random notes

FAQs: What does a trillion-dollar federal deficit really mean?

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It's huge. That's down from the record $1.4 trillion deficit in Fiscal 2009. But it still represents the second-largest deficit in history. In 2007, the deficit was only about $160 billion.
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As is the case with mortgages, it's not so much the amount of debt you carry but the interest rate you pay that determines whether national debt is affordable. Interest rates have fallen rapidly in the past two years, and the government issues a lot of short-term debt. Last week the Congressional Budget Office estimated that the government spent $228 billion on interest alone in Fiscal 2010. That's about what the government spent on debt service in Fiscal 2006, when the national debt was significantly smaller.
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Why was the deficit smaller in fiscal 2010 than it was in fiscal 2009?

As the economy began to grow again, the amount of revenue the government collected grew for the first time since fiscal 2007 — by between 2 and 3 percent. Sharply rising corporate profits led to a large increase in the amount of corporate income taxes collected. Government expenditures fell for the first time since 1948.

Is the deficit "cyclical" or "structural"?

It's both. It's structural because, in the years before 2008, the system of taxes in place didn't collect enough money to pay for spending. Spending rose significantly in part thanks to the passage of the Medicare prescription drug benefit, the cost of waging two wars, and rising discretionary spending.

But cyclical factors — i.e. temporary factors related to the overall economic climate — exacerbated the structural deficit. When the economy falters, tax collections fall as corporate profits fall and the economy loses jobs, and expenditures on things like food stamps, Medicaid, and unemployment insurance rise. In 2008 and 2009, the U.S. suffered an extreme version of this cyclical condition. In fiscal 2009, revenues fell a stunning 16.6 percent.
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So far, not much. In theory, the existence of large deficits puts pressure on interest rates to rise and has the potential to ignite inflation. But interest rates have remained extraordinarily low, in part because the Federal Reserve has kept short-term rates near zero and investors fretting about uncertainty have parked cash in Treasury bonds.
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... for once the fed is right ...
... and it would be dumb listening to the Europeans ...
... that want to raise interest rates ...
... i guess the American banksters tried that line already ...
... now they may have figured out the consequence ...
... when you raise the rates people go bankrupt and you lose the principal ...
... the same "can" happen with states and countries ...
... and sovereign debt default is now like Damocles sword attached to a shoestring ...

... the public deficit "and" the high level of debt service "need" interests close to zero ...
... the "discretionary spending" of governments is close to nothing ...
... if they "all" were valued with commercial parameters ...
... basically they "all" would be "out of budget" ...

... the fiscal revenues went to a scary low ...
... and low rates must be maintained at any cost ...
... to jump-start investment, stimulate reduction of unemployment ...
... and in doing so increasing the fiscal revenue at a level realigned with the debt ...
... at some point even if with unpopular measures ...
... is better a taxation raise than a wall street crack ...

... if hyperinflation happens here it "will" happen in the whole planet at the same time ...
... money is nothing more than a "note on energy" ...
... and "hyperinflation" on oil is not going to happen any soon ...
... the key is energy ...

... the intrinsic value of paper is low regardless ...
... of whoever printed it, even if it was god himself ...
... that would not change the "intrinsic value" either ...
:)