Terrific charts via Freddy Hutter of Trendlines Research, showing long term structural deficits.

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Effect of Structural Deficits on USA National Debt

click for larger chart

Thanks, Freddy!

Category: Credit, Politics

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

49 Responses to “Effect of Structural Deficits on USA National Debt”

  1. Tom K says:

    I seriously doubt we’ll see a $438B budget deficit again.

  2. jjay says:

    We might as well face it.
    TPTB are just mopping up what is left of our economy before they head to their abodes in Switzerland, etc. and use the USA as a dumping ground for unwanted or obsolete surplus goods.
    We will export farm commodities and some timber to the developed world.
    Back to the moonshine swilling, bible thumping, backwoodsman future for us!

  3. Livermore Shimervore says:

    How about this (thinking aloud) : anyone under 50, earning less than $200k per household can choose between buying a foreclosure at STEEP discounts from the Fed, zero down at 2% interest (to cover property taxes) in lieu of giving up ALL future claims to social security, medicare payments with a guaranteed 15% cap on income tax for life. How many millions of homes are currently sitting vacant or will be since the underwater math will never work–and of course incomes only falling for the next forever. The impetus being to drastically reduce the role of the banks in mortgage lending for the next decade and force them to start chasing small biz borrowers for revenue.

  4. obsvr-1 says:

    Given where the economy is today, not looking at a recovery for many years, is it real that the projected deficit will go down 1/3 by 2014 ??

  5. obsvr-1 says:

    Given where the economy is today, not looking at a recovery for many years, is it realistic that the projected deficit will go down 1/3 by 2014 ??

  6. formerlawyer says:

    What about the “tax gap” ie. the “lost taxes” in the U.S. ?

    An example for the U.K., poor though it may be, is at:

    http://www.informationisbeautiful.net/category/guardian-datablog/

  7. Dogfish says:

    I don’t have any comment as to the data contained in that chart… but the aesthetics of it… yikes. Grey, red, and blue text on top of a red-to-pink gradient? My retinas just filed a worker’s comp claim against my brain.

  8. Apinak says:

    I have said this many times and no one ever refutes it or agrees with me, but I think a single-payer health care system like the rest of the world has is the best and easiest way to control the deficit. A simple back of the napkin calculation– We spend ~6,000 per capita on health care, places like France and Belgium that score higher in rankings of quality of helath care spend ~3,000 per capita. There are over 300 million people in the U.S. , so with France’s per cpaita we would save ~$1 trillion a year. Deficit solved!

    What arguments are there against this?

    1) I have had people argue that people in the U.S. are fatter and more out of shape than in France so spending would be higher. There is certainly some truth to this, but it sure doesn’t fit the American exceptionalism argument. Let’s determine what the real savings would be taking in to account American obesity.

    2) People have various problems with single-payer- too much governement control, waiting times are too long, not enough innovation, the government will create death panels to kill Republicans. The last one is obviously a silly argument aimed at the feeble-minded but my answer to the rest is-’who cares, aren’t some longer waiting lines (if they actually occur) a small price for balancing the budget? If the debt is the existential threat to the country that Tea Partiers say, isn’t instituting a single-payer system the patriotic thing to do’.

  9. franklin411 says:

    The color may be red, but the numbers aren’t particularly scary. The chart projects that the national debt will only rise from 91% of GDP to 94% over 30 years.

    Compare that to the Reagan/Bush I era, when the national debt grew from 30% of GDP to 70% of GDP over just 12 years. Why didn’t we have any teabaggers whining then? In fact, the teabaggers were some of Reagan’s most ardent supporters!

  10. Joe Friday says:

    obsvr-1,

    “Given where the economy is today, not looking at a recovery for many years, is it real that the projected deficit will go down 1/3 by 2014 ??”

    After 12 years of Reagan & Poppy Bush, the federal debt had accumulated to about 50% of GDP. In just 6 short years, President Clinton and the Democratic Congressional Majority reversed failed Reaganomics and had federal budget surpluses by 1998 and going forward, on the path to paying off the entire federal debt (which Greenie testified to Congress was very a bad idea).

    It CAN happen, but not with failed policies.

  11. inthewoods says:

    I don’t know how you can have all these “structural” problems without mentioning our military spend, and the cost of those two wars. Maybe that’s rolled into the general debt bucket, but I find it odd that he mentions only social programs and leaves off the cost of being the world’s umpire.

  12. Dogfish says:

    Apinak, my answer would be that any of the arguments against single-payer are covers for the real reason: profit.

    Same reason we won’t fix education. Same reason we aren’t out of Iraq or Afghanistan yet. Same reason we weren’t serious about financial reform.

    All of these things are profitable for the minority, and the costs are shouldered by the majority. We see inefficiency, corruption, and ineffectiveness, but others see dollar signs. And the ones profiting roll it into the highest returning investment vehicle known to mankind: lobbying, which only reinforces the hierarchy of power that has gotten us into this mess.

  13. franklin411 says:

    @Dogfish
    All the charter schools in the world can’t make up for the fact that American parents are rotten to the core. Kids aren’t stupid. They have eyes and ears. They see that mommy and daddy care more about Dancing with the Stars than they do about science and books. They see that the people who get rewarded in American society are the ones with the best boob/hip/facial characteristics or who can throw a ball into a hoop, not the ones with the best brains or imaginations. They see that the way to become famous is not to invent some wonderful new product, but to lay on your back and get pregnant at the height of a political campaign.

    It’s no wonder that every effort to reform education has been a failure. The “usual suspects”–teachers, unions, administrators, textbooks, etc..–are all innocent. The worst teacher in the world can’t stop a kid whose parents care about education from learning, and the best teacher in the world can’t fix a kid who is only behaving rationally in a society that celebrates stupidity.

  14. franklin411 says:

    PS–thanks for the comic! =)

  15. James says:

    I have had people argue that people in the U.S. are fatter and more out of shape than in France so spending would be higher. There is certainly some truth to this

    —-

    Some truth? I’d say there is a good deal of supporting data. See this recent report:

    http://www.oecd.org/document/57/0,3343,en_2649_33929_46038969_1_1_1_1,00.html

    for example, and compare. Diabetes and heart disease are chronic diseases that push health care costs way up over time.

  16. James says:

    Unfortunately, it’s impossible to assess that graph without understanding what underlying data is being used. He cites CBO, but we have no idea what assumptions are being made. For example, if it’s based on baseline projections that assumes current legislation, that means the Bush tax cuts will expire in January of 2011 – which is highly unlikely in the case of the middle class cuts. Ditto the AMT fix, etc.

  17. formerlawyer says:

    If you haven’t, you may want to look at the original article which outlines some of the assumptions involved. The link is:

    http://trendlines.ca/economics.htm#dm

  18. call me ahab says:

    “Why didn’t we have any teabaggers whining then”

    quite scholarly there Franklin- maybe it is the teachers after all

  19. willid3 says:

    also did they presume that the current economic ‘condition’ continues indefinitely?

  20. willid3 says:

    and here is the original in all of its glory
    http://www.cbo.gov/ftpdocs/115xx/doc11579/Summary_LTBO.pdf

  21. ACS says:

    Joe Friday, you better check who controlled congress during the Clinton years.

  22. oz says:

    Either there is something wrong with this chart or I have a serious problem with math – I’ll be grateful for any explanation:

    If the deficit is 91% of GDP at 13 trillion and only 92% at 26 trillion in 15 years – does it mean an assumption for a 5% GDP growth every single year in the next 15 years?

  23. louiswi says:

    Dogfish nails it!!!!!!!!!!

  24. Pool Shark says:

    If interest rates go anywhere near their historical norms, that curve will be asymptotic well within 30 years

  25. philipat says:

    These are terrific charts content wise BUT, as always, very difficult to read because of the selection of colours for text on background. Needs an Editor? Or perhaps it’s just my old eyes!

  26. DeDude says:

    As we all look at this huge deficit and the crisis it will eventually precipitate, we also have serious proposals from the party currently FAVORED by voters suggesting that we should make permanent the Bush tax-cuts for the rich. Our democracy is simply not able to deal with a problem like this. The “solution” will be the default solution that comes when nobody want to make the difficult choices. Eventually the inflation tax will be raised because that is the one tax-increase that does not require a political vote. It comes all by itself after a long enough period where everybody has refused to do what needs to be done. It is a particularly cruel and regressive tax that mostly hit asset poor and hard working people that always paid their debt and put their small nest-egg into safe conservative investments. But then maybe that is how it should be since most of those same people also rather consistently voted against their own interests in favor of the party of the rich.

  27. Joe Friday says:

    ACS,

    “Joe Friday, you better check who controlled congress during the Clinton years.”

    Obviously, I’m not the one in need of a chronology check.

    If you’re referencing Newtie & The Blowhards:

    * They didn’t take office until January of 1995. The federal budget was already in net surplus by the Summer of 1994.

    * They didn’t have any major budget legislation signed into law until AFTER they shut the federal government down TWICE in December of 1995 and January of 1996, and had to ditch their failed RightWing agenda. The national economy and the stock market took off long before that.

    It was the budget & tax legislation passed by the Democratic Congressional Majority and signed by President Clinton in 1993 that reversed failed Reaganomics, reversed federal deficits into federal surpluses, and produced the best national economy in the modern history of our nation.

  28. Dogfish says:

    f411,

    It’s not that American parents are rotten, it’s that they are stretched to (beyond?) their limits. 50 years ago it was realistic to have one breadwinner in the family, and the other parent help care for the house and kids. Now both parents have to work at least a job in order to be able to keep up with their mortgage and car payments, and the TV or some outsourced daycare is the babysitter (hello, corporate programming and celebrity fetishism).

    The same dynamic holds true for so many elements of our society and infrastructure in this country. This country became all hat no cattle with the push for globalization and our oligarchs falling over themselves to move our manufacturing base to other countries.

    Hey CEO, cutting costs so much sure does justify that huge bonus. One question though, how come your customers, i.e. ex-employees, can’t afford to buy your product anymore? Oh, that’s right, because you moved all their jobs overseas to a communist country with a pegged currency. Too bad suckers! Haha… anyway, good job, here’s that bonus.

    So many of our current problems are symptoms of the skewed wealth distribution in this country, and the political structures that help enable it.

  29. Dogfish says:

    I’ve posted these a couple of times on here… but again:

    Dogfish’s Solutions to Fix Everything:

    1) Ban corporate lobbying

    2) Ban corporate campaign donations

    3) No Electoral College

    These three simple changes would fix everything wrong with this country. Everything. Maybe not overnight, but within a week or two.

    Over the years we have allowed continually greater corporate influence in our government, and then wondered why the government doesn’t serve the people…

  30. James says:

    The author of the chart SEEMS to be assuming the Bush tax cuts are extended. He writes, somewhat vaguely IMO:

    “This time line has been extended three years from our last update by the apparent current sentiment within Congress to extend the Bush tax cuts set to expire at year end. Today’s chart projections, with a significantly lower ultimate deficit and accumulated Debt in 2040, assumes no intervention by the November deadline. This is a very positive development that could chop over two trillion dollars off the accumulated Debt by 2020.”

    I have no idea what CBO data he’s using (note to author: provide a specific source). Perhaps the CBO Budget Outlook from August, here:

    http://www.cbo.gov/ftpdocs/117xx/doc11705/08-18-Update.pdf

    Nonetheless, assuming all the tax cuts end in January means the chart is an optimistic assessment of the debt picture. For an analysis of what the debt projections looks like if one introduces more realistic assumptions see:

    http://www.pgpf.org/Issues/Fiscal-Outlook/2010/08/19/CBOs-August-2010-Budget-Outlook.aspx

    Note, in the Trendsline chart the deficit appears to be maybe 3% of GDP in 2020. In the Peterson chart, where less optimistic assumptions are made, this jumps to 6% of GDP. These are highly significant differences that have a highly significant long-range impact on the overall picture.

  31. James says:

    Correction, I meant to write:

    “The author of the chart SEEMS to be assuming the Bush tax cuts are NOT extended.”

  32. RW says:

    Nice chart: meaningless to extrapolate a dynamical system as if it were linear of course, but very pretty.

  33. ACS says:

    “President Clinton and the Democratic Congressional Majority reversed failed Reaganomics and had federal budget surpluses by 1998″

    Bill Clinton is a hero compared to what came after so why didn’t you use 1994?

  34. Joe Friday says:

    Why didn’t I “use 1994” for what ?

  35. blackvegetable says:

    “The federal budget was already in net surplus by the Summer of 1994.”

    Could I get a link, or the math for that ?

    Thanks

  36. James is correct that the current chart assumes expiry of the Bush tax cuts. Last month’s chart (and all previous versions) were based on their probable extension … CBO’s Alternative Scenario. At the time the chart was composed there seemed to be general consensus the tax cuts were facing sunset.

    Recently however, the mood in Washington seems to have shifted back due to the wrong-minded concern over a double-dip (in an Election environment). The next update will reflect Congress disposition of the Bush tax cuts and the prospects for subsequent renewals for the lower tax brackets.

    The analysis also builds on a premise that the National Debt is of $13 trillion gross gives better perspective than most presentations which are based on the net $9 trillion figure.

  37. Bernie638 says:

    Social Security and Medicare have been fine until now, what changed?

    Its entirely based on demographics, the average population age is going up. Too many retirees for the number of workers.

    How do you fix that?

    Either Spend more, provide less, or….. change the number of workers.

    “Give me your tired, your poor, your huddled masses yearning to breathe free”

  38. Joe Friday says:

    blackvegetable,

    ‘The federal budget was already in net surplus by the Summer of 1994.’

    “Could I get a link, or the math for that ?”

    A link from 1994 ? America didn’t even have widespread commercial dial-up until 1995.

    As to the math, net refers to federal revenue minus spending not counting what was inherited.

  39. Joe Friday says:

    Bernie638,

    “Social Security and Medicare have been fine until now, what changed?”

    Political rhetoric.

    The actuaries say that Social Security is solvent through 2085, and they only do 75-year projections:

    http://www.ssa.gov/OACT/TR/2009/lr4b3.html

  40. blackvegetable says:

    “A link from 1994 ? America didn’t even have widespread commercial dial-up until 1995.”

    check this out!

    http://www.govtrack.us/congress/bill.xpd?bill=h103-2264

    Don’t ask…I have no idea how they did that…

    But thanks….

  41. ACS says:

    If you’re going to be a partisan hack, at least be an honest one. Only under the most optimistic scenario is Social Security “solvent” in 2085 and even that definition means until the last Dollar runs out. A scheme that is rapidly running down its cash to zero is only called solvent by prevaricaters.

  42. RW says:

    “If you’re going to be a partisan hack, at least be an honest one.”

    Well ACS, what better time for you to start than right now, eh?

    Joe Friday cited his sources and in your (vehement) opinion they are not only false but purposely so; not simply error but prevarication.

    Pretty serious charges: SS will be sunk down to the last dollar by 2085 and Joe Friday is a dishonest partisan hack (nice triple oxymoron there); so where is your evidence for each?

  43. Joe Friday says:

    ACS,

    “Only under the most optimistic scenario is Social Security ‘solvent’ in 2085”

    Quite.

    That also happens to be the only “scenario” that has been accurate over the years. The two others have been repeatedly wrong. Which would YOU suggest we utilize ?

    ~

    “and even that definition means until the last Dollar runs out.”

    I’m afraid not.

    I intentionally mentioned that the actuaries only do 75-year projections just for that reason.

    ~

    “A scheme that is rapidly running down its cash to zero is only called solvent by prevaricaters.”

    Your assertion of “rapidly running down its cash to zero” is unsubstantiated by the actuaries.

  44. ACS says:

    From the SS web site:
    “Social Security expenditures are expected to exceed tax receipts this year for the first time since 1983. The projected deficit of $41 billion this year (excluding interest income) is attributable to the recession and to an expected $25 billion downward adjustment to 2010 income that corrects for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink substantially for 2011 and to return to small surpluses for years 2012-2014 due to the improving economy. After 2014 deficits are expected to grow rapidly as the baby boom generation’s retirement causes the number of beneficiaries to grow substantially more rapidly than the number of covered workers. The annual deficits will be made up by redeeming trust fund assets in amounts less than interest earnings through 2024, and then by redeeming trust fund assets until reserves are exhausted in 2037, at which point tax income would be sufficient to pay about 75 percent of scheduled benefits through 2084. The projected exhaustion date for the combined OASI and DI Trust Funds is unchanged from last year’s report.”

  45. Joe Friday says:

    ACS posted:

    “Social Security expenditures are expected to exceed tax receipts this year for the first time since 1983.”

    And ?

    In 14 of the past 75 years, including 1975 through 1983, Social Security paid out more in benefits than the government collected in FICA contributions.

    ~

    “The projected deficit of $41 billion this year (excluding interest income) is attributable to the recession”

    There ya go.

    ~

    “After 2014 deficits are expected to grow rapidly as the baby boom generation’s retirement causes the number of beneficiaries to grow substantially more rapidly than the number of covered workers. The annual deficits will be made up by redeeming trust fund assets in amounts less than interest earnings through 2024, and then by redeeming trust fund assets until reserves are exhausted in 2037, at which point tax income would be sufficient to pay about 75 percent of scheduled benefits through 2084. The projected exhaustion date for the combined OASI and DI Trust Funds is unchanged from last year’s report.”

    Just keep three things in mind:

    A) That utilizes the ‘Intermediate’ projection, which has been WRONG again and again and again.

    B) All three projections utilize faulty economic assumptions, such as that the economic growth over the next 75 years will be less than half what it was over the previous 75 years, just to mention ONE.

    C) ALL of the trustees appointed by the previous administration held the view that Social Security should be scrapped and given to Wall Street to skim commissions from before they were appointed.

  46. formerlawyer says:

    Um JoeFriday/ACS aren’t the “trust fund” assets now just “special issues” ie U.S. Government Bonds?

    http://www.socialsecurity.gov/OACT/ProgData/specialissues.html

    Canada’s Pension Plan at least has an interest in public markets:

    http://www.cppib.ca/

  47. Joe Friday says:

    formerlawyer,

    They are only “special issues” for two reasons:

    A) This is the most privileged of treasury securities issued to the Social Security Trust Fund by the U.S. Treasury, as they are REDEEMABLE AT ANY TIME AT FULL FACE VALUE, unlike any other security the treasury issues.

    B) They are intentionally not negotiable instruments, so that if some RightWing majority government decided to try and scrap Social Security and liquidate it’s assets to give even more tax cuts to the Rich & Corporate, they would fail.