An austerity measure is an official action taken by a government in order to reduce the amount of money that it spends on its citizens. Following the worldwide credit crisis of 2008, austerity measures became popular with high-debt governments. For countries with a high debt-to-GDP ratio, austerity measures often become a necessity. Examples of government austerity measures include an increase in the official retirement age (to reduce government retirement payments), a reduction in the number of days garbage is picked up (to reduce municipality costs), and a reduction in school days for children (to reduce government employee costs).
As it stands, the U.S. national debt has skyrocketed to above $17.4 trillion. With this year’s budget deficit expected to be around $500 billion, we’ll be at a national debt of $18.0 trillion in no time. In fact, a $30.0-trillion national debt is not out of the question by the end of the next decade.
Any way you look at these very big numbers, it is the American taxpayer who is on the hook for the years the government mismanaged finances.
If we look at the Greek example, that country’s government, too, rigorously spent money, registering massive budget deficits year after year. This caused Greece’s national debt to get to a point where it was unable to make payments on what it borrowed. Those who bailed out the Greek government asked for changes. This resulted in the lowering of pension payments to Greek citizens and austerity measures across the board.
The U.S. has more national debt than any other country in the global economy. At some point—and I don’t know when, as the can just keeps getting kicked down the road—either taxes will need to go up or austerity measures will need to be introduced to deal with the debt mess.
And since we now have so many people in this country dependent on government handouts and support, I think we’ll see higher taxes before we see austerity in the U.S.
Consider this: New York City’s mayor, Bill de Blasio, is considering a “mansion tax.” This is essentially an extra tax on homes valued at more than $1.0 million. He wants the proceeds from the tax to go towards adding … Read More
In its monthly statement of receipts and outlays for the month, the Treasury Department reported that the U.S. government incurred a budget deficit of $107 billion for the month of March 2013. (Source: Department of the Treasury, April 10, 2013.) This monthly budget deficit was a result of the government spending $293 billion while only taking in $186 billion in March.
Since October 1, 2012, the beginning of the government’s fiscal year, the government has spent $600 billion more than it has taken in. Hence, for the first five months of its current fiscal year, the budget deficit is already $600 billion.
We know the U.S. government has run a budget deficit of more than $1.0 trillion for each of the last four years. If the current pace of spending more than what is coming in continues in the current year, then 2013 will be another one-trillion-dollar budget deficit year.
A quote from President Herbert Hoover comes to mind when I see five years of trillion-dollar deficits. He said “Blessed are the young for they shall inherit the national debt.” (Source: Brainy Quote, last accessed April 11, 2013.)
As the U.S. government adds to its budget deficit, it has to borrow more to cover the expenses. This way, our national debt continues to increase daily. We are on pace to surpass $17.0 trillion in national debt this year. A $20.0-trillion national debt is not far away.
For fiscal 2014, President Obama has proposed a budget of $3.778 trillion. In this budget, there are increases in taxes and lower spending on government programs like social security. (Source: Wall Street Journal… Read More
The Consumer Confidence Index tracked by the Conference Board plummeted 14% in March 2013 from the previous month. Of the respondents, 36.2% believed jobs are hard to get and only 9.4% thought there were enough jobs out there in the U.S. economy.
As consumer confidence goes the wrong way, I am seeing consumer spending edge downward. Consider core durable goods orders for February. New orders for manufactured durable goods excluding transportation declined 0.5%. (Source: U.S. Census Bureau, March 26, 2013.) Companies aren’t buying!
And inventories of manufactured durable goods have risen in 16 of the last 17 months—today, they stand at their highest level since 1992. Inventories for durable manufactured goods increased 0.4% in February, after a rise of 0.3% in January. What this tells us is that businesses are selling less.
Businesses may want to add to inventory in times of economic growth, but when consumer confidence is anemic, I doubt that is the case. It’s a chain reaction; if consumers think they will face troubles ahead, they hoard their cash. They shy away from buying, and companies sell less.
As consumer confidence falls, retailers often are the first to see consumer spending pull back. Take Wal-Mart Stores, Inc (NYSE/WMT), for example. Wal-Mart is expecting its same-store sales to be flat in its current quarter. (Source: Reuters, March 12, 2013.) Wal-Mart is considered a low-end retailer offering lower prices to consumers. Sales staying flat are nothing but a warning sign for even weaker consumer spending ahead.
As I have been continuously harping on about in these pages, consumer confidence isn’t present in the U.S. economy. It needs to make … Read More
As mainstream economists continue to focus on the sovereignty of the smallest nation in the eurozone, Cyprus, my worries are focused on the four main economic hubs in the region.
Germany, the main economic hub in the eurozone, is hinting at an economic slowdown ahead, as the crisis in the region becomes more severe. The Ifo Business Climate Index for Germany edged lower in March. Businesses in the country are pessimistic about the current business environment and future business development. (Source: Ifo Institute for Economic Research, March 2013.)
The Flash Manufacturing Purchasing Managers’ Index (PMI) for March showed that Germany is experiencing the slowest growth this year. The Flash PMI dropped to a three-month low to 51 in March, compared to 53.3 in February. (Source: Markit, March 21, 2013.) A reading below 50 indicates contraction in the manufacturing sector.
Similarly, France, the second-biggest economic power in the eurozone, is facing an economic slowdown. The country is faced with high unemployment and an economy that is deteriorating.
Italy, the third-largest producer in the eurozone, is caught in a downward spiral, with its troubles increasing on a daily basis. In January, retail trade in the country decreased 0.5% from December of 2012. Compared to January of 2012, the measure for sales at retail outlets fell three percent. (Source: Italian National Institute of Statistics, March 27, 2013.)
Finally, Spain, the fourth-biggest economy in the eurozone, hasn’t taken any rest from the economic slowdown since the debt crisis began. The central bank of Spain announced the country’s gross domestic product (GDP) will contract by 1.5% in 2013 and unemployment will rise above 27%. (Source: … Read More
The U.S. Department of the Treasury reported that the U.S. government incurred a deficit of $204 billion for the month of February 2013. So far, we are into the first five months of the government’s fiscal year (started October 1, 2012), and the U.S. government fiscal deficit has already grown by $494 billion. (Source: U.S. Department of the Treasury, March 13, 2013.)
The U.S. government has been running a deficit of over $1.0 trillion in each of the past four years. For 2013, the Congressional Budget Office (CBO) expects the deficit to be $845 billion—which is less than a trillion-dollar budget. (Source: The Hill, February 5, 2013.)
(But if I pro-rate the $494 billion the government has already tagged on this year, a rate of $99.0 billion a month, I get another $1.0-trillion deficit year.)
Sadly, while many are taking “less” deficit as good news, our national debt is still growing. Remember: when the government doesn’t have money to spend, it must borrow. The budget deficit for this year is going to see the U.S. national debt increase to well above $17.0 trillion.
In February, the U.S. government paid interest of $16.8 billion on the debt it has borrowed through issuing bonds. Since the beginning of the fiscal year, it has incurred interest expenses of $168.4 billion.
I don’t think the mainstream realizes that the more the government adds to the national debt through budget deficits, the more interest payments it will have to make. This year it expects to pay almost half a trillion dollars in interest. This amount will rise as the national debt increases and interest … Read More
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