Some of you may have heard about the government potentially shutting down because of a lack of progress over federal deficit talks. The budget problem is just as serious as it was under Obama as it was under Bush. It is important to define what a public deficit is. When the government spends more money than it has, it goes in debt.
But what’s the problem? Can’t the government just spend as much money as it wants to?
Yes it can, but, money doesn’t grow on trees. If the government decides to spend more money than it allocates in taxes, the government will have to hand over more bonds to private investors; it will also have to borrow more from the federal reserve (a private bank that serves as the creditor for the federal reserve), or it will have to ask China to borrow more money (according to http://tutor2u.net).
When the government spends money that it doesn’t have inflation follows, and, it thus reduces the value of the dollar.
There are three problems going on with spending in the government right now: national debt, the federal deficit, and the spending problem. The deficit is a separate issue aside from the national debt. The national debt is a total of how much money the public owes per year with the deficit spending. Right now we have a $14 trillion national debt (according to the debt clock at http://www.brillig.com/). The national debt is also supposed to reach $20 trillion by 2015 (according to http://www.chrismartenson.com/).
Things don’t look good for the national debt. Obama campaigned in 2008 against the massive spending by the Bush administration on the war. In his 2010 budget he spent $3.8 trillion (according to http://www.foxnews.com/) and for the upcoming 2011 budget, he proposed a $3.83 trillion budget (according to http://www.cbsnews.com).
On the other hand, the deficit problem is actually supposed to be getting better. Again, the problem with the deficit is with how much money the government spends versus the taxes that it receives. After 2013, the CBO predicts that the federal deficit will be below $1 trillion (according to http://www.economicpopulist.org). This is actually good news.
The speaker of the house John Boehner, the Obama administration and the Democrats are working in negotiations to cut the federal budget.
Pragmatists will jump at this situation and they will ask for both sides to “work together” in order to find a more amiable solution.
If you’re a budget hawk like me, cutting a few billion dollars isn’t going to cut it though.
The last time that the “fiscal conservatives” in Congress actually cut anything was February 18 of this year (according to http://money.cnn.com/).
What’s most ironic over all of this is that the Democrats are getting so outraged over just cutting 2% of the national budget for 2011. Senator Chuck Schumer of New York calls the proposal “extreme” (according to that http://www.thenewamerican.com). In addition to that, Timothy Gheitner, the head of the Treasury has claimed that unless the debt ceiling is increased (it’s currently at $14.3 trillion) by May, that the U.S. will default on its obligations.
So, we either work on the budget deficit or we default? Which will it be?