After all that caterwauling threatening a government shutdown last week, the Congressional Budget Office has released an analysis that the deficit reduction agreed to is an illusion.  That in fact, the deficit may increase by about $3 billion this year, instead of being reduced by a measly $38.5 billion as the politicians melodramatically agreed in order to avert a government shutdown ($38.5 billion is all of about a 2.3% reduction in the anticipated $1.65 trillion expected deficit), from the Wall Street Journal:

The nonpartisan budget office for Congress reports that the two sides succeeded in cutting the government’s spending authority for this year by the larger amount. But because some of the cuts would be slow to take effect, and because some of the money was unlikely to be spent in any case, the reduction in actual “outlays” would come to a small percentage of the announced amount.

The CBO found that when emergency spending is factored in, such as funding for the wars in Afghanistan and Iraq, the budget deal actually would spend $3 billion more than initial estimates for 2011 spending.

The US fiscal deficit is about now running at roughly 10% of gross domestic product.  On those numbers, the US couldn’t even be admitted to the EU (i.e., the European Union, which prints the Euro), which has a deficit ceiling of 6% of gross domestic product for its prospective members.  If that wouldn’t kill a membership drive, the level of debt to gross domestic product would, as sometime in June of this year, US debt is expected to climb above $14 trillion (thus requiring a new debt ceiling be passed by Congress), making the debt about 90% of GDP, vastly more than the EU’s limit of 60%.  But the US isn’t interested in joining the EU, so who cares, right?  Besides, few in the EU follow their own guidelines.

The debt levels include obligations the US owes to itself, such as in the Social Security Trust Fund, but does not include the liabilities on balance sheets of the former GSE’s Fannie and Freddie (about $5 trillion between them) and the Federal Reserve (about $2.8 trillion).  When those liabilities are factored in, the debt, not the deficit*, would exceed gross domestic product by at least half again as much.

*The debt is the money that the US owes.  The deficit is the amount of money, in any particular fiscal year, by which expenditures exceed revenues.  An annual deficit adds to the accumulated debt, which is why the debt ceiling will need to be increased, it is expected, sometime this June.

So, where is this fiscal train wreck headed?  President Obama recently released his plan for deficit reduction that trimmed a whole $4 trillion off the expected increase in deficits over twelve years.  This is not a debt reduction plan.  No.  The debt would continue to climb.  This is a second derivative reduction–the deficit continues to climb, but at a slower pace than before.   Nowhere on the horizon of his budget is an actual year where the US spends less than it takes in.

Isn’t it convenient to stretch things out twelve years?  Especially when the plan’s progenitor will be on the rubber-chicken speaking circuit in no more than seven.  Or perhaps  the “citizen of the world” status that Obama claims will allow a run for Eminent Global Leader or some other such office that can be dreamt up.  In any event, US fiscal disaster won’t be Obama’s problem by then.

Ryan’s (i.e., the Republican) plan seems somewhat better at managing insolvency, but is not likely to be enacted.  If its projections are true, it will reduce federal spending by about the same amount ($4 trillion) as Obama’s budget cuts in debt accrual, but over ten years, and would eventually result in the government running a surplus (according to the CBO, in the 2030’s), mainly because it severely limits future health care spending, effectively privatizing Medicare.  Here’s how the Wall Street Journal parses the political calculus between the competing plans:



Why, exactly, Obama is adamant that no voucher program for Medicare be enacted is beyond me.  Medicare as it now exists is an unsustainably expensive fraud.  Medicare will have to suffer major changes in the near term, else these United States won’t survive to fund it, at which point, it will most irrevocably be changed.

Bickering over ten and twelve-year budget projections seems infantile in the extreme.  Economists are generally about as accurate as a broken clock on the wall when it comes to knowing what’s happening in the present (i.e., correct twice a day).  All their fancy econometric models do is take present trends and extrapolate them.  But the failure of extrapolating present trends is what got the US in the debt bind it is in.  No economist could have known ten years ago that the US would be embroiled in three Middle Eastern conflicts.  No economist could have known ten years ago that the next green pasture to which the Fed’s economic shepherd would lead the country had grass that carried a slow-acting poison when nibbled down to its roots (in case my metaphor is too attenuated, I’m speaking of the financial crisis precipitated by the Fed’s easy money aughts).

The politicians could care less about these United States.  They care only about themselves.  Their only aim is to achieve, keep and expand power by the most efficacious means.  So much the better if their battles yield a quicker end to this spiritually, morally and soon-to-be fiscally bankrupt union.  I don’t much care, and it doesn’t matter, where they put the deck chairs in the meantime.