What would it look like for our govt. to collapse under its own weight?

http://www.bloomberg.com/apps/news?pid=20601087&sid=aVDEHvI9WH_Q

Obama Budget Underestimates Deficit Over 10 Years, CBO Says

March 5 (Bloomberg) -- President Barack Obama’s budget proposal would generate bigger deficits than advertised each year for the next decade, with the 10-year shortfall totaling $1.2 trillion more than the administration estimated, according to the Congressional Budget Office.

The nonpartisan CBO, in an annual analysis of the White House budget proposal, said today that under Obama’s plan deficits would never shrink below 4 percent of the economy between now and 2020. The cumulative deficits would total $9.76 trillion, and debt held by the public would amount to 90 percent of the nation’s gross domestic product by 2020, the CBO said.

By 2020, the federal debt would grow to $20.3 trillion under Obama’s budget, according to CBO.

Those figures are all higher than the administration estimated last month when it said its budget would cut the deficit to as low as 3.6 percent of GDP, with total shortfalls over 10 years totaling $8.5 trillion. The publicly held debt would grow to 77 percent of GDP in 2020, under the administration’s estimate.

This year’s deficit will total $1.5 trillion, according to the CBO report.

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net.

 

People ragged on Reagan for adding $2T to the national debt over 8 years.

The thing is, if you're credit card is charged to the max, the $1 you charged on it 50 years ago is still $1 you owe. The % of GDP only matters when considering the interest payments - we could running a deficit of just $1 and paying interest payments of $20T a year. See?

Is California a precursor of what it's going to look like if we don't rein in the spending immediately? We're firing policemen and firemen and teachers, and the potholes aren't getting repaired, the government is selling off its assets (fairgrounds, buildings, etc.), and issuing IOUs that they may not make good (at some point).

Or is California just one of the signs of the apocalypse (the upcoming failure of the federal govt.) in itself? You'd expect the states to fail before the Fed does, or at least the healthy states to strongly consider secession.

Government's problem, witness California and many other states, is they ramp up spending in the good times and then find it politically difficult to cut back to a reasonable amount if/when the tax revenues don't keep pace with spending needs.

I'd love to say I see a solution of some sort. I'd hope that general economic growth would mean we could grow our way out of the mess. 25% tax revenues of a $20T economy is sure better than 25% tax revenues of a $10T economy, of course. The problem with this rosey view at this time is that the spending levels are as if we had a $20T economy and by the time we have a $20T economy (many years down the road), the spending levels will be too much higher. You might find it easy enough to double your salary from $20K to $40K, but try doing that from $100K to $200K. Or what are your expectations for that $100K house you bought that's now worth $50K being worth $100K again?

Assuming the worst happens, do we fall into anarchy? What happens to property that people owned under laws of a govt. that might not exist? Do the Chinese (who we will owe everything we earn to) just send over 300M of their 1.4B population to move into our houses?

I don't really expect a collapse, should it happen, to be painfully obvious and a slow process. There will be a tipping point where the feds can't tax the too few workers enough to pay the debt payments and things will fall apart in a hurry. The bits that happen prior to the collapse would be like this article - govt. terribly underestimating its needs.

 

This article touches on my question...

http://news.yahoo.com/s/ap/20100305/ap_on_go_co/us_budget_deficits_3

Congressional estimates show grim deficit picture

...

The deficit picture has turned alarmingly worse since the recession that started at the end of 2007, never dipping below 4 percent of the size of the economy over the next decade. Economists say that deficits of that size are unsustainable and could put upward pressure on interest rates, crowd out private investment in the economy and ultimately erode the nation's standard of living.

...

( and for barfo...)

The new report predicts that debt held by investors, including China, would spike from $7.5 trillion at the end of last year to $20.3 trillion in 2020. That means interest payments would more than quadruple — from $209 billion this year, to $916 billion by the end of the decade.

 

Aw, for me? That's so sweet...

Debt increasing by 2.7X leads to interest payments increasing by 4.4X? Maybe. But who exactly is able to accurately predict interest rates in 2020? Or even 2012? Seems like that $916 billion is a SWAG at best.

That said, I agree that the interest payments are going to be huge (possibly more than what is written here) and that that is a big problem.

But I'm not buying into your chicken little doomsday scenarios.

barfo

 

Stocks have two prices: bid and ask. When they meet, there's a sale.

The same is true of Bonds, which is what a T-Bill is.

What does the supply/demand curve say happens as you increase supply (e.g. increase the debt)?

 

Uh huh. In Econ Textbook World (spherical, 7 moons) perhaps it is that simple.

barfo

 

Hedge against it by investing in precious metals.

 

[video=youtube;LC211h9AY-4]http://www.youtube.com/watch?v=LC211h9AY-4[/video]


I'd run this in an ad against Reid in his reelection bid.

It'll be really good when all (yep, every last one of them) of the jobs are gone and thus we can't possibly lose 36,000 more.

 

Wouldn't you feel the least bit bad about selectively editing a clip to take a comment out of context and make your opponent appear to be saying something he wasn't?

barfo

 

Hell no. Political campaigns are a full contact sport.

But you were right about one thing. There is a guy to replace Rangel:

http://www.rollcall.com/news/43910-1.html

Newly anointed House Ways and Means Chairman Sander Levin (D-Mich.) repaid a Maryland property-tax credit Friday that he should not have received, his office confirmed.

 

Maybe we should make everyone in America chairman of Ways and Means. Then we could collect all the taxes owed and pay down the deficit.

barfo

 

Maybe when the economy's adding 36,000 jobs instead of losing that many, people won't care so much about how crooked our leaders are.

 

That sounds interesting.

barfo