Congress has taken two actions since the beginning of 2013 to reduce our deficit: the "Fiscal Cliff" avoidance action that reduces our defict by $60B/year primarily with tax increases and the "Sequester" which reduces our deficit by $85B/year by cutting expenditures. Each of these is a small but positive step towards bringing our fiscal situation under control. In my March 8, 2013 paper "Sequester-A Drop in the Bucket" I demonstrate why the Sequester is a small step towards solving our fiscal problems.
Assume that Sequester ($85B/year of deficit reduction) is a unit of monetary measure.
As of March 2013:
The Federal Reserve is printing a Sequester a month.
It takes 11 more Sequesters to balance the cash-basis budget.
It takes 60 more Sequesters to balance the burden (i.e. the GAAP-basis budget)
It takes 5 more Sequesters to pay our debt down to 50% of GDP over a 20 year term.
A total of 65 more Sequesters will get us to a sustainable fiscal plan.
Another Absurdity? (Nov 2013)
I find the discussions in Washington about the way to handle the budget cuts imposed by the Sequester totally absurd. Almost(?) every member of Congress will agree that there needs to be cuts in Government spending to begin a movement toward a sustainable fiscal model. But no one wants to have their name on any spending cut or tax increase that would negatively impact their constituency. Spending cuts and tax increases are okay as long as they "gore someone else's ox." As a result, the mantra of most of Washington is "the sequester is okay but we just need to do it in a smarter way". The ladies and gentlemen of the congress need to get off the idea that they can continue to polish the way a one sequester deficit trimming action is done and start working on finding the 64 more Sequester sized deficit reductions that are required to get to a stable and balanced GAAP-basis budget!
What is even more absurd is that there are some members of congress that still hold the position that we should reduce or even eliminate the spending cuts that were imposed by the Sequesster since it is hampering "the economic recovery". Fiscal gap closing actions will by definition slow economic growth and the level of gap closing required to get the U.S.Government to a sustainable closed loop system will dramatically reduce our GDP. But that is the choice we must make: either continue to let USAPonzi run and experience hyperinflation or take the austerity actions necessary to get to a sustainable fiscal model.
I am of the opinion that the approach that will be taken is somewhere in between these two positions since moving immediately to austerity (living within our means with a balanced GAAP budget) would surely put a pox on the entire current Washington establishment. But not getting to a sustainable fiscal model means that we have still chosen to accept hyperinflation it will just take longer to play out. But that may work for most everyone currently in Washington since they can possibly "get out of Dodge (er Washington)" before USAPonzi implodes.
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