copernicus

I read with great interest Obama: ‘The Truth Is, Our Deficits Are Already Shrinking’. One of the main reasons I do this is to provide some proper accounting for the historical record. So…He is right. The deficit is shrinking…no doubt about it, but it’s not exactly something new.

After topping out in 2009, we have seen slow but steady improvement down $500B to $1.096T in 2012 from $1.596T in 2009. And 2013, helped by the elimination of the payroll tax cut, and maybe to a small degree the tax hikes on the wealthy, is likely to continue this positive trend.

Through  April 4th…94 days into 2013, the deficit, at $419B is $49B under where it was last year through 94 days. So does anyone see the problem here?… Maybe that we are working on our 5th consecutive $1T+ deficit, and our debt will soon blow through $17T…on it’s way to $20T and beyond. So, let’s use a football analogy. If in Year 1, your team loses 70-0…that’s pretty bad, kind of like our 2009 deficit. The next year, if you only lose 63-0, sure, maybe it’s an improvement, but you still got stomped. So here we are…5 years later. Maybe we lose 42-0, maybe we lose 35-0…does it really matter? Now fortunately, football seasons are not cumulative….everybody starts 0-0, no matter how bad they were last year. Deficits aren’t like that…and our $17T debt is one heck of a testament to that.

Now…. the economists and the politicians, as I’ve discussed before, are atrocious accountants. They will spout all kinds of ridiculous justifications about pointless ratios like debt to GDP, and rave about how low interest rates are….so it is ok to take on debt now… Don’t you believe any of them. Where we are now is like a household with 50k of income closing in on $300k of credit card debt. There is nothing to show(or secure) for this debt…no cars, no house (no dams, bridges to nowhere, or fleets of electric cars.) Just mountains of unsecured debt on a 0% special….expiring sometime soon. The answer for our household is obvious…declare bankruptcy, and those foolish enough to lend them the 300k in the first place, get to suffer the consequences for their foolish decisions. The US story will end the same. We are simply too far gone and our political system too broken. The game is already over, we just haven’t admitted it yet.

So, while President Obama is right…the debt  deficit has been coming down, we are still losing 35-0. Worse, while we are likely to have another year or two of improvement, with 10k boomers retiring every single day, the exponential growth of Social Security, Medicare, and the other entitlement programs will soon overwhealm the entire budget. In CBO vs CBO I forecasted that by 2022, the annual deficit will have grown to $1.788T. Our Debt….external only will have doubled to $24T…not including our Intragovernmental Debt… The only good thing about a Trillion dollar deficit, is that at least it’s not 2 Trillion.