The Economy – Some of What Lies Ahead

The Economy – Some of What Lies Ahead

On July 16,2009, Michael J. Panzner posted “Shining a Bad Light” on his Financial Armageddon blog

site (http://financialarmageddon.com/). His post discussed ’…the lack of information coming from Washington detailing how and where — and perhaps, why — taxpayer funds are being spent in an effort to “save” the economy.”

But sometimes “…we do see the occasional ray of official sunshine …”.

That  “occasional ray” Mr. Panzner refers to in his post is from the Congressional Budget Office’s Director’s Blog -7/16/09 -  entitled “The Long-Term Budget Outlook.” Here’s some of that post:

• “Under current law, the federal budget is on an unsustainable path, because federal debt will continue to grow much faster than the economy over the long run. Although great uncertainty surrounds long-term fiscal projections, rising costs for health care and the aging of the population will cause federal spending to increase rapidly under any plausible scenario of current law. Unless revenues increase just as rapidly, the rise in spending will produce growing budget deficits. Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress economic growth in the united states. Over time, accumulating debt would cause substantial harm to the economy.”
• “Measured relative to GDP, almost all of the projected growth in federal spending other than interest payments on the debt stems from the three largest entitlement programs — Medicare, Medicaid, and Social Security.
• “In CBO’s estimates, the increase in spending for Medicare and Medicaid will account for 80 percent of spending increases for the three entitlement programs between now and 2035 and 90 percent of spending growth between now and 2080.”
• “Federal spending on Medicare, Medicaid, and Social Security will grow relative to the economy both because health care spending per beneficiary is projected to increase and because the population is aging.”
• “The current recession and policy responses have little effect on long-term projection of non-interest spending and revenues. But CBO estimates that in fiscal years 2009 and 2010, the federal government will record its largest budget deficits as a share of GDP since shortly after World War II. As a result of those deficits, federal debt held by the public will soar from 41 percent of GDP at the end of fiscal year 2008 to 60 percent at the end of fiscal year 2010. This higher debt results in permanently higher spending to pay interest on that debt. Federal interest payments already amount to more than 1 percent of GDP; unless current law changes, that share would rise to 2.5 percent by 2020.”

Some PrudentHome Observations: We are, as a people, deeply in debt. We are in debt to foreign money lenders and to our posterity.  Our debt is both public and private and there appears to be little will to retire either as we continue to increase our indebtedness.

Our only hope lies in the individual/individual family exercising fiscal restraint and responsibility and thereby separating prudent homes from a system that encourages debt and the dependence it breeds.

Until next time: keep your eyes on the horizon as the weather’s changing fast.