U.S. Economy: Budget Deficits Force Record Government Borrowing

Bloomberg ^ | July 28, 2003 | Bloomberg

[Willie Green]

July 28 (Bloomberg) -- The U.S. Treasury today will announce plans to borrow more money this quarter than ever before as the federal budget heads for a record shortfall, according to economists at Wall Street's biggest bond trading firms.

For the three months through September, the Treasury may target net borrowing of $135 billion, based on the median forecast of 14 of the 22 firms that trade with the Federal Reserve, known as primary dealers. Bond yields, already on the rise in anticipation of economic strengthening, may increase further in response to the demand for more credit.

[Willie Green]

Comparing the deficit to GDP is an irrelevant and misleading statistic. It ignores other forms of debt that must be serviced by our nation's domestic economic activity. This includes not only our National debt, but also debt accrued by state and local governments as well as private debt incurred by businesses and individuals.

It is more appropriate to view federal deficit spending in the same manner as any other institution, organization or individual that is borrowing money to finance expenditures that exceed current income. In addition to revenue and expenses, one must consider the amount of debt already incurred and the proportion of revenue that must be allocated to service the interest on that debt.

For FY 2002, interest paid on the National Debt was $332 billion, or roughly 18% of federal revenue for that year. For the first 9 months of FY 2003, the Treasury has already spent over $277 billion in interest expense. (source)

[RLK]

There is no way of paying off this debt and interest except through encouraging inflation and paying it off with funny money.

[Norse]

Trying to win an election by focusing on reducing government debt is a sure way to lose that election.

Focusing on reducing debt rather than growing the economy is like beating a dead horse.

The debt is nothing to be worried about. As for the states - these current budget situations will force reductions in waste. If one focuses exclusively on the budget, it is easier for tax increases to be slipped into the agenda.

[Norse]

>There is no way of paying off this debt and interest >except through encouraging inflation and paying it off >with funny money.

Well, we shouldn't attempt to pay off the debt, simply because although we will have to pay the debt off, we will never have to pay it off. The debt can and is rolled over to new bonds on a daily basis. Much of the debt that we hold now is not the same debt as it was 10, 5 or even 1 year ago.

Secondly, I would rather have a debt than a surplus. If there were a surplus, the government would have to actually invest into the economy in order to prevent deflation. Or, it would give a tax cut, but since political action is often delayed, the fed would be forced to take action immediately. Government investment in the private sector is socialism, and I sure don't like that!!

[Willie Green]

There is no way of paying off this debt and interest except through encouraging inflation and paying it off with funny money.

US buying bubble could burst the world economy

[Willie Green]

The only feasible method of stimulating growth of our domestic economy without bankrupting the Treasury is to impose a revenue tariff of 10~15% on all imported goods. The proceeds could then be used to offset further reductions in other forms of domestic taxation. This would spur investment in domestic productive resources while retaining the cash that is currently flowing out of our economy as the Trade Deficit.

[xrp]

Too bad budget busting deficits never seem to result in record BUDGET CUTTING.

[Baby Bear]

Should we be worried about the fact that foreigners own a good chuck of that debt?

[Norse]

Well, actually there really is no trade deficit. The "trade deficit" numers only show the amounts of exported goods and services vs. imported. They don't show foreign investment into the U.S. For example, the extra hundreds of billion dollars that seem to be missing are actually monies that are coming into the U.S. via investors buying both private and corporate equity and debt along with U.S. government debt.

This is actually a good thing better than sending them goods and services in exhange for their money, since goods & services must be paid for substantially, for example the average profit margin for all NASDAQ companies is only 3.1%
Interest is the only expense we incur along with eventually having to pay the entire amount back - but that is usually 10-15 years down the road and the time value of money dictates that the money today is worth far more to us then.

This only shows that we have gotten to the point in this country where many of our citizens can sit around and work financial reports for a living instead of sitting around making sweaters.

[Norse]

No we really shouldn't worry about that at all - and for the reasons simply follow the conversation I had with a few other people on this thread - take care

http://www.freerepublic.com/focus/f-news/951874/posts

[Willie Green]

Well, actually there really is no trade deficit. The "trade deficit" numers only show the amounts of exported goods and services vs. imported. They don't show foreign investment into the U.S. For example...

For example the Treasury Bills issued by the government to finance the budget deficit.
Surprise! You pay taxes to make interest payments due to foreign governments.

Or for example, the domestic companies they purchase soley to acquire the assets, shut them down to reduce market capacity and competition, and transfer the technology offshore to their own nation.

Nice try, marxist.
But that convoluted propaganda about "there really is no trade deficit" is pure horse puckey.

TRADE DEFICIT: Formally termed a balance of trade deficit, a condition in which a nation's imports are greater than exports. In other words, a country is buying more stuff for foreigners than foreigners are buying from domestic producers. A trade deficit is usually thought to be bad for a country. For this reason, some countries seek to reduce their trade deficit by--

1. establishing trade barriers on imports,
   
2. reducing the exchange rate (termed devaluation) such that exports are less expensive and imports more expensive, or
   
3. invading foreign countries with sizable armies.

Here are the facts:

Gross Domestic Product (GDP), the measure of the USA's output of goods and services, is calculated by the Commerce Department's Bureau of Economic Analysis using the following items:

• Personal consumption expenditures: Personal consumption expenditures are far and away the largest and tends to be the most stable of the four expenditures, averaging about 65-70% of gross domestic product.
• Gross private domestic investment: Expenditures on capital goods to be used for productive activities in the domestic economy that are undertaken by the business sector during a given time period. Gross private domestic investment tends to be the least stable of the four expenditures, averaging between 12-18% of gross domestic product.
• NET EXPORTS OF GOODS AND SERVICES Net exports of goods and services is the smallest of the four expenditures, averaging around 2% of gross domestic product. Unlike the other expenditures, net exports of goods and services can be either positive or negative. They are positive when exports are greater than imports (Trade Surplus) and negative when exports are less than imports (Trade Deficit). In recent years, net exports of goods and services have been negative.
• Government consumption expenditures and gross investment measures government purchases undertaken by the government sector. Government consumption expenditures and gross investment averages between 15-20% of gross domestic product. This percentage tends to be ebb and flow a little with the political winds.

The BEA News Release for FIRST QUARTER 2003 provides us with the following current data for these items. (Seasonally adjusted at annual rates)

Gross domestic product (GDP)............................. $10,697.7 billion
Personal consumption expenditures.......................... 7,502.8 (70.13% of GDP)
Gross private domestic investment.......................... 1,626.9 (15.21% of GDP)
Net exports of goods and services........................... -485.7 (-4.54% of GDP)
Government consumption expenditures and gross investment... 2,053.6 (19.20% of GDP)

The current BALANCE OF TRADE is in deficit, which is considered unfavorable.
It is SUBTRACTED from those factors used to calculate GDP.

And at historic highs, it diminishes our domestic economy by about 4½% - more than twice the normal variation. This is NOT insignificant.

[Willie Green]

Should we be worried about the fact that foreigners own a good chuck of that debt?

Of course we should.
With 18% of federal revenue (and growing) being used to pay interest on the debt, that would mean that a growing proportion of the taxes you pay would go directly to the foreign governments who hold the debt. In essence, you're paying taxes to support foreign governments rather than our own. And that doesn't even begin to get into the issue of the money we also hand over to them as "foreign aid".

[Norse]

Well you´re completely wrong as usual. And i´m no Marxist, although he was correct on many issues dealing with human behavior and monetary policy.

First off, if I must pay interest with my taxes to a different government, thats fine with me. I´m glad they are investing in our nation - I would rather use their money now for military purposes in order to kill terrorists and pay interest than get blown up by some towel head. The fact that our debt is as large as it is shows that our nation is the preferred nation for individuals and governments alike to place their money. Fine by me. Better for us to spend.

As for government investment with treasury bonds...foreign govt investment is completely insignificant compared to the size of the debt.

Same with companies. Your little conspiracy theory that foreign governments buy our companies in order to move them offshore is complete trash. Companies move offshore because the division of labor concept of the world economy allows us to manufacture goods cheaper in other parts of the world in order to have MORE goods, and GOODS are wealth, meaning we are wealthier because we have more goods.

And unlike you, I don´t rely on definitions written by other people for my complete information about a concept, like, ´¨A trade deficit is usually thought to be bad for a country.¨¨

Today´s economics profession is not an exact science and over 90 percent of todays economists have no idea what they´re talking about.

The only area where I would agree with you is in two parts
1= that we need fair trade, meaning equal barriers between two nations and 2 = there should be a small tax...like 5 percent for others to use our marketplace