One reason I keep tabs on information sources that run the gamut from totally mainstream to totally off-the-grid is to try and get a more well-rounded perspective on what is happening in the world. That said, there are some issues where contrasting vantage points paint a similar picture.
Take, for example, some recent commentary on our nation's fiscal situation.
Here is what The Economist reported in its latest Daily Chart feature, "I O USA":
America's government has little to say about tackling the budget deficit
Ever since the Democrats' poor showing in the mid-terms, the two parties have been engaged in a rather stiff dance. Both sides talk about cutting the deficit but are unwilling to risk losing voters by trimming the big budget items: pensions, Medicare, Medicaid and defence. Republicans, who were initially pushed to talk tough on cutting spending by the Tea Partiers, have backed away from what plans they had to take on entitlements since gaining control of the House. Meanwhile the White House appears to reason that making the running on cutting entitlements is a political loser, hence the lack of a medium or long-term vision for America's finances in the president's Budget Request, which was delivered to Congress this week with a complementary set of over-optimistic forecasts.
And here's what Gonzalo Lira wrote (with a bit less British reserve) in "'We Owe How Much?': Waiting for The Big Splatter":
These defict numbers are huge. Huge. HUGE.
There's also the little issue of the debts that have already been racked up as a result of prior profligacy.
As of January 2011, the U.S. Treasury had $8.965 trillion in outstanding securities, plus an additional $5.166 trillion in “non-marketable” securities—that is, intra-government debts. The total outstanding debt of the U.S. Federal government is $14.131 trillion.
The U.S.’s gross domestic product in 2009 was $14.29 trillion.
So this current deficit is over 11.5% of 2009 GDP. Even if we take Office of Management and Budget (OMB) rosy predictions for 2010’s GDP, the deficit is still 10.9% of GDP.
As to the rolling debt? It’s just about 100% of GDP.
These are Third World numbers: Deficits that are in the double-digits vis à vis the gross domestic product—and total debts that equal tha GDP—are numbers that Argentina—Greece—Zambia gets:
These numbers aren’t supposed to happen to the good ol’ U.S. of A.!
Oh, but they are happening.
Coupled to those terrible numbers, the Federal Reserve is monetizing the Federal government’s debt—that is, printing money, in order to help the government pay its bills. There’s really no other way to look at it. As I wrote here (when the deficit was still projected at only $1.267 trillion), the Fed is monetizing 50% of the FY 2011 deficit, and buying up an additional 10% with excedents through QE-lite.
With the new numbers, that proportion of what the Fed is buying for FY 2011 is diminishing, to 47% of the deficit, of which 37.5% is outright monetization.
But this is like fiscal heroin: It’s clear to anyone that the Federal government cannot continue to function without the Federal Reserve’s ongoing purchases of Treasury bonds by way of Quantitative Easing 2. With the 10-year at 2.5% interest, there would simply be no demand for Treasury debt, if the Federal Reserve cut off the Federal government—and the Fed knows this.
So the Federal Reserve will have to continue monetizing the Federal government debt, with no end in sight—it really has no choice: If it doesn’t, interest rates will rise so high so fast, that the Federal government would simply go broke. So when QE-2 expires in June, it’ll be extended: Quietly, and without fuss.
Again, this is a Third World policy: Deficit funding that nakedly depends on the central bank printing up and buying close to half of the new issuance of debt.
And on top of everything, this budget deficit is for a budget that has yet to be passed! After all, the fiscal year 2011 budget has not been passed, the government operating since October 1, 2010, under continuing resolutions. The latest extension runs out on March 4—when presumably the budget has to be passed this time—for sure! . . . maybe.
No matter how you put it, one thing seems clear: this is not going to end well