Interest in the U.S. national debt seems to have diminished. Its importance has not.
Even with extraordinarily low interest rates, interest on the debt takes up one out of ten dollars of federal expenditures. If rates rise to more normal levels, even if the debt stabilizes, interest on the debt could easily double or triple.
Recently we came across a book titled Hamilton’s Blessing about the history of America’s debt going back to the founding fathers. It’s instructive that in earlier years the debt ran up during wars and crises and in between times was paid down.
Except for three years at the end of President Clinton’s term, that hasn’t happened in more than half a century.
While not an imminent danger, no initiative in Washington shows promise for getting this problem under control. The Tea Party made some noise but disappeared during the great budget compromise of 2015, when spending ramped up again.
At the least, the government should be extending the term of the outstanding debt while rates remain extraordinarily low.
The debt need not be a crushing burden but needs to be dealt with in all its dimensions in an intelligent way before it becomes an insoluble problem.
During the tumultuous political climate of the last five years, nothing has been more contentious than the U.S. budget deficit and government spending.
While Congress and the Administration have been fighting tooth and nail over this, shutting the government on several occasions and forfeiting the country’s AAA bond rating, something surprising has happened.
Both sides are bracing for a possible government shutdown again this fall and no one seems to notice that the deficit is fast disappearing.
Today, The New York Times reported in a small, single column story on the bottom of page B6 of the business section, that the deficit will shrink by 15 percent this year and by 75 percent since the first year of the Obama Administration.
As the economy healed from the Great Recession, taxes rose and spending has slowed and in some cases declined. A deficit that had reached a mind boggling $1.6 trillion is headed for $425 billion this year, down from $483 billion last fiscal year (the government year ends Sept. 30).
While still humongous in dollar terms, it’s not bad in an $18 trillion economy. After six years of spending austerity, the budget is now rising again, but still slower than revenues.
It’s not that there aren’t fiscal issues — entitlement spending still needs big changes and the government debt needs to be extended — but the fiscal crisis has ended long before the wrangling stops. http://www.nytimes.com/2015/08/13/business/economy/us-budget-deficit-rose-in-july-but-8-year-low-is-expected-for-year.html?smid=tw-share
The Dog That Didn’t Bark
This summer the Washington Post had an article titled,” So Whatever Happened to the deficit?”
Not quite a year ago, House Republicans threatened to shut the Federal government as part of their effort to lower the deficit. Meanwhile, while no one was looking, the deficit shrunk dramatically on its own.
The deficit has shrunk from an unsustainably high $1.6 trillion in 2009 to an estimated $500 billion for the fiscal year that ends in a few weeks.
The deficit will keep dropping as long as Congressional gridlock prevents new spending.
Most economists consider the current level sustainable.
Meanwhile, the economy has continued a five-year expansion. While the economy isn’t back to where it was before the Great Recession, this is a huge improvement from those dark days of late 2008 and early 2009 when the world economy threatened to collapse completely.
As a result, the stock and bond markets have staged dramatic, if unheralded rallies. The stock market has nearly tripled from the bottom in March 2009 and the broad bond market is up more than 30 percent, according to Bloomberg.
While none of this feels like a boom because it isn’t, the trends are good and investors shouldn’t be overly pessimistic.