a little more meat on the bones. It mentions that 50 billion could be cut by eliminating "a few" weapons programs, but can't even mention which ones?
Defence spending is one key lever which will have to be pulled on to get America on the path back towards a sustainable economy, along with healthcare, entitlement reform and tax code tweaks. Just how much can be wrung from defence? My personal opinion is "a lot", but if I were to do an article about it I would do some more research first to narrow that down.

Ed (Brazil) wrote:
Feb 18th 2011 7:48 GMT

This debt will hunt America in the future.

Feb 18th 2011 7:48 GMT

@hedgefundguy: the figure is as a % of GDP. Since GDP crashed in 2008, the denominator shrank drastically.

Lord Lucan wrote:
Feb 18th 2011 7:56 GMT

Interesting to see that government spending as a proportion of economic output during the Obama Administration is comparable with that during the Reagan years. Moreover, it's interesting to note that public spending became smaller during the years of a Democrat, Bill Clinton. It puts the rather outlandish claims of Tea Party activists in perspective.

jaydd wrote:
Feb 18th 2011 8:18 GMT

Hedgie...that was 2008 Hank Paulson $770 billion gun to the head,i remember him going over to China for the bond sign off...now the FED. just buys the paper...word is this is up to 3 trillion now.

ando_ wrote:
Feb 18th 2011 8:19 GMT

@TheGrimReaper.

The deficit in FY2010 is only about 10% of gdp and debt by the public is around 60% if you include assets related to tarp, fannie mae, etc. Still high, but not 98% of gdp. I am not defending the simulus, but I don't think that is the main cause of long term increases in debt and deficit. As the story suggest, the problem has more to do with Americans wanting a lot of public services and entitle programs, but not willing to pay for them through taxes and fees.

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