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Budget Deficits Don't Matter - Until They Do...



April 23, 2009 – Comments (4)

I've lamented the fact that my two boys (ages 2 & 4) are going to have to carry a huge financial burden that is being heaped upon them by both the Bush and Obama administrations. Nathan Martin makes a great point that I probably don't need to worry about these debts being pushed off on their generation. At the current rate of decline in tax revenues, coupled with the massive amounts of debt that our government is taking on, the bill will come due much, much sooner. Here's the link and an excerpt:

Budget Deficits Don't Matter - Until They Do...

And the day they do has arrived… as in today. No, we won’t be pushing our debts off onto our grandkids, our debts cannot be carried that long.

Tax revenues are collapsing while at the same time spending is ramping on all government levels; city, county, state, and Federal. This spells trouble for Bernanke and his effort to sell never ending billions of our debt. It will end, and it will likely end badly. This is a very major story, one that I’ve written about already (U.S. Budget Disaster Strikes...), but intent to keep updating.

Soaring U.S. Budget Deficit Will Mean Billions in Bond Sales

By Michael McKee

April 22 (Bloomberg) -- Millions of lost jobs mean billions in lost tax revenue for the U.S. government, and billions in additional Treasury debt to fund a federal budget deficit that may soar to more than four times last year’s record $454.7 billion.

Employers cut 3.7 million positions from their payrolls in the six months since the fiscal year began Oct. 1, and the unemployment rate reached a 25-year high of 8.5 percent in March. That suggests receipts for April -- the biggest month for tax collection -- are likely to come in well below April 2008, analysts said.

With spending on unemployment insurance and other safety- net programs rising, the deficit is already at a record $956.8 billion six months into the fiscal year. To help close that gap, the Treasury Department has more than quadrupled borrowing, pushing the government deeper into debt.

“Tax receipts are just collapsing,” said Chris Ahrens, head of interest-rate strategy at UBS Securities LLC in Stamford, Connecticut, one of 16 primary dealers required to bid at Treasury auctions. The need to sell more debt “is a big issue in the Treasury market and it is ongoing. The surging budget deficit is the primary cause.”

The government will have to sell $2.4 trillion in new bills, notes and bonds in fiscal 2009,...

States and cities are also being hit hard by unemployment’s effect on tax revenue. The 23,300 Wall Street jobs that disappeared in the year through February helped blow a $16 billion hole in New York state’s budget. State officials are trying to close the gap by raising taxes, which will likely restrain spending and slow recovery.

The attack on bonuses led by members of Congress also hurts. As payments are scaled back or eliminated, tax revenue falls. It’s not just a problem for New York: Individual tax receipts were 4.5 percent less than forecast in Minnesota during February and March.

“While lower-than-expected withholding-tax receipts are always a matter of concern, this shortfall appears to be due to lower-than-projected bonus payments,” the Minnesota Management and Budget office said in its April Economic Update.

At the federal level, concern over the budget deficit extends beyond this year’s “disaster,” Harris said. Social Security and Medicare costs are also rising as baby boomers age, and the Obama administration has a number of new programs beyond stimulus -- including revamping health care -- that it wants to spend money on.

“It’s going to be a structural issue,” Harris said. “You have a Congress that’s lost its fear of deficits, so it’s still going to be hard to turn the deficit around once the economy and tax receipts have recovered.”

It’s not GOING to be a structural issue, it IS a structural issue, if not THE issue.

A business with falling income and rising costs is sure to fail. It’s the same with your finances. Thinking it’s different for our government is nothing short of group psychosis. Fortunately a few of the patients are escaping from the asylum…


4 Comments – Post Your Own

#1) On April 23, 2009 at 10:48 PM, JGus (28.22) wrote:

First line should have read, "...has been heaped upon them...". Fortunately, the Bush administration can do no more damage : )

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#2) On April 24, 2009 at 5:44 AM, DaretothREdux (55.14) wrote:


Fortunately, the Bush administration can do no more damage...

Tell that to the soldiers still stationed overseas...

Obama = Bush ...even if they look different its just more of the same.

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#3) On April 24, 2009 at 6:55 AM, dbjella (< 20) wrote:

I have a hard time wrapping my arms around the true cost of our debt's relationship to GDP.  

I guess we may be getting closer to finding out.  During the last 30 years tax revenues were going up, but gov't spending grew at a faster rate creating our debt.  Now that tax revenues are going in the other direction and the spending continues to rise and we still have to pay interest on all the previous deficits it doesn't appear to be a good formula for America.

I worry for my kids as well. 


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#4) On April 24, 2009 at 9:38 AM, devoish (71.21) wrote:

I have a hard time wrapping my arms around the true cost of our debt's relationship to GDP

Let me see if we can all guess when we started buying "small" government from the pitchmen and began relinquishing being responsible for our Government to the "free market". 


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