Is The Deficit Reduction Just A Mirage?

Tyler Durden's picture

Submitted by Lance Roberts of STA Wealth Management,


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DoChenRollingBearing's picture

I am not a policy wonk nor pretend to be one at ZH (nor a programmer, trader, etc.).  But, I do have high confidence that we are being lied to by Obama et al about the deficits and the economy.

Occident Mortal's picture

But Americans actually LOVE paying eye watering health care costs.

That's why I am the target of such vitriol every time I mention one of the worlds far cheaper and more inclusive health care systems.

Hey, you make your bed. You lie in it.

philipat's picture

A 10K deductable and 20K premium is not insurance but welfare for the Insurance Companies who wrote the law. Instead, why don't folks NOT insure and just have a nice holiday overseas when they need healthcare? Business Class return fares to Thailand and a nice two week vacation , including medical bills, cost less than one year at the above rates.

philipat's picture

Apologies for double post. Fat finger!

CrashisOptimistic's picture

I am a ZH wonk.  I never even think about the possibility of lying.  It's the default presumption.


BTW the article quotes "% of GDP" and likely is using the June redefinition.  It also fails to note some of the "special measures" taken over several months of 2013 to extend how long the govt could operate to avoid the debt ceiling.

Those were not reversed until after 1 Oct (end of FY 2013) and thus spending was erroneously reported lower pre 1 Oct.

notquantumdum's picture

I think I agree.  Using the most recent "revisions" of the "official" numbers, I don't see any deficits below 4% of GDP, just yet:

Plus, this chart apparently excludes all the "off-budget" and "unfunded"  liabilities such as social security, Fannie Mae, Freddie Mac, the HUD's housing liabilities, the FHA's housing liabilities, and medicare [plus "Obamacare," to quote a White House representative regarding the use of this particular term -- the total healthcare spending, of which, appears to be the biggest of the liabilities, by far], Et al.

Since those off-budget liabilities appear to be larger than the "on-budget" in the out years, can someone explain to me why they are "off-budget" in the first place?

Even excluding all the unfunded liabilities, the total debt chart for all the governments in the US still looks fairly scary:

I don't care what anyone says; I believe more debt-to-GDP, means less prosperity and less economic growth, once it becomes this large.

Finally, doesn't all this discussion of the current deficit totally miss the point?  The boomers retiring -- and the necessary demographic changes which that mandates -- almost certainly blows up all these problems in the not-too-distant future, in the US [if not also everywhere else in the world], if we don't start fixing this stuff yesterday.  Every microsecond we hesitate magnifies the necessary correction (and the consequent pain), in an exponential fashion.

Our children [if not we -- also] would appear to be totally F'ed, if we don't start radically changing things very soon!  But don't forget; there don't appear to be anywhere near enough assets, wealth, income, productivity, or anything else to tax enough of; to actually substantially fix these problems of excessive "promises" by the governments of the US.  We actually have to agree to . . . cut spending, including entitlements, at least a little.

If only I could see any of that:

(Keep in mind, this chart also excludes the future unfunded liabilities which government has implicitly agreed to fund [if not also, explicitly, in writing, guaranteed, as in the case of pension guarantees], without having any source of assets with which to fund these liabilities.  'Hence the name:  unfunded liabilities.)

(Oh yeah, what do they call that when it happens in the private sector??  Answer -- 'Rhymes with "ODD" [almost, if not totally in some areas] and starts with an "FR".)

(PS -- After looking at these charts again just now, WHAT THE HELL happened in 1913??!!!

'Just kidding . . . I'll bet almost every ZH reader has some idea of what that was.)

Gromit's picture

The rate of increase has reduced.......but the deficit continues to increase, if only by +-4$ of GDP.

ZH Snob's picture

way too little, much too late

NoDebt's picture

Agreed.  But the entitlements that wag the budgetary dog will be dealt with at some point because they will force themselves to be dealt with.  

The only place I hear anyone taking the possibility of entitlement reform seriously under this administration is in the MSM.  Everyone I talk to laughs at the possibility of any cuts to those programs in the next few years at least.  Frankly, even the cuts to "emergency federal unemployment benefits" that were supposedly agreed to in the new 'bi-partisan' budget agreement (see ZH article about it currently up on the main page) are expected to be renewed before the current budget negotiations are complete and voted on.

In short, expect nothing to change anytime soon.  They will do nothing to reform them until forced.  Right now nothing's forcing them.

darteaus's picture

And the answer is: Does the math account for the $85B a month the Fed is pumping into the economy?

slightlyskeptical's picture

I think the deficit has been reduced, about that there is no question. One of the main reasons is cap gains. Makes the deficit improvement basically the same as Clinton's, all on the back of improved asset prices. Once the bubbles blow, tax revenues will plummet and deficits will increase exponentially. While deficits have fallen, it sure isn't a permanent situation.

Gutenberg's picture

Didnt they just come up with a new magic formula to calculate GDP which is complete b.s. so they increased the denominator to make it look smaller. Pretty simple explanation.

Surging Chaos's picture

Of course the deficit reduction is a mirage. It fails to take into consideration all the unfunded liabilities that accumulate every year from SS and Medicare.

I can't help but remind myself of Greece's infamous 2009 budget deficit. It started out as a modest budget deficit in an era of deficit spending gone full retard. Then the deficit kept getting revised higher... and higher... and higher... until suddenly people realized "Holy shit! The budget deficit is 16% of Greece's GDP!"

mark mchugh's picture

Deficit Reduction?  hahahahahahahaha


October 2013 was the third biggest month EVER for US government borrowing, but it never showed up on Treasury's Report.  What they did was NOT count spending that couldn't be acknowledged until the debt ceiling was raised.  When the debt deiling was raised they didn't count it because, well, it wasn't current spending.

The debt has grown by $800B in 2012 (6th highest ever), but what everyone ignores is the impact of Operation Twist (remember that one?), which changed the average maturity of US debt drastically.

In 2008, over 40% of the US debt held by the public had to be rolled (about $2.15 trillion).  Only 26% has to be rolled in 2013 ($3.0 T).  If we were still rolling 40% that would be $4.6b

So, no we haven't reduced our deficits one bit.  We've merely changed the structure of the debt to make it look that way.


knowshitsurelock's picture
Is The Deficit Reduction Just A Mirage?

I about hurled coffee all over my keyboard and fell out of my chair!  OF COURSE deficit reduction is a mirage.

A fiat debt based system, which ALL NEW money entering commerce enters as debt, must be serviced through additional debt entering commerce.  There is always too few dollars chasing too much debt, and creating more debt is the only way to keep the ponzi going.

Headline News:  There is no such thing as debt reduction, deficit reduction, tapering, or fiscal prudence, or whatever the hell they want to call it.  Thats all bullshit.  DEBT MUST increase exponentially to keep the fiat system going.  Stop debt, slow it down, or mess with it at all, and the system implodes upon itself.