Comments on: The Exploding Deficit Reaches $1.4 Trillion

By: Is It Possible to Tame the Ballooning Deficit?

Is It Possible to Tame the Ballooning Deficit? — Tue, 22 Sep 2009 02:58:49 +0000

[...] fiscal outlook for the United States is grim. This year’s deficit will be around $1.4 trillion, about 10% of GDP, and the Obama Administration projects that deficits in the next ten years will [...]

By: Is It Possible to Tame the Deficit? Yes. « Donald Marron

Is It Possible to Tame the Deficit? Yes. « Donald Marron — Mon, 21 Sep 2009 23:56:27 +0000

[...] Marron The fiscal outlook for the United States is grim. This year’s deficit will be around $1.4 trillion, about 10% of GDP, and the Obama Administration projects that deficits in the next ten years will [...]

By: Rodger Malcolm Mitchell

Rodger Malcolm Mitchell — Sun, 13 Sep 2009 22:23:18 +0000

1. Creating money CAN lead to inflation, but in the past 50 years, large federal deficits have not been associated with inflation. To see a chart of this, go to http://www.rodgermitchell.com and do a page search for “there is no relationship.”
I cannot speak for all the countries that have suffered hyperinflation, but in most cases what happened was this: First the country had some inflation. In response the country should have raised interest rates. Instead it printed money.
So it had more inflation, and again in response, printed money. In short, the country “chased” the inflation by printing money, rather than by curing it.
Why the inflation in the first place? Many reasons. For the past 50 years in America, inflation has been more associated with the price of oil than any other single factor.

2. When you say “costs of deficits,” specifically to which cost do you refer? Your question may look simple, but I wrote an entire book on it.

Rodger Malcolm Mitchell

By: Donald Marron

Donald Marron — Thu, 10 Sep 2009 17:10:07 +0000

Hi Rodger — Two questions for you:

1. In your first item, why doesn’t creating money lead to inflation? As written, it sounds like you are describing exactly what Zimbabwe did, which didn’t work out well, but I am sure that’s not what you mean.

2. In your framework, what are the costs of deficits and who bears those costs? As written, it sounds like you are suggesting there are no costs to deficits, but that can’t be what you mean.

By: Donald Marron

Donald Marron — Thu, 10 Sep 2009 17:06:47 +0000

Hi Brooks — Thanks for the links. Nice parfait charts. I haven’t seen one consolidated down like my waterfall chart, but that’s a fun idea. Of course, as with all these charts, a lot hinges on the choice of baseline.

By: Rodger Malcolm Mitchell

Rodger Malcolm Mitchell — Thu, 10 Sep 2009 12:31:53 +0000

When China passes the U.S. as the world’s dominant economy, you can blame the economists, who parrot the popular wisdom that federal debts are unsustainable and cause recessions, inflations, high taxes and harmful high interest rates. No evidence supports these intuitive beliefs.
Contrary to popular wisdom:

–Fact: We do not need other nations to buy our debt. We do not even need to create debt. Just as the U.S. government has the unlimited ability to create T-securities and sell them (aka “borrow”), the government has the unlimited ability to create money, thus the unlimited ability to “sustain” any size debt.
–Fact: There is no historical relationship between deficits and inflation (See the blog: “Do deficits really cause inflation,” below). Data indicates inflation is more closely related to energy costs, specifically to oil, than to any other factor.
–Fact: In only 15 years, from 1979 through 1994, taxes were cut and the federal debt grew an astounding 500%. This massive, unprecedented money printing did not cause inflation or high taxes. Instead, we entered a long period of economic growth, low taxes and moderate interest rates. Repeating that 500% debt growth would yield a $72 trillion debt in 2024 and an average deficit of $4 trillion — and if history is a judge, the same economic growth, the same low taxes and the same moderate interest rates.
–Fact: All six depressions in U.S. history immediately followed years of federal surpluses. Every recovery coincided with increases in debt growth.
–Fact: All nine recessions in the past 50 years immediately followed reductions in federal debt growth. Every recovery coincided with increases in debt growth, such as we are seeing, today.
–Fact: There is no historical relationship between high interest rates and slow economic growth. Similarly, low interest rates have not stimulated growth.
–Fact: There is no historical relationship between deficits and tax rates. Without tax increases, there is no mechanism for our grandchildren to pay for deficits.

The factually unsupported fear of federal deficits in the U.S., when compared with the lack of such fear in China, is why we will fail and they will succeed.

Rodger Malcolm Mitchell
For more information, see http://www.rodgermitchell.com

By: Assorted Links (9/9/2009) – Jim Garven's Blog

Assorted Links (9/9/2009) – Jim Garven's Blog — Wed, 09 Sep 2009 15:23:16 +0000

[...] The Exploding Deficit Reaches $1.4 Trillion, by Donald Marron [...]

By: Brooks

Brooks — Wed, 09 Sep 2009 01:29:51 +0000

Donald,

Thanks for that useful and user-friendly chart format. Have you posted a similar chart on factors in the projected 10-year addition to our debt (cumulative deficits) vs. some baseline? That would be a useful visual for discussions of, for example, how much is due to Obama’s planned extension of the Bush tax cuts (in conjunction with continued AMT patches) vs. other factors.

I’ve seen other formats that are helpful, such as this one http://www.washingtonpost.com/wp-dyn/content/graphic/2009/08/29/GR2009082900168.html?sid=ST2009082900227 and this one http://crfb.org/blogs/constructing-current-policy-baseline, but your format would be best for a quick, clear visual grasp of relative magnitudes.