Deficits Should Rise During Recessions, Not Booms
The Committee for a Responsible Federal Budget notes the Deficit Has Never Been This High When the Economy Was This Strong.
Rarely have deficits risen when the economy is booming. And never in modern U.S. history have deficits been so high outside of a war or recession (or their aftermath).
The federal budget deficit has only exceeded 4.6 percent eight times since 1950. Four of those years were during and immediately following the Great Recession of 2009, and the other four followed the 1981-82 recession (which was followed by large tax cuts and a defense buildup near the end of the Cold War). Most smaller spikes in the deficit also took place during or immediately after a war or recession.
Output Gap
Going Forward
Going forward, deficits are projected to rise even assuming the economy remains stable. Under current law, CBO projects deficits in 2028 will exceed 5 percent of GDP, and under a (perhaps more realistic) Alternative Fiscal Scenario that assumes Congress continues recently enacted policies, deficits will reach 7.1 percent of GDP in ten years.
The same pattern holds with employment rates – the deficit has typically moved in the same direction as the unemployment rate. Yet the current unemployment rate of 3.7 percent is the lowest since 1969, and the deficit is high and rising. All other recent periods of high deficits have been accompanied by high unemployment.
What’s the Problem?
Apparently, there is none.
Trump brags about the stock market every chance he gets.
To support Trump’s mind-blowing deficits, he needs lower interest rates.
Moreover, the Fed is willing to accommodate Trump.
Bubbles Be Goode
In case you missed my musical Fed tribute, please enjoy Bubbles B. Goode: Musical Tribute to the Fed.
Mike “Mish” Shedlock
Japan shows that this craziness can go on indefinitely. We will get MMT by default, like it or not, this way
Yep. The Fed wont call it MMT but they will be buying more US debt soon to prop up prices. A lot of extending and pretending can go on because hey someone has to be the world’s reserve currency and be worth something.
People are going to be paying more in some cases alot more due to Tariffs that have already taken effect and will be showing up across the board in the 3rd and especially the 4th quarter of this year as inventory turns.. The newest Iphone is going to be at least 15% more expensive just due to the 25% tariffs that have ALREADY taken effect, same with apparel, appliances and pet food & supplies.. It has been reported that the average consumer will be spending between $800 – $2300 a year more just due to the tariffs (not to mention higher wages & utility costs that are being passed thru)
Same thing would’ve happened under Killary.
“Yet the current unemployment rate of 3.7 percent is the lowest since 1969, and the deficit is high and rising.”
In who’s book? What is the participation rate of the population? It is up from the lows of 2009, but supposedly some 100 million working age people are not working.
What is the real unemployment rate when exclusions are added in?
As far as the deficit going up as a % of GDP, by the top chart, it looks like that started in 2015 and is accelerating under Trump. There is a presidential election next year and the pump is being primed. I read once that Nixon’s 1972 election strategy was “Keep California Green.” Politicians love to spend the tax payers money to keep themselves in office. Governor Arnold was gong to cut up the California credit card- until it was time for the next governor’s race.
A lot of people have criminal records or poor work histories or they haven’t worked for an employer for a very long. These three factors are the reasons some have maybe looked for work then given up when they couldnt get HIRED. It is many easier for millennials to find six figure white collar corporate jobs than it is for over 40 especially white males. Don’t believe me. Goto any major city everyone looks the same under 35 attractive and white or Asian
The real unemployment rate is still in the low 20s.
link to shadowstats.com
Have you ever been to Boston or NYC. The people working at the white collar corporate positions are no where near resembling the reported demographics of each city respectively. I mean everyone wants the white or Asian attractive yuppie millennial. Everyone looks the same, goto any bar after 6pm., people who go out on weeknights are only the white collar corporate six figure crowd.
I have interviewed for many positions in Accounting or Finance.i am either over qualified or its not the right fit.
I am Caucasian but over 40 and male but don’t mesh well with the demographic that makes up most of the white collar corporate six figure jobs in the new economy of the 2000s
“Unfortunately, this is the new normal.”
I am still trying to find normal. No two decades are the same.
Yes in the 1970s decade of shared misery, double digit inflation was supposedly the new normal along with shortages of most industrial mstwrusls
That’s the “official”(pretend) deficit number meant only for public consumption ,which is complete bs,add the off balance sheet dept,the phony scam bait n switch accounting,real deficit is easily double (triple)the “official”number!
Questioning the whole “Trump Economy” may seem in poor taste to those who have benefited so much but it is something we should do. What is being ignored is the structural issues that haunt America’s competitiveness and far outweigh the benefits of lower taxes.
Trump’s economy is simply one of deficit spending gone wild. We must face the fact that deficit spending can only take the economy so far and carries with it a fair amount of negatives. The article below explores Trumponomics in all its glory and why this won’t end well.
link to brucewilds.blogspot.com
It is reminiscent of the 2003-2006 boom that started with low interest rates and debt fueled spending.
That housing boom was started by deregulation of banks by Congress and Clinton in the late 90s. It started long. before 2003. My only point is the period in question now happen after a period of historically low interest rates.
It started with the 1997 changes in the tax law that exempted gain on sale of residence from Capital gains taxes and sustained with mortgage rates of 3% – 6% since 2003.
Nice idea, except defaulting on the national debt is unlikely to be a popular move, especially as more than half is owned by Americans in some form or another. Not exactly a vote winner I’m gunna say. That includes the Social Security Fund.
Mish, trump deserves shame for deficits but Congress deserves more. They have been happy for years to continue wasting money (both Republican and Democratic leadership). In general the entire Federal Government is to blame for the sorry state of our deficits and overall debt burden.
No. It’s really Republican voters. They keep electing people who cut taxes and increase spending on wars. You can’t blame Congress for expressing the will of its voters.
There are are lots of ways to view this problem, but that clearly is the wrong one. First, Federal taxes collected at a percentage of GPD has been largely unchanged for 50 years, and have always remained at about 18% of GDP, regardless of the tax structure, or marginal tax brackets. Thus, the deficit is a spending problem, not a taxing problem.
Second, military spending at a percentage of GDP fifty years ago ran about twice the level of today. It has largely been flat for the last twenty years, running between 3.5% of GDP to 5.5%, and is currently in the middle of that range at 4.5%. Thus, the deficit growth can’t be blamed on booming military spending.
Try again.
“You can’t blame Congress for expressing the will of its voters.”
You are right that fundamental guilt lays with the voters who want something for nothing, but one can criticize them all — Trump, congress, and voters — each for their specific moral incontenance. They are all in on the game of pretend.
A narrow output gap? Good lord, there’s enormous numbers of Americans unemployed or underemployed, and large amounts of excess industrial capacity. Whomever came up with that statistical ‘estimate’ of the output gap being minimal is completely and utterly out to lunch. The real output gap is so wide that you could drive a bus or fly a 747 through it.
“Whomever came up with that statistical ‘estimate’ of the output gap being minimal is completely and utterly out to lunch.”
Ditto every other childish “statistical ‘estimate’” endemic to the cult of mindless arbitrariness that is attempted (successfully to hordes of well indoctrinated dupes, it seems) passed off as empirical “economics.”
There is no variable laying about, withing to be measured, called “output gap.” Ditto GDP. Ditto “unemployment.” Compared to blind faith in that drivel; even the cultists praying at the altar of “climate change” are paragons of scientific somberness and accuracy. Instead, It’s all nonsense, all arbitrary. And; all obviously so. At least to anyone not significantly dumber than even an unusually unintelligent doorknob.
So desperate are they to convince people that economics is an actual science that there is no limit to the amount of lipstick they’ll put on their pig
What could possibly go wrong?!?! Everything is perfect! It is amazing gold isn’t soaring as the dollar gets continually debased.
Gold is not going to do well for the rest of the Trump years. His policies ensure a strong USD in spite of what he says.
Not fair to Trump. He did not start deficits, he will not end them. Obama presided over a period of 0% federal funds rate. Bush II oversaw the greatest housing bubble in the human history. Trump took over at the tail end of a ‘boom’, Fed decided to hike, Trump had to do something, if it’s not monetary intervention or consumer debt, then it must be tax cut/fiscal spending. The choices are limited. Not fair to him to expect him to lay over and wait till he gets kicked out of office because of an unfortunate coincidence of his presidency and an approaching bust in the business cycle.
In any event, why are we surprised by the federal deficit? In one of my previous posts I made the case that when the population can’t earn money through work, because everything is made overseas and sold to them, then they must get money through debt or government spending/hand outs. It will take a bit of time, but neo-industrialization will take care of federal deficits.
If people in the US are not doing anything productive anymore they won’t be buying anything from overseas. First you produce, then you consume. Capice?
“Not fair to Trump. He did not start deficits, he will not end them.”
Not faire to blame the current government for the current level of government overspending? Are you serious?
“Every revolution evaporates and leaves behind only the slime of a new bureaucracy.”
― Franz Kafka
Are you an idiot? Obama had no choice but to run huge deficits due to the recession (that was handed to him by W), and, as the recession eased those deficits (as a percent of GDP) eased. That’s exactly how you are supposed to run an economy.
The current fool in chief is running ever larger deficits in an economic boom, contrary to all economic logic! Yeah, I’d feel great too if I put everything on the credit card… until the day I had to pay the bill. Using the national credit card to make folks feel great is the Orangeman’s economic policy.
I clearly stated that Obama had ZIRP throughout his term, even after the recession allegedly finished, in addition to deficits.
No name calling, please.
It was at 0 until unemployment fell. That is why it started to go up. It took a long time for realestate to recover.
200% tariffs can balance the budget. I like tariff taxes. If ever there were a tax legal to avoid the tariff is it. I don’t buy imports and I don’t pay the tax. Tariffs on German cars are coming. Tariffs on made in Viet Nam are coming. Chicago, Detroit, and East St. Louis have enough surplus labor to supply USA with textiles.
“Chicago, Detroit, and East St. Louis have enough surplus labor to supply USA with textiles.”
Indeed? I thought we were at full employment?
So, what you’re saying is that you’re prepared to pay a higher price for inferior, domestically produced goods.
Well, each to their own …