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2008 April 22 Tuesday
US Budget Deficit Hits New High

The US government is running a huge deficit now even before the baby boomers start retiring in large numbers.

In fact, the federal deficit hit an all-time high of $311 billion for the first half of this budget year, reports the Treasury Department. And Congress is discussing further moves to help distressed homeowners and stimulate the economy. Iraq and Afghanistan will cost at least another $170 billion in supplemental funds through the end of next year.

Given the need, the current rush of spending might be understandable, say some deficit hawks. But they worry that Washington will use recession and war as excuses to stop caring about red ink altogether. They also warn that current deficits leave Washington ill-prepared to face an imminent explosion of spending on Social Security and Medicare caused by retiring baby boomers.

Withdrawal from Iraq would cut that deficit almost in half. Eventually the US government will feel compelled to pull back from expensive foreign commitments.

In theory tax revenue should rise this summer and prevent a $600+ billion deficit for the current fiscal year.

Tax receipts generally pick up in the summer, so the deficit is unlikely to surpass $600 billion. But $450 billion, or even $500 billion is possible.

But I expect rising oil and food prices combined with deepening fall-out from the popping of the real estate debt bubble to cause a decrease in economic activity this summer.

Share |      By Randall Parker at 2008 April 22 10:58 PM  Economics Government Costs


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Comments
Kenelm Digby said at April 23, 2008 4:00 AM:

What about all that wealth 'free immigration' and 'free trade' has 'created' accoring to the human hookworms at The Economist and WSJ?
Just where exactly is that 'wealth'?

Wolf-Dog said at April 23, 2008 4:46 AM:

Given that there is a huge foreign trade deficit at least $600 billion per year, the government has no choice but to run huge deficits or else a depression is guaranteed. This is because of the fact that the upper class is taking from the rest of the nation: For instance, please look at the following article I have pasted below.

http://www.iht.com/articles/ap/2008/04/16/business/NA-FIN-US-Hedge-Funds.php

As you can see, the top 50 hedge fund managers in 2007 earned a combined 29 billion. Although some top hedge managers rarely charge an incentive fee as high as 40 % of the profits, the average hedge fund manager gets 20 % of the annual profits, and so we can say that these top 50 hedge funds earned close to $150 billion. So overall we can say that the upper class earned less than $200 billion in 2007 at the expense of the rest. This means that unless the government really continues the deficit spending routine, there will be a depression.

YT said at April 23, 2008 6:42 AM:

"This is because of the fact that the upper class is taking from the rest of the nation..."

Driven through a ghetto lately or visited a public school that has mostly minority students? Maybe you should stop at a hospital in a "border state" as well. You'll see who is taking from this nation. Just watch yourself, please. There were over 25 shootings in Chicago over the weekend, warm weather bringing out the roaches and all that. I say we cut off feeding the parasites, literally.

wolf-Dog said at April 23, 2008 8:31 AM:

I say we cut off feeding the parasites, literally.
------------------------------------------------

The super-class intentionally approved and engineered the arrival of the poor and uneducated immigrants into the United States, for the purpose of deriving two kinds of income from them:
1) Firstly, the low wages paid to them,
but far more importantly:
2) Secondly, the "feeding" of the lower class through welfare and various entitlement programs by means of government deficit spending indirectly (but ENTIRELY) ends up in the upper class. This is because the moment you give a few dollars to the lower class, the lower class immediately spends that money to buy to buy from the upper class, and hence portion of the government spending that is directly given to the poor, actually ends up going to the upper class within the same tax year.

But even if we get rid of the lower 50 % of the population, the new lower 50 % will still fall behind the new upper 50 %, and the same infernal cycle will start, but at a more complex levels, where instead of fighting a few more loafs of bread, they will fight for a little bit more prestige, and they will start accusing each other about whose son stole their son's place at Princeton, forcing him to endure the humiliation of going to Harvard instead. Jealousy is the most powerful emotion in the world, and hatred does not even come close. Then instead of buying a private Boeing 747, some top hedge fund managers are building big submarines, trying to leave behind their mediocre competition.

Ned said at April 23, 2008 9:55 AM:

I used to feel the same way about these huge salaries. But then I grew up. Look at this, from further down in the same story:

Ezra Zask of Lakeville Capital Management, a hedge fund advisory, said some of the bigger hedge funds are now charging as much as 5 percent of the invested principal and 40 percent of the profits.

Some investors are willing to pay higher fees to funds' managers if they show they have consistently beaten the market, Zask said.


"Some of these funds have had pretty spectacular returns over the years," he said.

Further, the growth of the biggest hedge funds has led to higher fees simply because the managers are charging rates on a higher principal.


And look at this:

Aug. 7 (Bloomberg) -- Paulson & Co., the New York-based hedge-fund manager whose assets more than doubled this year to $20 billion, is posting among the industry's highest returns by wagering that declines in subprime mortgages are far from over.

The Paulson Credit Opportunities Fund gained 303 percent this year as of July 31, according to investors. Dallas-based Hayman Capital Partners Subprime Credit Strategies Fund has done even better, climbing 305 percent.

``Hedge funds are well positioned to take advantage of the wide price disparities caused by volatility,'' said Mathieu Klein, chief executive officer of Paris-based investment adviser Darius Capital Partners. ``There are many opportunities created by this market.''

The Paulson and Hayman funds have trounced competitors, many of which got caught by the decline in debt markets. Goldman Sachs Group Inc.'s $9 billion Global Alpha hedge fund fell almost 12 percent in the two weeks ended Aug. 3, extending this year's drop to 16 percent.
(http://www.bloomberg.com/apps/news?pid=20601087&sid=at25NTB51Hwk&refer=home)

Personally, I can't conceive of making $1 billion in a year or a lifetime. But that's my problem. The hedge fund managers don't steal the money, they are willing paid these sums by highly sophisticated investors because they know how to generate even more enormous profits for their employers. They have a very scarce skill set, and they must survive in a hypercompetitive environment. One slip and they are gone. Alex Rodriguez is going to make a couple of hundred million over his career for playing a little boy's game. So what? His employers willingly pay him so much because fans are glad to fork over lots of money for tickets to see him play - how is that anybody else's business? What about the Saudi princes, who amass fortunes in the hundreds of millions, do nothing to earn it and use the money to support a corrupt and degenerate lifestyle? How about the guys running Russia - how much should they earn? Who should decide - the free market or the government?

Wealth envy and class warfare stink. Once I was talking with a guy who'd gotten a Ph.D. in a not very well-paying field from a very prestigious university. He was complaining about all the money that the people who'd gotten JD's, MBA's or MD's from that same school were making, while he scrimped by on a crummy academic salary.

"But you knew this up front?" I asked.
"Yeah, I did."
"And you had the opportunity to apply to law, business or medical school but chose not to do so?"
"Yeah, I guess so."
"So exactly whose fault is it that they're making the big bucks and you're not?"

If you want to make what a hedge fund manager makes, become a hedge fund manager, or at least try to. Otherwise kwitcherbitchin".

YT said at April 23, 2008 10:15 AM:

Wolf-Dog

So your solution is what then? If the super class did in fact engineer this disaster, then I say they get the rope, along with their pets(or send them to live in Zimbabwe). And rich people buying big toys or bitching at each other whose son should have gone to Princeton/Yale/Harvard doesn't really bother me all that much(have they started shooting each other yet with Purdey shotguns over this?). A bunch of rich hedge fund managers trying to one up each other sure beats carjacking and then raping/killing/mutiliating white kids in Knoxville. in fact all that conspicious consumption might even provide employment for manufacturers, engineers, pilots, etc...

Big Bill said at April 23, 2008 2:57 PM:

Ned, sorry, I just can't agree. I wish the getting of money took rare gifts, but it really doesn't. It is a zero sum game like the housing market. You get in, clean up and then get out before the scam collapses. All you have to do is keep it going long enough to collect before it collapses, like Chainsaw Al Dunlop. The creators of CDOs will never have to pay back a dime they extracted from the chumps they sold to. The trick? Get in, clean up, move out -- oh, and spend enough in Washington to get the Feds to ignore the shenanigans long enough. Of course, with cousin Al Greenspan at the helm of the Fed that hasn't been difficult.

The second reason I disagree is because their method of making money is based on disassembling America and selling it for scrap value. Send jobs to China. Hire Indian programmers to drive wages down. Bring in Mexican peasants to work for peanuts. Eliminate all trade barriers. Eliminate all barriers for free migration of workers. And work the margins until the social structure collapses. And while the collapse is occurring, make out like a bandit. It really doesn't take talent, Ned, it takes connections, money, chutzpa and an utter indifference to real Americans.

Think about it. It is extremely efficient in the short term to make money selling someone's country for scrap value like Chainsaw Al. It takes real talent and ability to build one. Ask Warren Buffett. He does the latter.

Ned said at April 23, 2008 5:30 PM:

Big Bill -

"Expenditures rise to meet income." - Parkinson's Second Law

Capitalism is a harsh mistress. She can take you up very quickly, but, one misstep, and you can go down just as fast. All organizations, as Parkinson pointed out, have a tendency to expand within the limit of their revenues. Take the US auto industry. Thirty years ago, the money rolled in so fast they couldn't spend it. Salaried and union workers received huge salaries and bonuses. Then crunch time came. Downsizing was no fun for these companies and their workers, but the other choice was bankruptcy. And I agree that Al Dunlop was a jerk - nobody likes downsizing, but if the only other alternative is bankruptcy, well, which one would you pick? Anyway, Dunlop was ultimately shown to be an incompetent fool, got fired and paid $15 million to settle a shareholder suit. How much money did he have left? I neither know nor care.

Is the getting of money easy? In 2006, the median household income in the US was about $48,000, and over 94% of households made less than $150,000. I'll bet that most the overwhelming majority of that 94% would say that they work very hard for their money and that they don't consider themselves rich or likely ever to become rich.

I'm not defending people who seem to get rich by ripping off the system - it sickens me as much as it does you. But the problem here is allowing them to get away with it. Banks and other lending institutions who have made foolish subprime loans should suffer the full consequences of their folly - no government bailouts for them. And people who have falsified mortgage applications, and loan officers who knowingly approved them, should go to jail. If they don't, then the laws should be changed so that they do. Ditto for the people getting rich by exporting America's industrial base or by using cheap immigrant labor, whether legal (computer programmers brought in under H-1B visas) or illegal (tomato pickers).

Kenelm Digby said at April 24, 2008 4:20 AM:

I know that 'socialism' is a dirty word for most Americans, but it was instances exactly like those named by the correspondents above that kick-started socialist movements in most European nations in the 19th Century.

kurt9 said at April 24, 2008 12:18 PM:

Government intervention as well as inflationary monetary policy for dealing with the housing mess would be completely unnecessary if the U.S. government allowed direct foreign investment in the major financial institutions and corporations. "Spengler" has a well-written article about this at Asia Times in "Rice, Death, and the Dollar" at (http://www.atimes.com/atimes/Global_Economy/JD22Dj01.html).

Our current economic problems are being artificially created and are entirely unnecessary. The U.S. government and Federal reserve are deliberately pursuing a sub-optimal economic policy (government bailout, inflation) just to keep foreign investors out of the leading corporations and Wall Street banks. This is the clearest evidence yet that our political and corporate elites are nothing but parasites.

kurt9 said at April 24, 2008 12:22 PM:

Socialism is probably the most failed, flawed concept ever created by mankind. It has been rightfully consigned to the junk heap of history. Its as dead and blue as Elvis. I simply cannot imagine who anyone with any level of intelligence can still believe in this flawed, failed concept.

Randall Parker said at April 24, 2008 8:45 PM:

Kurt,

Your statement implies that the US government does not allow direct foreign investment in our banks. You mean you don't know about the big Arab stakes in Citibank for example? Or the Chinese investment in Blackstone?

Spengler: He sounds profound. But he's not.


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