Today's Coming Crisis Movie

Wednesday, August 10, 2011

The Coming Fiscal Train Wreck: US

Yesterday's post Revisited The CBO's Budget Fantasies focused on the revenue side of future deficits. I recommend you read it if you haven't already done so. (I did some updates after publishing it.)

It seems clear that the bipartisan Congressional Budget Office has very likely overestimated future economic (GDP) growth, and thus the size of the deficits in the years 2012-2021 (in the baseline case). The CBO also assumes that various tax changes made over the last decade will disappear as scheduled, including the Bush tax cuts, which are set to expire in December, 2012. A more realistic view of our corrupt politics makes it highly unlikely those cuts will be allowed to expire as scheduled.

Today we will look at the outlays part of the CBO's baseline, including brief looks at Medicare & Medicaid and Defense. Here's the basic fiscal chart, repeated from yesterday's post.

The recent debt ceiling fiasco spawned an "agreement" by which there are $1 trillion in backloaded cuts in discretionary spending over the period 2012-2023. There may be another $1.4 trillion cuts by the end of this year, or there may not be. The rule of thumb about spending cuts says: believe it when you see it. Bear in mind the words of Ron Paul when you think about announced spending "cuts"—

One might think that the recent drama over the debt ceiling involves one side wanting to increase or maintain spending with the other side wanting to drastically cut spending, but that is far from the truth. In spite of the rhetoric being thrown around, the real debate is over how much government spending will increase.

No plan under serious consideration cuts spending in the way you and I think about it. Instead, the "cuts" being discussed are illusory, and are not cuts from current amounts being spent, but cuts in projected spending increases. This is akin to a family "saving" $100,000 in expenses by deciding not to buy a Lamborghini, and instead getting a fully loaded Mercedes, when really their budget dictates that they need to stick with their perfectly serviceable Honda. But this is the type of math Washington uses to mask the incriminating truth about their unrepentant plundering of the American people. (more)