Debt ceiling increased

[setaside]

Ok, so Bush just signed an 800 billion dollar debt ceiling increase. Over the last few years, I've started to become interested in what the national debt really is what effect it has on our country and our economy. Does anyone have any info or good links to info on this subject? Thanks.

And please feel free to discuss the effects of this new law.

[noxiousdog]

Ok, so Bush just signed an 800 billion dollar debt ceiling increase. Over the last few years, I've started to become interested in what the national debt really is what effect it has on our country and our economy. Does anyone have any info or good links to info on this subject? Thanks.

And please feel free to discuss the effects of this new law.

It's extremely complex.

The basics are that the federal governments runs just like anything else. It has income (taxes) and expenses (the big 4 being medicare, defense, social security, and debt).

When the expenses are higher than income they offer up bonds (Treasury Bills) for sale to the public. The primary buyer of these bonds are foreign governments.

Now here is where it gets tricky.

The bonds are offered via auction. They have a par value that will be return to the buyer at the end of the bond. They may or may not pay any interest. Regardless, the Federal Government offers them for auction and collect the money from the highest bidders. The inferred interest rate (for example if a buyers are willing to pay $96 for a 1 year $100 T-Bill, the interest rate is ~4%) is considered the risk-free return rate for an investment.

Now it gets really tricky.

There are two consequences. One, it's been considered for a long time that borrowing from the US government has been a credit-risk free proposition. There was no way they could go bankrupt and no way they could default. I'm not quite so sure that's true anymore. Therefore, the interest payments the federal government will go up (more expenses) and the risk-free return rate goes up which means cost of capital goes up for all capital improvement projects in the US.


Oh, and there are no effects of the new law. If anything it would reduce the possibility of the government defaulting, not that there was really a chance of that anyway.

[Zarathud]

Where is Ross Perot when you need him?

The official Government site Bureau of the Public Debt

News items are collected at the US National Debt Clock

There is a ton of information in the Grandfather Economic Report series on the Federal Government Debt Report

In order to fund the debt, the US Government has to issue Treasury Bonds. noxiousdog explained how US borrowing can potentially raise the cost of capital, which hurts the economy long-term.

What he didn't discuss is that the interest payments on the debt has been a growing part of the federal budget, effectively raising the cost of government and squeezing the cash available for the Federal government's defense and economic programs. Given the increasing amount of intrest payments on the debt, the only way to maintain the current level of government is to increase revenues.

Generally, that means raising taxes not lowering them (I think history has shown us that we're no longer on the wrong side of "Laffler curve" where increased taxes results in less revenue). So more debt now = higher taxes later.

[Gebeker]

I'm really curious about this issue myself. I am embarrasingly ignorant about economics, and I would like to learn something here. I always found economics to be the single most boring subject on earth, so I never paid attention in the past when people tried to teach me about it. Given the way I harp on the importance of science education for everyone, I would be a hypocrite if I didn't put in some effort to learn about economics, though.

Here is a question (aimed at everyone but I particularly want to hear what conservatives have to say about this):

On what grounds does Bush think that he can get away with running the budget deficit up so high? Based on what Noxiousdog and Zarathud have said, isn't he just sacrificing our country's future to make his own presidency look good? Conservatives, can you make any argument that what Bush is doing is ok, and can you explain that argument at a level that an economically ignorant person such as myself can understand?

[setaside]

Thank you Zarathud for those links, I will definitely check those out when I get some time.

On what grounds does Bush think that he can get away with running the budget deficit up so high? Based on what Noxiousdog and Zarathud have said, isn't he just sacrificing our country's future to make his own presidency look good? Conservatives, can you make any argument that what Bush is doing is ok, and can you explain that argument at a level that an economically ignorant person such as myself can understand?

I'm also interested in some information on this, though I would gladly take it from anyone with knowledge on the subject.

[Padre]

[double post deleted]

[Padre]

From what little of the economics I understand, the fact that this borrowing goes on worries me. Or at least, it would worry me if I lived in the US.

It would seem to be political suicide for any politician to raise taxes in order to pay off the national debt. Such a politician is always going to lose out to the guy who lowers taxes and just increases the debt. This simly makes the problem bigger for the next electoral cycle.

Clearly the United States can't go on living in debt forever, paying ever higher rates of interest and borrowing more just to pay off what it already owed. Something has to give at some point.
But what, and when?

I invite the more informed to comment. Meanwhile, I'll do some reading on the subject.

[Kraken]

On what grounds does Bush think that he can get away with running the budget deficit up so high? Based on what Noxiousdog and Zarathud have said, isn't he just sacrificing our country's future to make his own presidency look good? Conservatives, can you make any argument that what Bush is doing is ok, and can you explain that argument at a level that an economically ignorant person such as myself can understand?

I'm not exactly a conservative or a Bushie, but I'll take a stab at it anyway.

Dick Cheney allegedly said that Ronald Reagan proved that "deficits don't matter." He meant that, politically, some more exciting issue always eclipses the budget deficit -- so it doesn't sink you politically.

Economically, economic growth theoretically solves deficits. John Steele Gordon wrote in American Heritage: "In 1954 the gross domestic product of the United States—the sum of all the goods and services produced in the country that year—was about $380 billion. In 2003 it was $10.9 trillion, more than 28 times as great in nominal terms. Even allowing for the very considerable inflation in the last 50 years, the economy is roughly 6 times as large as it was when American Heritage made its first appearance." It's a pyramid scheme, with current spending being paid by future taxes...the key is to keep the future in the future. If the economy grows six-fold again in the next 50 years, the debt won't catch up with us.

All economists differentiate between cyclical and structural deficits. Few dispute that government should run deficits during economic downturns, times of war, and similar national emergencies. Deficits are only problematic when they persist during times of peace and growth. I'd guess that Bush justifies his deficit because this is a time of national emergency. He further believes that his economic policies will grow the economy out of deficit.

I came across the notion that the true disease is runaway government growth. We can't grow our way out of deficits unless government expands more slowly than the economy. I suspect that Bush holds Reagan's opinion that the way to restrain government growth is to cut off its supply of money. (Bush may be the most spendthrift president we've ever had, but let's give him the benefit of the doubt and say that he expects the deficits to restrain his successors).

The old argument that the debt is money we owe to ourselves is no longer valid, btw. Foreigners own most of it now.

Of the several columns that I read today,Ask the Expert: Do Deficits Matter? by CNN columnist Walter Updegrave was the most accessible and balanced. His conclusion:

So should we worry about all this? I don't want to alarm anyone by saying we have a crisis on our hands today. But I think it's also clear that we can't indefinitely continue down the path we're headed.

Frankly, I don't have much faith in politicians to address these issues. The choices are too unpopular. Elected officials don't like telling people their benefits may have to be reined in or that a program might have be reformed to reflect economic reality.

But I do have faith in markets. And I believe that if these issues aren't addressed at some point in the not-too-distant future, the markets will react and enforce their own particular form of discipline.

That will probably come in the form of higher bond yields, which will raise borrowing costs for the government, businesses and consumers. And that will mean lower rates of economic growth and less vibrant increases in our living standard.

But who knows, maybe the people inside the beltway will do something before the market acts. We can always hope.

[is_dead]

Americans are generally obsessed with glamour and glitz and war and big fat tax-deductible SUV's and don't care about social scurity and deficits and pensions and health care and anything beyond the next 4 years into the future. I can tell you that the vast majority of Canadians would be aware today that the federal government is having a surplus this year and rather than debate who to kill next we like to debate how much of that surplus should go to health care and how much to debt reduction. The vast majority of American's have no idea what a deficit even is.

Wow, I can turn any topic into an anti-US tirade! Ok, that paragraph is just how it feels sometimes with regards to the enormous US federal debt that might end up hurting the world economy at some point in the future. I'm not really so blindly anti-american as it appears . I'm legitimately worried that the US has got its fiscal priorities mixed up, and I'll even accept that security and military are hugely important and worthwhile investments.

Politicians here have actually done one good thing in the past ten years. They have most Canadians realizing that the federal budget is our money. The attitude of every province, city and citizen thinking "it's their money, lets take them for all we can" is horrible. So every time there's a new ad on TV for "travel ontario" or every time we see some stupid government program like a high speed train between two farms, we automatically think about how much it cost US, and not "its their money so spend spend spend". I wouldn't say its gotten to the point that a deficit would be politically unacceptable, but it would definately be a tough sell on the Canadian publlic.

A simple fact is that right now the economy is strong, and the workforce is active, and we shouldn't be running big deficits. The baby boomer generation is retiring right now, and in another decade supporting the elderly with a smaller tax base is going to be even more challenging. Leaving debts for the future might work, but I have a wireless adapter for my laptop that works in coffee shops, the future is now.

[Zarathud]

Dick Cheney allegedly said that Ronald Reagan proved that "deficits don't matter." He meant that, politically, some more exciting issue always eclipses the budget deficit -- so it doesn't sink you politically.

Dick Cheney is wrong. Ross Perot proved that deficits mattered in 1992 when he became a viable third-party candidate, changing the political landscape until Bush's election in 2000. If you'll remember, the 2000 election was in large part about Social Security, fiscal responsibility and "lockboxes." The budget deficit doesn't matter to Dick Cheney, because he chooses not to pay attention.

But as long as Republicans can successfully paint Democrats and "tax and spend liberals" while succeeding with "tax-cut and borrow" policies, the US deficit will continue to grow. The Reaganomic tax policy wasn't anywhere near as successful as suggested, but the same old arguments keep getting trotted around the political field even though the US tax code is nowhere as bad as it was pre-1986.

One way out of the deficit is to simply print money, which would cause hyper-inflation and destroy the international faith in the US economy. Think world depression, compounded by globalization.

Another way out of the deficit is to raise taxes and dedicate the proceeds to pay down the US national debt. Very unpopular and politically dangerous, even if you're only going to "undo irresponsible Bush tax cuts."

Or you can hope for inflation to exceed the interest paid on the debt so that the money paid on the debt is worth less. But the Federal Reserve under Greenspan has shown the benefit of low-inflation on economic growth. And nobody wants to be the next Jimmy Carter on the economy.

There is the argument that economic growth solves the deficit. But that only holds true for cyclical deficits, where taxes dry up temporarily and costs go up until the economy gets back on track. For structural deficits, economic growth needs to be massive and long-term in order to get out of the hole from the interest payments. Why? The growth tends to increase the interest cost of the debt (slow economy = low interest rates and borrowing costs, good economy = higher interest rates and borrowing costs) so the growth raises the costs of borrowing and the argument self-destructs when viewed critically. The period used to justify high debt is the post-WWII period which was unique in that the US economy took advantage of Europe's devastation to expand without competition. Currently, the US has serious economic competition from China for manufacturing, from Canada for filmmaking, etc. So the historical numbers needed to "grow out of the debt" will be much more difficult to meet.

As the baby boomers retire, the political pressure to preserve Social Security will continue to increase. It's going to be difficult, if not impossible, to tackle the willpower to solve both the Social Security generational deficit and the national debt at the same time. But the timing of the crises might result in some poetic justice, since the baby boomers abandoned their parents fiscal responsibility to recklessly increase the national debt anyway. They might end up living too long to completely skip out of paying the piper for their "youthful indiscretions."

The long-term result is that Generations X and Y will almost certainly have a lower standard of living than their parents, barring some new US economic miracle or innovation.

[Jaymann]

He must be playing EQ2.

[Chrisoc13]

Americans are generally obsessed with glamour and glitz and war and big fat tax-deductible SUV's and don't care about social scurity and deficits and pensions and health care and anything beyond the next 4 years into the future. I can tell you that the vast majority of Canadians would be aware today that the federal government is having a surplus this year and rather than debate who to kill next we like to debate how much of that surplus should go to health care and how much to debt reduction. The vast majority of American's have no idea what a deficit even is.

This is typical coming from someone living in a country highly dependant upon the united states. I could debate this thoroughly, but it would be useless. Canada has much less to worry about because it has always been protected by the United States and great britain. A strong military is not needed because *gasp* you are protected. You can spend your money on other things while you live in the shadow of the US. Your economy is intertwined and as is your security. Please, bring more of this anti-us banter. Any time this comes from a canadian, it simply makes me laugh.

Oh, and what a nice stab at saying americans are idiots there at the end. I would bet the average IQ of a canadian citizen is not far from that of an average US citizen. But of course, you are from canada and have everythign figured out now dont you? Just barely being independant and all that is.

If there is one thing I have learned over and over again in my travels abroad throughout europe and other parts of the world, it is that most people who hate america are simply ignorant. I am amazed at how little many people actually know about this country, yet they so loudly criticize it at every corner. If there is one thing I can say, keep your criticism inside your own country a little bit more, because after travelling around for extended periods of time I can say we as americans are doing quite well on any stanadard. And yes this applies to canada as well. I have spent large amounts of time in canada, and the same thing has always struck me while there. Its just mob mentality after a while. Not that there are nto things to criticize, there are many things, but it gets a little ridiculous.

[setaside]

Please do not turn this thread into a fight. Thanks. If you have something to contribute to the actual discussion, please do but I don't want to see this thread degenerate into a "my country is better than your country" argument.

[noxiousdog]

The Treasury deficit (as opposed to the trade deficit.. which the gov. has little control over) doesn't matter, per se. It's the size of it that matters.

As long as revenues increase faster than expenses (including interest payments), everything is fine. However, with the kind of creative accounting that the feds currently use, I have little faith that's the case.

At this point, what the feds have done (and this goes back to the later years of Reagan's term and up through today), is limited our flexibility. Due to the huge nature of today's debt, the government can't effeciently spend it's way out of problems.

The big money traders (Buffett, Soros, and Gross) are taking huge bets against the future of the US economy. Say what you will about Buffett's and Soros's politics, but they know how to make money.

[Sniffdude]

The old argument that the debt is money we owe to ourselves is no longer valid, btw. Foreigners own most of it now.

Which is an endorsement of the vitality of the US economy - investors don't sink billions into sinking ships. I think Britain is the largest holder of US debt, but that data may be a few years old.

BTW, I wouldn't follow the advice of people who make their money off speculation. If you want their advice on money speculation, go nuts; they don't direct federal monetary policy, argue the merits of certain segments of spending bills, or administer Social Security.

Clinton's first four budgets called for deficits. The economy grew at unprecedented levels (meaning never before seen in terms of GDP rates and sustained growth), which generated higher tax revenues. It's easy to have a surplus when more money than you had planned winds up in your checkbook. The problem this highlights is that budgets are planned based on assumptions, and given the long cyclical nature of budgets, revenue collections, etc., there's no effective way to truly know what the deficit/surplus will be until all the data's in after the year in question is over.

The larger problems of deficits and the debt in general is the squeezing out of other capital markets - when interest rates go up it makes capital more expensive, thus reducing the overall supply of money and making it less available to those who want to use it for investment. This is why in times of high inflation or inflation fears the fed will raise rates (and overnight rates) to reduce the money supply and cool inflation rates. Rates will go up as the Fed "buys" more capital through the issuance of bonds and capital becomes more scarce - in order to attract those dollars the rate of return will have to go up.

Deficits are ok for gov'ts to run, just as it's ok to run a deficit in your household if you take out a mortgage to buy your own home. Gov'ts have to field armies and navies, provide infrastructure or other goods/services our elected reps feel inclined to support/spend money on. That we pay interest on the debt is nothing new; there have been deficits annually virtually every year post WW2. There were many predictions in the late 70s and early 80s that the sky would fall in because of national debt, but it's never come to pass and likely won't. If it makes anyone feel better, track annual deficit spending as a function of GDP every year, and if the ratios start going way out of whack (like 50% of budget outlays go to debt service, yeah, then there's a problem) to what's going on in the rest of the economy then deficits and debt "matter".

[is_dead]

The argument that some years of deficit are acceptable is correct. Extending that to say that spending billions of dollars you don't have is always acceptable is not correct.

Let me help with the math (I'm an engineer). The current US federal deficit is 7 500 000 000 000. Thats roughly 25 000 per person (can you pay back your share?). It's collecting interest, like a car loan, about a hundred bucks a month (5% per year). Say they balanced their budget every year for the next 25 years, and the next generation of workers has to pay it back, so 1/4th of the population, uh, carry the one.... Ka - ching!! 338 635.5 per person, toda'ys dollars. What about supporting the older population on pension, the rising cost of health care and tuition? Well, lets leave them out. kids today have a great future ahead of them

No offence, but as a university student I don't want to have someone elses 338 thousand dollar debt. I have my own debts.

But wait a minute the debt is growing by 1.59 billion per day, thats an extra 150 a month, plus it will have interest too... recalculate, uh is this right? 92 000 * 4 is WOAH!!! Grand total of 706 635 FOR EACH PERSON PAYING IT BACK in 25 years. OK OK say that half the population of the US is part of the tax paying workforce, and the population continues to grow quickly due to illigal and legal immigration to about 366 million. So its only 289 000 each. Only.

But it's someone elses money right? And its someone elses problem right? Not yours. And God Bless George Dubya Bush.

[is_dead]

Recalculated with 2% interest per year: 101 622 per person in 25 years, or at least 203 245 per taxpayer.

[Biyobi]

The interest is being paid on the debt. It's a fairly significant part of the budget.

[Quaro]

Foreigners own most of it now, true, but there's been lot of talk about many Asian economies pulling out because they are no longer confident in our economy. That would be devastating.

[The Mad Hatter]

The argument that some years of deficit are acceptable is correct. Extending that to say that spending billions of dollars you don't have is always acceptable is not correct.

Let me help with the math (I'm an engineer). The current US federal deficit is 7 500 000 000 000. Thats roughly 25 000 per person (can you pay back your share?). It's collecting interest, like a car loan, about a hundred bucks a month (5% per year). Say they balanced their budget every year for the next 25 years, and the next generation of workers has to pay it back, so 1/4th of the population, uh, carry the one.... Ka - ching!! 338 635.5 per person, toda'ys dollars. What about supporting the older population on pension, the rising cost of health care and tuition? Well, lets leave them out. kids today have a great future ahead of them

No offence, but as a university student I don't want to have someone elses 338 thousand dollar debt. I have my own debts.

I'm afraid you also have a substantial national debt - approximately $20,000 is your share. We may not be increasing our $600 billion debt here in Canada, but the surpluses are not being used to pay it down. Chretien only paid off a tiny fraction, and the Martin government has earmarked everything for new spending initiatives. So let's not get too sanctimonious here, or pretend that Canadian finances are in much better shape.

[is_dead]

Agreed. But fiscal responsibility is the name of the game these days. We're paying it back slowly over the next 25 years. The debt peaked in 1996-7. In the US the debt has not only been rising, but accelerating like an exponential curve.

[noxiousdog]

Agreed. But fiscal responsibility is the name of the game these days. We're paying it back slowly over the next 25 years. The debt peaked in 1996-7. In the US the debt has not only been rising, but accelerating like an exponential curve.

Cite? I don't think two years of data points will be sufficient.

[is_dead]

I searched on google

CANADA



UNITED STATES OF AMERICA

[Chrisoc13]

Thank you for saying this:

So let's not get too sanctimonious here, or pretend that Canadian finances are in much better shape.

Man is_dead, you are up on your high horse now arnt you?

Nobody think debt is a good idea, but most countries have debt. And even when they get a surplus few countries pay off their debt. Including the great and all wonderful majestic canada. Most of that money goes to new things. The US is no different. Bush has greatly increased the debt, but clinton wasnt exactly the perfect little president with debt either. Is there a solution? I doubt it. Talk about paying it off flys around, but I believe it would be nearly impossible for the US to pay of its debt. But yes, lets at least shrink it.

Everyone acts as though Bush is the only president to increase our debt in the last ten years, but in the 4 years 1997-2001, US federal debt increased $438 billion, but no, we kept hearing about a $557 billion surplus.

[Zarathud]

Everyone acts as though Bush is the only president to increase our debt in the last ten years, but in the 4 years 1997-2001, US federal debt increased $438 billion, but no, we kept hearing about a $557 billion surplus.

Bush is the president who destroyed the post-Perot Democrat-Republican compromise on "pay-as-you-go" budgets -- making the DEMOCRATS like John Kerry look GREAT on fiscal policy (see The Economist's reluctant endorsement of Kerry in its 10/30/04 issue). Bush betrayed the Kemp-Gingrich revolution of fiscal responsibility.

If you look at is_dead's chart above, in the 4 years 19972-2001 the US federal debt leveled out at $20,000 per person. The $557 billion surplus includes the Social Security taxes, which were essentially "invested" in US treasury bonds. Although I hated Al Gore (and especially his music-censoring wife), at least his campaign promised to create some type of "lockbox" fund so that the Social Security taxes were protected and not directly used to cover other federal budget items.

[Chrisoc13]

Oh, Im not saying Bush hasnt blown the budget. But I think its a little iffy to say it was under control before him. It was still pretty untamed regardless of how much worse it has become. But yes, Bush has put us in debt more. Although, there are some things which occured that might make this somewhat understandable.

I did read that article in the economist. It was interesting though because for some reason it made me lean towards Bush mroe then Kerry. Obviously I dont think the article was written with this in mind, but for some reason that is what happened to me. It seemed all pro bush till right at the end when it pretty much said "oh yeah,and vote for kerry." But it was an interesting read, and yes, as it mentions, Bush has blown the budget more. I agree, although as I said earlier, it seems somewhat understandable to have had some debt troubles these last few years, and regardless of who had become president, Im pretty sure the debt would have increased.

[The Mad Hatter]

Agreed. But fiscal responsibility is the name of the game these days. We're paying it back slowly over the next 25 years. The debt peaked in 1996-7. In the US the debt has not only been rising, but accelerating like an exponential curve.

Fiscal responsibility isn't the name of the game at all here. In addition to boondoggles like the sponsorship scandal and the gun registry, the government overcharges on EI premiums and uses the money to increase spending. Not only that, cutbacks to federal transfer payments to the provinces have forced many areas to increase taxes and cut programs. In spite of this, the federal debt is only slightly lower and with a wobbly minority there's zero chance of it being further reduced under Martin.

[godhugh]

Where is Ross Perot when you need him?

He's right down the hall from me.

[is_dead]

Although, there are some things which occured that might make this somewhat understandable.

You must be referring to the tax cuts for the weatlhiest 2% of Americans. I guess its understandable if you're one of them, sure.

[Chrisoc13]

Although, there are some things which occured that might make this somewhat understandable.

You must be referring to the tax cuts for the weatlhiest 2% of Americans. I guess its understandable if you're one of them, sure.

Actually no, im not in the top two percent. In fact, being a student im damn near the bottom. But what I can say is that facts speak for themselves. If the top 5% pay over fifty percent of the taxes in the US (which they do, in fact its much higher then that), dont you think they should get the most back in a tax break? Your logic makes no sense. So not only should some people pay over 50% of their income in taxes (which most earn despite what many people believe) they should also be exculded from the tax breaks? That is absurd. I hate that line because it makes no sense.

It is true, a large amount of ANY tax cut will go to the wealthiest. Why? Because they pay the most taxes by far.

I spent a large part of my fall semester last year researching the tax system in the US and so it really gets to me when people say that tax cuts are for the rich. If you want to look at it like that, taxes are for the rich too. If you want I can even pull up some of my research from last year and quote source after source of how lots of hard working americans are taxed up to and over 50% of their income by the time the US government is done with them. Is this fair?

I interviewdd a Urologist (along with other professionals) in my area on this subject for a paper I had to write. Because his practice is a bussiness (which is the case with many doctors) he pays over 50% in taxes. Does he inherit this money or is it just given to him? No. He earns that money as much as anyone else earns theirs. Yet because of a non-integrated double dipping personal and bussiness tax system, as well as absurdly high tax levels for the "wealthy", most of the money he makes is taken away. So let me ask you something, if a tax cut is given, should he be given no money because of how wealthy he is? Does he not deserve it? This is why the wealthy recieve more money back. Its called fariness, something many americans and most of the rest of the world dont seem to understand. Too many people just sit around waiting for free handouts. People dont stop to think that every day professonals are nailed by these high taxes. They dont stop to think that many of those wealthy work harder then they can imagine for that money. Sure the world isnt a fair place, but who are we to decide this on our own or to make it worse? Even after a tax cut this doctor will still being paying a disporpotionate amount compared to those making less.

Your line doesnt work with me. I am not ignorant on the subject. You cant simply try and pull the wool over my eyes. That line is the biggest distortion of the truth I think I ever heard during the election this year, and I wasnt even in the US during the last month and a hlaf of the election, I was in europe! I can only imagine how bad it was here. I simply wish people would study the subject or at least think about it logically for a minute or two.

Speaking of the tax cuts themselves, they do seem to be workin dont they? You can claim it was other factors, but the truth is the US economy is (and has been) rising out of the slump. That is hard to argue against. So was it the tax cuts? I dont know, it must have helped boost consumer confidence, but regardless, things are getting better.

Another note is that with the weakening dollar, the US deficit is actually becomin smaller. Although Europe is extremely concerned about teh rise in the Euro and the fall in teh dollar, a weaker dollar means a smaller defecit.

[Gebeker]

Hmmm, so far Zarathud's arguments seem very convincing to me. I'm surprised that MSDuncan or some of the other big conservatives haven't put up a more spirited defense of Bush here. Maybe there really is no adequate justification for his economic policies?

[Zarathud]

Maybe there really is no adequate justification for his economic policies?

It's telling that out of 100 economists responding to an informal pre-election poll by The Economist (a conservative British economic magazine that is very pro-free market) were overwhelmingly critical of President G.W. Bush's economic plans.

More than 70% of the 56 professors who responded to our survey rate Mr Bush's first-term economic policies as bad or very bad. Fewer than 20% give positive marks to Mr Bush's second-term economic agenda, and almost six out of ten disapproved. Mr Kerry hardly got rave reviews either, but his economic plan still fared better than the president's did.

While very careful not to attack the President or his tax cuts (and mindful that President G. H.W. Bush blamed his loss to Clinton on the Federal Reserve), Alan Greenspan in a well-publicized speech to Congress on February 25, 2004 suggested that the recent surge in the deficit is particularly dangerous, coming less than a decade before Baby Boomers begin drawing on federal retirement benefits.

For about a decade, the rules laid out in the Budget Enforcement Act of 1990, and the later modifications and extensions of the act, provided a procedural framework that helped the Congress make the difficult decisions that were required to forge a better fiscal balance. However, the brief emergence of surpluses eroded the will to adhere to those rules, and many of the provisions that helped to restrain budgetary decisionmaking in the 1990s--in particular, the limits on discretionary spending and the PAYGO requirements--were violated more and more frequently and eventually allowed to expire. In recent years, budget debates have turned to choices offered by those advocating tax cuts and those advocating increased spending. To date, actions that would lower forthcoming deficits have received only narrow support, and many analysts are becoming increasingly concerned that, without a restoration of the budget enforcement mechanisms and the fundamental political will they signal, the inbuilt political bias in favor of red ink will once again become entrenched.

In 2008--just four years from now--the first cohort of the baby-boom generation will reach 62, the earliest age at which Social Security retirement benefits may be claimed and the age at which about half of prospective beneficiaries choose to retire; in 2011, these individuals will reach 65 and will thus be eligible for Medicare. ....

... These scenarios suggest that, under a range of reasonably plausible assumptions about spending and taxes, we could be in a situation in the decades ahead in which rapid increases in the unified budget deficit set in motion a dynamic in which large deficits result in ever-growing interest payments that augment deficits in future years. The resulting rise in the federal debt could drain funds away from private capital formation and thus over time slow the growth of living standards.

In a debate between Dick Cheney and Alan Greenspan on whether deficits matter, the smart money bets on the Chairman of the Federal Reserve.