CBO: BUDGET CUTS TO TOTAL $2.1T
The CBO is out with their analysis of the budget deal and they conclude that the total cuts will amount to $2.1T over the coming 10 years:
“If appropriations in the next 10 years are equal to the caps on discretionary spending and the maximum amount of funding is provided for the program integrity initiatives, CBO estimates that the legislation—apart from the provisions related to the joint select committee—would reduce budget deficits by $917 billion between 2012 and 2021. In addition, legislation originating with the joint select committee, or the automatic reductions in spending that would occur in the absence of such legislation, would reduce deficits by at least $1.2 trillion over the 10-year period. Therefore, the deficit reduction stemming from this legislation would total at least $2.1 trillion over the 2012–2021 period.”
It’s important to note that this is spread out evenly over the course of 10 years though. So we’re not getting slammed with massive Greek-like austerity immediately. That’s somewhat positive although we do have to recognize that the fiscal stimulus from the last 2 years continues to fade and there could potentially be more cuts in the coming year. The bottom line is, we’re not getting any more aid from the government sector. So, budget deficits will remain large enough to sustain a muddle through environment with high risk of exogenous shocks (Europe, Asia, etc). As the stimulus wears off it will be like peeling off the layers of an onion slowly but surely to reveal a very rotten core as Main Street remains mired in a balance sheet recession.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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14 Comments
Whether or not Main Street de-leverages, the economy cannot grow without government spending – the private economy is by nature un-sustainable. Only a relatively small segment of the population can thrive without expansion of the money supply (not credit) – numbers denominated in dollars to populate balance sheets.
No more aid from the government sector?
Good.
I hope you have the luxury of job security!
What an amazing farce this is. I’ll take the under on whether the full $2.1Ts ever materialize.
It’s difficult to hold a bag over your own head and suffocate.
Cuts are only from future spending increases. They are pretend cuts. Get it!
Private sector deleveraging is mostly looted to defaults. Total borrowing, including student loans has been increasing. In the short term, the economy can withstand the grey small front load deficit reduction.
The end of stimulus withdrawal will remove a headwind which will act like a stimulus. If we put another stimulus in place we will be setting ourselves up for another round of stimulus withdrawal.
All countries need to unite and tax all the billionares. If they disagree than they have no other country to run and hide. How many houses, cars, etc. do they need? Like they say it’s harder for a camel to go through an eye of a needle than a rich man to enter the kingdom of God.
If you haven’t seen it yet, check out the numbers at Mike Norman’s blog:
http://mikenormaneconomics.blogspot.com/2011/08/deal-and-numbers-that-go-with-it.html
1. Ten year plans are no more plausible when the USA adopts them now than when the USSR adopted them 20 years ago. It is difficult to see ten months ahead with any clarity much less ten years.
2. Any law or plan adopted now by Congress can be modified or repealed by later Congresses. Projected numbers are meaningless, whether offered to you by the government or by a guy trying to sell you units in a real estate syndication.
3. Slowing the projected growth of spending is not a cut or reduction from a base amount. Spending will continue to increase each year, just somewhat more slowly than projected IF the ten year plan is adhered to and IF conditions do not materially change and necessitate a departure from the plan and IF the original projections were accurate, and of course they won’t be accurate in a dynamic and quickly changing economic environment that is confounding the intelligentsia every day.
4. The markets were stone faced in their reaction to this whole charade, for good reason. It was as phony a “crisis” as has ever been offered by the government and its chorus of fools in the media. The smart money ignored the whole thing and focused on the data, which is signaling an imminent double dip.
5. The takeaway? Nothing has really changed except the “debt ceiling” was increased by over two trillion dollars. MMTers, you have nothing to fear from these projected contingent future slowings in the rate of growth of government spending, because no one in Washington on either side of the aisle truly considers them to be real or binding in any way, and only in Washington (or in Orwell’s “1984″) would these projected contingent slowings in the rate of future spending increases be termed “spending cuts”. Any nominal cuts in 2011 made for show will simply be overwhelmed by spending on stabilizers later in the year in response to the double dip that seems to already be baked in the cake, and no one will notice or care, because the circus will have moved on by then. My favorite projection by the CBO was that the federal debt would be eliminated by 2014 (or around there) due to the Clinton surpluses going on indefinitely into the future. How did that work out?
6. The biggest bipartisan “reform” on the deficit involved Reagan and the Democrats dramatically increasing payroll taxes for Social Security’s “trust fund” and in particular hammering the self employed with a 15.3% payroll tax, which I have the distinct displeasure of paying every year. Reagan sold out a core Republican constituency (the self employed) in exchange for heavily taxing labor generally with a regressive tax that badly hurt a Democratic core constituency (industrial labor). Some compromise! I personally am grateful for the current deadlock in Washington, and every MMTer who views taxation as the destruction of purchasing power and government coercion to create demand for the currency should also be grateful.
Gee – do you think that maybe this will force the Feds to properly target spending for a change?
Or are they going to let the Army build more $150Million blimps?
cuts? how about reductions in increases?
does anyone has details on how the “sequester” mechanism work ?
25 billion in cuts in 2012. lmao!