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April 14, 2009 4:00pm by David Farrar

The US deficit

usdeficit

From Fairfacts Media. Bush was a disaster fiscally, but Obama’s borrow and spend plans will bankrupt the country.

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Comment33

United States
Barack Obama
United States

Comments (33)

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Swampash

“Will” bankrupt the country? The USA has been bankrupt for at least six months, it’s just that China and Japan haven’t asked for it to be wound up yet.
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April 14, 2009 4:26pm
cocamc007

Obama’s plan will potentially bankrupt the country but he inherited the mess and has to try stimulate the economy and also balance the books.
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April 14, 2009 4:28pm
big bruv

“Obama’s plan will potentially bankrupt the country but he inherited the mess and has to try stimulate the economy and also balance the books.”

Can you not read a graph?, how the hell is B Hussein Messiah Obama going to balance the books when he is going to blow the deficit out to nearly 2 trillion dollars?
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April 14, 2009 4:35pm
peterquixote

this is a $NZ gets better scenario dudes,
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April 14, 2009 4:45pm
Piggy

Good thing graph has about as much factual backing as the one in the republican alternative budget, i.e. none. The obama budgets will be bigger though, because they will properly show the costs of the iraq & afghanistan wars, instead of being cheeky and not including them like bush.
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April 14, 2009 4:49pm
Gooner

The US was *not* bankrupt six months ago as a prior commenter suggested. That is a lie.

The truth is the US was bankrupt many years ago.
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April 14, 2009 4:56pm
DMS

So Obama gets slagged for borrowing to get out of the recession. What does Bill English feel about Obama’s philosophy?
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April 14, 2009 4:59pm
paradigm

So labour is criticising John Key for not following Obama’s example and bankrupting NZ? LOL
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April 14, 2009 5:36pm
freethinker

The US is in a hole and it admits it,and so far has taken some big knocks on sub prime etc. Europe is in a hole & potentially a much bigger one given its large exposure to Sub prime and a far bigger one in E Europe/Russia and they are not really totally admitting the size and doing little to tackle the fundamental issues and unlike the UK where the depreciated currency has partially rectified and visibly quantified the size of the issues the EU has no such mechanism so the question must be how does the EU square that circle. The outlook is awful for all major economies and I suspect the answer will be muddle until a muddle seems to be working sufficiently to be adopted on a wide scale. But first the banking system needs stabilising and given a better foundation and at least that is being addressed so some hope but probably no real improvement for years.
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April 14, 2009 6:00pm
DMS

Paradigm, answer the question! I don’t speak for Labour. I am interested in English’s response.
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April 14, 2009 6:05pm
davidp

The US government debt to GDP ratio is still a lot smaller than many other countries. It is currently around 60%, whereas Japan is 170%, Italy 105%, Singapore 95%, and Canada and Germany are around 65%. So if the US is bankrupt, so is most of the rest of the industrialised world.

I’m not a fan of Obama’s policies which look, to me, like socialist lunacy. But they’re still a hell of a lot healthier than many countries that are assumed to be economically healthy.
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April 14, 2009 6:26pm
jarbury

So in the case of the USA it’s Obama’s fault to be running a decade of deficits, but in New Zealand it’s the previous government’s fault rather than National’s?

Come on DPF be consistent here. Either blame both previous governments/presidents or both current governments/presidents.

[DPF: Obama is massively increasing the deficit from what he inherited. National will be reducing the deficit from what it inherited I am sure]
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April 14, 2009 6:28pm
Haiku Dave

a bit like the big
deficit reagan ran up
and clinton paid off
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April 14, 2009 6:32pm
bchapman

Obama knows that unless the USA can start producing more stuff and consuming less, the GDP will plummet (current estimates to about 1/3 of present) when the Chinese call in the debt. It won’t matter what the government deficit is at the time. Hence the need for renewables (ie less Saudi oil) and better education. Good health care, education and support for science and R and D are the bases for future growth, something the NZ government needs to be mindful of.
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April 14, 2009 6:50pm
Glutaemus Maximus

The worse news will actually come from Europe.

The US and Canada are in near harmony, economically speaking.

The other NAFTA subscriber has always been behind the pace, and so Mexico whilst highly significant will ride on the shirt-tails of the Northern Neighbours.

I still think NZ is probably as well placed as you can get, when you boil all the fundamentals down to core basics.

The UK is in deep trouble, no question. It simply doesn’t make anything. It is a Nation of Shopkeepers. Has been since Napoleonic Times.

Just wait for the huge implosion caused by Western Europe trying to pump up the East.

My confusion is with Ireland.

They make stuff, it is a small population to control like here. Then, despite all the free grants from the EU, and all the significant investment by North American Companies it seems to be on the rails ever so quickly.

The only difference between all these scenarios is sentiment, because actually nobody knows the truth, as it is all too heavily inter-dependent, and worst of all Governments are lying to make friends!
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April 14, 2009 7:51pm
jarbury

[DPF: Obama is massively increasing the deficit from what he inherited. National will be reducing the deficit from what it inherited I am sure]
Really???? I thought that New Zealand’s deficits is likely to blow out over the next few years.

[DPF: They are, but what I am talking about is comparing actual to the projections as of the change of Govt. In other words how does it compare to the DEFU]
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April 14, 2009 8:14pm
ben

What a shocking and reckless performance by Obama. Complete and total irresponsibility. And without any justification in economics – I do not believe there is a single example of a government improving an economy’s performance by massive spending like this – though they have tried many times. There is no theory to suggest that should work. Keynesianism is the long-discredited excuse, but this is clutching straws.

The US government is now in a position to borrow more than it can possibly hope to repay, so what are its options? It only has two.

1. Default. The absolute worst case.

2. Print money and debase the currency the debt is issued in, destroying the value of the principal. And that’s exactly what the Fed is doing.
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April 14, 2009 8:22pm
ben

p/s the consequence of printing money is a hyperinflation.

Serious economists are picking price and wage controls in Obama’s first term as inflation begins to take off.
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April 14, 2009 8:23pm
stephen

Worth noting that the colossal 2009 federal budget line in the graph is Bush’s (don’t know what Obama thinks of it). Obama’s spending starts in October, with a view to…decreasing the deficit(?) by the looks of the graph. But then it goes back up…No idea how they project so far ahead, i mean is it even worth trying to project to 2019, several budgets ahead?
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April 14, 2009 8:51pm
stephen

Serious economists are picking price and wage controls in Obama’s first term as inflation begins to take off.

Interesting…who?
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April 14, 2009 8:52pm
Will de Cleene

The difficulties of trying to manage a controlled freefall…
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April 14, 2009 9:11pm
OECD rank 22 kiwi

Decline of empire.

Who would have thunk it!!
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April 14, 2009 9:27pm
Glutaemus Maximus

Every Empire rises, and then falls!!

Look at the US, they have a Senate, two headed eagle as an icon, and there are many other ties to the whole base of SPQR.

As the British Empire became the largest Empire ever, due mainly to Sea Power.

The Roman Empire was the longest unit as a recognised Empire.

The US actually has no Colonial aspirations, but still gets the Rap for trying to keep the world in peace.

The Internet has stymied any other bloc, in terms of Colonial aspirations.

Information is Power.

Back to the subject matter. Will the US ever file for bankruptcy, or default? In my opinion there is no way.

Why, because of sentiment and the requirement for a belief system.
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April 14, 2009 9:54pm
lloydois

A bity sad David that you’re quoting Fairfacts Media. I thought you were promoting intelligent debate.
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April 14, 2009 10:08pm
He-Man

The graph has been pointing downwards for the last 8 years thanks to the Bush junta. And now the US national debt stands at over 11 trillion.
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April 14, 2009 10:58pm
Danyl Mclauchlan

Obama is spending a lot of money – but the new deficit includes at least two Bush policies, Iraq and the expansion of Medicare, that were never included in the previous budget because the Bush Administration never figured out a way to pay for them. They just spent the money without bothering to account for it or include it in the budget. So in reality the deficit in the last year of Bush should be at around the $1 trillion mark.
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April 15, 2009 6:26am
PhilBest

THIS IS A VERY VERY GOOD ANALYSIS:

Economic Stimulus 101: Reaganomics vs. Obamanomics
::
AIP News -> AIP Real Economics

By Dr. Paul Kengor
April 07, 2009

“President Obama says the economy is the worst since the Great Depression. Actually, it is the worst since the Reagan recession of 1982-83. Further, the 2009 market crash is not the worst since 1929 but since 1987—also on Ronald Reagan’s watch.

What did Reagan do—or, more importantly, didn’t do—in response to these “crises.” How was Ronald Reagan’s response different from what Barack Obama is doing?

In both cases, Reagan did the exact opposite of Obama’s massive government spending infusions. In fact, it’s worth noting that Bill Clinton—listen up, Democrats—didn’t invoke Obama’s method when he faced recessions at the very start and end of his presidency. (That’s another article for another time.)

As for the Reagan recession, the president waited extremely patiently—to the point where he drove his advisers nearly nuts—for his huge 1981 tax cuts to take effect. He didn’t spend money because he believed spending had been out-of-control, particularly since FDR’s New Deal and LBJ’s Great Society, which created systemic deficits. Reagan felt that high spending, high regulation, and high taxes had sapped the American economy of its vitality, and particularly its ability to rebound from recession. The economy needed to be freed in order to perform.

Reagan’s prescription rested on four pillars: tax cuts, deregulation, reductions in the rate of government spending, and a stable, carefully managed growth of the money supply. The federal income tax reduction was the centerpiece: Reagan secured a 25 percent across-the-board reduction over a three-year period, beginning in October 1981. The upper income marginal tax rate was dropped from 70 percent, which Reagan believed was punitive and stifling, to 28 percent.

By 1983, America had begun its longest peacetime economic expansion in history, cruising right through the 1987 market plunge.

What did Reagan do about the October 1987 crash? Basically nothing—certainly nothing like a massive government “stimulus.”

“Some people are talking of panic,” Reagan calmly confided to his diary. “Chrmn. of Stock Exchange is acting very upset.”

Those are Reagan’s only diary references to the financial crisis. With the economy freed, he was confident it would bounce back. Reagan let the economy correct itself.

Okay, but Reaganomics created huge deficits, right?

That’s the big criticism. It isn’t accurate. It needs to be understood—now more than ever.

First off, know these crucial facts: The deficit under Ronald Reagan increased 35 percent, from an inherited deficit (from President Jimmy Carter) of $104 billion in 1980 to a final deficit of $141 billion in 1989. The deficit peaked at $236 billion in 1983, particularly because of the plummet in tax revenue during the recession. It began dropping steadily in 1986, continuing through the 1987 crash. (Source: Congressional Budget Office figures, “Historical Tables.”)

Compare that to what’s happening now, where the direct opposite of Reaganomics is being pursued by the liberal Democratic president and Congressional leadership:

President Obama inherited a record Bush deficit of $400 billion, but is generating a far worse $1.8-trillion deficit in his first year. (Source: Congressional Budget Office, March 20, 2009.) We’ve never seen anything like this. This unthinkable explosion is a direct result of the stunning government spending unleashed by Obama and the Democratic leadership in just eight weeks—an unheard of development in 233 years of American history.

So, think about this:

Ronald Reagan increased the deficit by 35 percent in eight years, whereas Barack Obama has increased the deficit by 450 percent in eight weeks. Reagan created an extra $37 billion in annual deficit. Obama has already created an extra $1.4 trillion in annual deficit.

But what, exactly, caused the Reagan deficits? There were several factors: the recession of 1982-83, the Reagan defense spending—implemented to turn the screws on the Soviets—the domestic social spending by the Democratic Congress, and more. Some reasons were Reagan’s fault; others were Congress’ doing—both share blame in differing degrees.

Importantly, and despite what you’ve heard, Reagan’s tax cuts didn’t create the deficit. Tax revenues actually boomed from roughly $600 billion in 1981 to $1 trillion in 1989.

The primary cause of the deficit was recession and spending, mainly spending—as is always the case. It is especially the case right now under Obama, with the spending component utterly out-of-control.

The crucial lesson for today is that the best “stimulus” is one that relies on the tried-and-true American way: letting free individuals and entrepreneurs stimulate the economy through their own earnings and economic activity. Wealth confiscation and redistribution by government collectivists and central planners never works; unfortunately, it is that failed, extremely destructive method that Americans elected in November 2008.

For three decades now, the minority of Americans who make up the hard left have been trashing Reaganomics. Well, on November 4, 2008, for the first time in American history, they convinced enough voters to join them in electing the extreme opposite. At long last, they will pay for the economic consequences of their ideology, as will their children and grandchildren.”
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April 15, 2009 10:31am
dave strings

The United States is the SELF appointed policeman of the world, dictating what other sovereign countries can and cannot do and using several levers, but ultimately that of war, to force them into submission.

Let’s look at the nuclear situation. It is OK for the US, the UK, France and several other ‘clever’ countries to have nuclear energy generation, that produces an uranium bi-product suitable for transformation into warheads, but not anyone else. The so-called ‘non-proliferation’ treaty is a crock based on the white-man’s belief that the wogs wouldn’t be able to do the science to create their own, so all that was needed was a gentleman’s agreement not to teach them. Arrogance typical of the British Raj!

If the USA withdrew from it’s occupation of other countries, and left them alone to determine their own future, whether or not they followed America’s form of government, their deficit would shrink immensely and the world just might be a safer place.

No sovereign nation has the right to dictate to another the form its government must take; but each country must take its own road to peaceful cohabitation with its citizens and neighbours. When the United States has no poverty, no crime, no hungry and no illiterates, it can point to itself and say ‘we are a shining example of the success of our way of life’. However, when it abandons its first principles by creating corporate welfare, setting wage restraints on private companies and making pornography one of its biggest earners of export earnings, the country has no right to portray itself as a shining example of working capitalism.
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April 15, 2009 12:06pm
s.russell

While similar situations do arise over time, in general every recession is unique. It is not entirely valid simply to point at what was done on some past occasion and say that is what should / should not be done now because it did/did not work then.

The present recession is not I think going to be anything like the Great Depression (fingers crossed) and may end up as a fairly average sort when you look back over that past couple of centuries. But this is in large measure because of the drastic action which has been taken. The collapse of the financial system had the potential to be massively damaging. Failure to act in this arena might have resulted in a global economic collapse comparable to the 1930s or 1870s.

Sure, things would have come right eventually – in a decade or so. But the aggregate cost would have been staggering. The massive (and expensive) action to stabilise the world’s financial systems has thus been necessary.

A certain amount of Keynsian stimulus also makes sense because the sudden and severe impact of the recession threatens generally healthy businesses as well as rotten ones.

With regard to Bush and Obama, Bush is certainly culpable for profligacy at a time when the US Govt should have been running surpluses (as NZ did). Obama started from a deficit position and any sensible president would have little choice but to massively increase it. But he is culpable too for going too far, wasting money and having no credible plan for correcting the imbalance.

It seems like the US plan is to keep everyone warm in the depths of the economic winter by burning money.

By contrast New Zealand’s more moderate fiscal stimulus seems carefully planned so that it really is a short-term boost to expire when no longer required, and is honed to do long-term good as well as provide short term relief, by enhancing productivity.
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April 15, 2009 12:45pm
kiwi in america

Dave Strings
What a load of leftist pap. The American ‘occupation’ of Europe was to rescue western Europe from the clutches of Nazi totalitarianism. America could have happily stayed on their side of the Atlantic and left Hitler to his 1000 Reich but they chose to expend blood and treasure to liberate western Europe. Ditto SE Asia from Imperial Japan. The ‘occupations’ of Germany and Japan were and remain at the behest and encouragement of the governments of both countries whether fomr the left or the right. The same pattern occured in Korea. Tell us that you’d prefer to see South Korea under Kim Jong Ill’s thumb. 34,000 Americans died in a hellish war to prevent a North Korean/Chinese sweep of the Korean Peninsula. If life for the average South Korean better than their northern counterparts because of an American occupation?

The same will be true of Iraq. Bush committed to troop drawdowns and Obama has pretty much stuck with the same timetable. Tell us that Iraq with free trade unions, a free press, increased electrical and oil output, more equality for women and girls and free elections at the national and local level is somehow a step back from the 200,000 Iraqis Saddam Hussein brutally tortured and murdered, the Iranians he unleashed chemical weapons on, the March Arabs he staved from their lands and the Kurds who he mercilessly gassed. What part of “serious consequences” in UNSC unanimous Resolution do you think Saddam Hussein misunderstood? Especially after he had blatantly breached 6 previous resolutions and defied the weapons inspectors. The Iraq Survey Group reported his intention to rebuild his WMD capability and his use of the Oil for Food money to bribe French and Russian officials to water down the sanctions so that he could rebuild his capacity. Saddam’s Iraq had attacked 3 neighbouring countries (Iran, Kuwait, Israel) causing over 1 million casualties and had demonstrated that he could and would use chemical weapons.

Name one socialist country that has consistently delivered greater wealth to a greater number of its citizens and no Sweden doesn’t count. Sweden’s welfare state was built off the high taxes on successful capitalist corporations that became vastly rich during and after WW2.
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April 15, 2009 12:55pm
PhilBest

Good on ya, KIA.

But Dave Strings is a lost cause. He lives on “Planet Chomsky”.
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April 15, 2009 8:40pm
Biomag83

Obama is a man to be feared. His ideas are big government ideas and he tends to think that government can solve all things. Economist around the world rightly have condeemed this stimulas package. What Im concerned about is that he has just given future generations are huge debt to repay. Who too? The Chinese ect. Not a good thing when the relationship between the World and Communist China is going to be the defining relationship of this century.
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April 15, 2009 9:04pm
badmac

Take at look at this 30 minute video on Youtube. America has a big problem.
http://www.youtube.com/watch?v=O_TjBNjc9Bo
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April 16, 2009 1:28pm

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