An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Monday, December 12, 2011
Deficit projected to fall below $1 trillion for the first time under Obama
The CBO is projecting that the deficit for 2012 will fall below $1 trillion in 2012. That would be the first time during the Obama presidency that it was under a trillion.
So the spending cuts are working for now, but it's bad news for the economy. It's also something that this blog has been predicting.
A declining deficit will reduce aggregate demand and slow output from its already anemic pace. The prospects of a "double dip" recession are now growing.
Yearly deficit falls below $1 trillion for the first time under Obama.
I expect to see the next surge in the GOP to be the candidacy of Ron Paul. IF that happens, balancing the budget will play an even big role in issues involved in the general.
ReplyDeleteThis is the wrong direction to be moving given the sectoral balances. Expanding exports in a global economy seemingly headed for recession cannot possibly make up for demand leakage to increased domestic private saving and a declining deficit.
Something's got to give, and it looks like the economy, absent an actual helicopter drop by the Fed that increases non-government NFA instead of just bank reserves and the yield curve.
Private credit creation could keep consumption supported for a while as the deficit shrinks, however, with incomes falling (jobs report, negative earnings) and likely failure to extend payroll tax cut and unemployment insurance benefits, lending could dry up pretty quick. Then the economy hits a wall.
ReplyDeleteAnd Tom, even without Ron Paul, it seems the electorate likes this idea of balancing the budget. In other words, we may not need him in ascendancy for it to come to fruition. It's already going that way under Obama.
And Tom, even without Ron Paul, it seems the electorate likes this idea of balancing the budget. In other words, we may not need him in ascendancy for it to come to fruition. It's already going that way under Obama.
ReplyDeleteRight, Mike. Most of the GOP contenders are on board with a balanced budget amendment, but only Ron Paul is pushing austerity hard. He really believes the economics behind his position. With the others it is a more of a political stance than an unshakeable conviction, I suspect.
My thinking is that should Paul become more prominent in the nomination process, then the other candidates, and the president, will be pushing even harder on austerity and balancing the budget than they are now. I suspect that they are looking at the polling and seeing the this plays well with the public, but none of them is really excited about it — except Ron Paul.
Given public perception about public debt and government deficits based on the government as big household analogy, fiscal austerity and balancing the budget are going to be the order of the day in the general election, and Congress won't do much in the other direction in the run up to it.
But if Paul gets traction, the focus on austerity will be even worse than otherwise.
I still see the 30-year tsy yield down near 2% eventually. As long as the Fed doesnt get further involved directly in the Treasury market...
ReplyDeleteResp,
Mike, while consumer credit grew in October according to the Fed, revolving credit was flat.
ReplyDeleteConsumer credit increased at an annual rate of 3-3/4 percent in October. Revolving credit increased at an annual rate of 1/2 percent, and nonrevolving credit increased at an annual rate of 5-1/4 percent. (source).
Looks like people are buying some vehicles and taking out student loans, but they haven't been using their plastic. I really don't see the proverbial American consumer stepping up this time.
See my comments and links on the Mish gasoline thread -- particularly about the labor participation rate.
ReplyDeleteI think its down to Romney and Gingrich. I'm pretty sure we'll see Romney backers pushing Paul as a safe harbor for the anti-Romney vote who don't like Gingrich but he doesn't have any real prospect of winning.
ReplyDeleteIronically, both Romney and Gingrich are fairly moderate on fiscal policy compared to Tea Party voters (or Paul).
Check out Gingrich's 2009 stimulus plan alternative which included cutting payroll taxes by 50% and expanded infrastructure spending (and to keep the donors happy, a laundry list of perennial GOP favorites that will never happen like zeroing out capital gains taxes).
http://www.theatlanticright.com/2009/02/18/newt-gingrich-presents-conservative-stimulus-plan/
I think Romney is a better choice in terms of being a more decent human being, but if either got elected I doubt they'd be any worse on Obama on fiscal policy and would be more likely to get Republicans to vote for it. Remember, deficits only count when the Democrats are in charge.
"deficits only count when dems are in charge" which is why i will never vote for any of these gop gas bags. they couldnt care any less for the citizens of this country, all they care about is power. they are the lowest of low,scum.
ReplyDelete