Govt Debt: Not A Big Deal — CBO: If Politicians Do Nothing, The Debt Problem Goes Away

Today the Congressional Budget Office released its latest forecast for the government debt, and yes, it shows a large debt. We all get that fact.

What we don’t get is that… it’s not a big deal!

The following chart graphs two lines: The Extended Baseline Scenario and the Alternative Fiscal Scenario.

In the baseline scenario, politicians literally do nothing about the debt: let the Bush tax cuts expire; keep indexing the Alternative Minimum Tax higher; don’t raise Medicare payments. All of this will take place automatically if politicians do nothing… absolutely nothing!

As a result the debt burden stabilizes, period.

Unfortunately from a debt perspective, it’s the alternative scenario that’s more likely… because politicians will attempt to mollify an unduly alarmed public (whom the politicians have, themselves, worked into a tizzy) over an issue they do not understand.

Thus, the Bush tax cuts probably won’t be killed, and Medicare payments to doctors will be raised.

Still, THE POINT is: if there were no legislative changes whatsoever, the chart delineates what would be our debt future.

If there must be a discussion about long-term budget adjustments, the chart above is where all debt discussions should start.

The Deficit: What’s It All About Alfie?

Still, people will huff and puff about the deficit… as if the federal government’s budget is like a family budget: NOT!

But, let’s look at it.

And, I say… so what?

It’s a big “so what” because we’re not going to allow ourselves to run the same deficits that have been necessary for the last several years… and we simply need to address the matter calmly and SLOWLY.

Check out the graph below:

Hummm… well, let’s see… looks like the deficit situation (not total federal debt [the sum of our outstanding borrowed money owed back to lenders] but the yearly amount spent over revenues received) is about on par with major cataclysmic historic US events such as the Civil War, WWI, and the Depression and WWII.

Is that right? I mean, is that ok?

Let’s see… In this point in time, we are enduring:

  • continuing hostilities on three fronts: Iraq, Afghanistan, and Libya
  • the longest running conflict/war in US history
  • the greatest economic crash in 80 years
  • the greatest contraction in wealth in history

Yet, look at the chart. We’ve never encountered such budgetary stressors and yet, comparatively, it looks like we’re fairly moderate in our deficit burdens.

In fact, had it not been for Bush’s unduly lightening the wealthy-class tax burden, we’d have still been in Clinton’s budget surplus zone when the wars and crash hit us (mumbling “irresponsible Republicans under his breath”).

Now, today, we have an advantage and a tool with which to address some of this deficit spending… we can monetize a great deal of it (which is partially what the Fed’s Quarterly Easing [Fed purchases of long-term government debt bonds] is all about) without significant worry of igniting inflation. Thus, the impact of the deficits becomes one largely of a “paper” matter.

So, let’s chill out, citizens.

And politicians… just “say no” to doing anything. Just do nothing.

And we’ll be just fine, thank you very much.

Now… let’s do another round of stimulus, get a real national health insurance program, and reduce defense spending to… oh, I don’t know… let’s say just twice as much as the rest of the top five industrialized nations combined.

That’ll about do it.


One response to “Govt Debt: Not A Big Deal — CBO: If Politicians Do Nothing, The Debt Problem Goes Away

  • Quora

    How can America eliminate its debts?…

    There are two questions here: * How can America eliminate its debts, in absolute dollars? * How can America eliminate its debts, as a proportion of the relative GDP? Log chart of the US National Debt in absolute dollars, though it’s unclear if the num…

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