[Changleen]

http://news.bbc.co.uk/2/hi/business/4244925.stm

The 'ticking budget' facing the US
The budget proposals laid out by the administration of US President George W Bush are highly controversial. The Washington-based Economic Policy Institute, which tends to be critical of the President, looks at possible fault lines:
US politicians and citizens of all political persuasions are in for a dose of shock therapy.

Without major changes in current policies and political prejudices, the federal budget simply cannot hold together.

News coverage of the Bush budget will be dominated by debates about spending cuts, but the fact is these will be large cuts in small programs.

From the standpoint of the big fiscal trends, the cuts are gratuitous and the big budget train wreck is yet to come.

Under direct threat will be the federal government's ability to make good on its debts to the Social Security Trust Fund.

As soon as 2018, the fund will begin to require some cash returns on its bond holdings in order to finance all promised benefits.

Coming shock

The trigger for the coming shock will be rising federal debt, which will grow in 10 years, by conservative estimates, to more than half the nation's total annual output.

This upward trend will force increased borrowing by the federal government, putting upward pressure on interest rates faced by consumers and business.

Even now, a growing share of US borrowing is from abroad.

The US Government cannot finance its operations without heavy borrowing from the central banks of Japan and China, among other nations.

This does not bode well for US influence in the world. The decline of the dollar is a warning sign that current economic trends cannot continue.

The dollar is already sinking. Before too long, credit markets are likely to react, and interest rates will creep upwards.

That will be the shock.

Public outcry

Interest-sensitive industries will feel pain immediately - sectors such as housing, automobiles, other consumer durables, agriculture, and small business.

Some will recall the news footage of angry farmers driving their heavy equipment around the US Capitol in the late 1970s.

There will be no need for constitutional amendments to balance the budget.

The public outcry will force Congress to act. Whether it will act wisely is another matter.

How did this happen? By definition, the defecit means too little revenue and too much spending - but this neutral description doesn't adequately capture the current situation.

Federal revenues are at 1950s levels, while spending remains where it has been in recent decades - much higher.

In addition, the United States has two significant military missions.

The Bush administration's chosen remedy is the least feasible one. Reducing domestic spending, or eliminating "waste, fraud and abuse" is toothless because this slice of the budget is too small to solve the problem.

Indeed, if Congress were rash enough to balance the budget in this way, there would hardly be any such spending left.

Law enforcement, space exploration, environmental clean-up, economic development, the Small Business Administration, housing, veterans' benefits, aid to state and local governments would all but disappear.

It's fantasy to think these routine government functions could be slashed.

The biggest spending growth areas are defence (including homeland security), and health care for the elderly and the poor.

To some extent, increases in these areas are inevitable.

The US population is aging, and the nation does face genuine threats in the world. But serious savings can only be found where the big money is.

Savings in health care spending that do not come at the expense of health can only be achieved with wholesale reform of the entire system, public and private.

Brute force budget cuts or spending caps would ill-serve the nation's elderly and indigent.

Facing the reality

On the revenue side, the lion's share of revenue lost to tax cuts enacted since 2000 will have to be replaced.

Some rearranging could hold many people harmless and focus most of the pain on those with relatively high incomes.

Finally, blind allegiance to a balanced budget will have to be abandoned.

There is no good reason to fixate on it, anyway. Moderate deficits and slowly rising federal debt can be sustained indefinitely.

Borrowing for investments in education and infrastructure that pay off in future years makes sense.

The sooner we face that reality, the sooner workable reforms can be pursued.

First on the list should be tax reform to raise revenue, simplify the tax code, and restore some fairness eroded by the Bush tax cuts.

Second should be a dispassionate re-evaluation of the huge increase in defence spending over the past three years, much of it unrelated to Afghanistan, Iraq, or terrorism.

Third must be the start of a serious debate on large-scale health care reform.

One thing is certain - destroying the budget in order to save it is not going to equip the US economy and government for the challenges of this new century.

In short - The current budget is a joke. Enjoy.

 

[Ciaran]

Ok.. I am going to ask a question or two. I would really like to know because I don't understand how it works...

How come we are lending money to other countries, and giving out millions in aid when we are so short of funds ourselves we have to borrow from China and Japan? How come we don't just tell the nations that want to borrow from us to go as Japan or China? Also... what are we borrowning money for? what are we trying to pay for that we can't afford?

I am sorry if my questions are rather pedestrian, but this doesn't make much sense to me and I would like to understand this better. Thanks!

Edit: One more question... Do other industrialized nations also face the same issues with their budget and finances?

 

[mack]

I also am confused. Who cares about all those other countrys, we should not be giving allowance to Eygpt and others every year, and especially have them bitch to us. We should be the good parents and give them a time out or take it back. Sure, Tsunami or natural disaster victims can take all they want, but this is BS...

 

[Silver]

I also am confused. Who cares about all those other countrys, we should not be giving allowance to Eygpt and others every year, and especially have them bitch to us. We should be the good parents and give them a time out or take it back. Sure, Tsunami or natural disaster victims can take all they want, but this is BS...

Do you know why we give money to Egypt?

 

[Changleen]

Ok.. I am going to ask a question or two. I would really like to know because I don't understand how it works...

How come we are lending money to other countries, and giving out millions in aid when we are so short of funds ourselves we have to borrow from China and Japan? How come we don't just tell the nations that want to borrow from us to go as Japan or China? Also... what are we borrowning money for? what are we trying to pay for that we can't afford?

I think your trouble here is your definition of 'We'. This is not one big centralised pot of cash we are talking about, although it is often presented this way. What we are actually talkinging about is the result of the different dealings all US businesses, government departments and other interested parties have with the rest of the world.

I am sorry if my questions are rather pedestrian, but this doesn't make much sense to me and I would like to understand this better. Thanks!

See if you can download the BBC series titled simply: 'Economics' from a Bittorrent site or something. It's very very good. Shouldn't be too hard to find as the Beeb pretty much encourage the sharing of their wares, and will soon be offering them directly themselves for download.

Edit: One more question... Do other industrialized nations also face the same issues with their budget and finances?

Yes and No. They all essentially deal in the same way, under the same 'rules' with 2 major differences: 1) The 'World' Bank, as it currently exists is a US controlled entity which gives the US a huge advantage in these issues, which makes point two all the more suprising: 2) The US is currently in a hole pretty much worse than any other industrialised nation (way worse than most) wrt budget and national debt. I know people think I'm a Bush basher, and I am, but in this case I don't think many people would argue against the fact that this hole has been dug almost exclusivley by the current administration.

 

[mack]

We spend .1 % on foreing aid, where as Denmark spends 1.01 percent, but as my mother says, " i dont care what the other kids did, i care what you did." and i still think that it is too much... 241 billion sounds like too much to me, regardless of the % sings.


Not to mention that like 1/2 that money ever helps any body, most of it is pocketed by scamers... there are many more Koffi Annans out there...

As to why we give money to Eygpt...

It started in 1975 and is now @ 50 billion in total.

Sounds like we give them money for acess to the Suez Cannal for our military?




Wait, i found this about it...

"Aid offers an easy way out for Egypt to avoid reform," says Edward Walker, the US ambassador to Egypt from 1994 to 1998. "They use the money to support antiquated programs and to resist reforms."

thats just what i wanted to hear.




EDIT: Ciarin, from my take the US is ALWAYS in debt... it is perpetual and gets paid off by the tax payers on our terms, so no one is going to come after us and REPO your new Suzuki... we could just not pay them at all.... its not like we havent done that before... but then again other countrys do it all the time. :devil:

:devil: We are the big kids on the play ground, remember? :devil:

 

[Changleen]

Do you know why we give money to Egypt?

Oh, Oh, me, me! I know this one!

The US is currently paying Egypt and Syria billions of dollars a year to keep their noses out of the Israel vs. Palestine issue. I posted the actual figures for this some time ago and I can't remeber them exactly now. I think it was $44 Billion to Egypt and $11 Billion to Syria? I'll look it up later if no-one else has.

 

[mack]

Oh, Oh, me, me! I know this one!

The US is currently paying Egypt and Syria billions of dollars a year to keep their noses out of the Israel vs. Palestine issue. I posted the actual figures for this some time ago and I can't remeber them exactly now. I think it was $44 Billion to Egypt and $11 Billion to Syria? I'll look it up later if no-one else has.

I was going to guess that, but Israel and Syria dont seem to be keeping up that "under the table" agreement very well. I guess the smell and prospect of no Israel is just to appealing...


They should have already gotten that message when Israel kicked their ass way back when... looks like it might need to happen again and we can save a few million dollars each year on the aid list. :devil:

 

[Changleen]

I was going to guess that, but Israel and Syria dont seem to be keeping up that "under the table" agreement very well. I guess the smell and prospect of no Israel is just to appealing...


They should have already gotten that message when Israel kicked their ass way back when... looks like it might need to happen again and we can save a few million dollars each year on the aid list. :devil:

Given the cost of invading Iraq, how much do you think it would cost to kick Egypt and Syria's asses compared to the cost of paying them to shut up? (Which has the additional benefit of not killing anyone?)

 

[mack]

Given the cost of invading Iraq, how much do you think it would cost to kick Egypt and Syria's asses compared to the cost of paying them to shut up? (Which has the additional benefit of not killing anyone?)

Last time it took a few airplanes and bombs... we wouldnt need to invade and then occupy... more of a "afternoon quicky" type operation... hit and run if you will.

I think that they will be off the pay roll soon enough if they continue to read maxim on the pooper and ignore our preferances.

 

[reflux]

Stagflation will be a bitch.