A budget deficit is when you are spending more than you are taking in as income. When a government incurs several years of budget deficits, it then builds a national debt, which is the accumulation of the deficits. Government debt is the total amount owed by the central government, also called national debt. To cover shortfall between spending and income, a government will issue government bonds and bills. These are promises by the government that the money it borrows will be returned, with an interest payment as the cost of borrowing. Since all government debt is paid by income generated by the citizens of the country, this debt is really the burden of the taxpayers. In addition to outstanding securities issued by a government, it can be said that unfunded future liabilities are also considered government debt, such as future pension plans and health costs.
According to the U.S. Congressional Budget Office, next year, the government is expected to incur a budget deficit of $469 billion and then another budget deficit of $536 billion in 2016. (Source: Congressional Budget Office web site, last accessed July 21, 2014.) From there, the budget deficit is expected to increase as far as the projections go.
Yes, the government’s own estimates are that our country will run a budget deficit every year for as long as the government’s forecasts go.
That’s quite unbelievable. We live in a country where the government (and politicians) feel it is okay to continue being “negative” every year, indefinitely. It’s like I’ve written many times: if our government were a business, it would have gone bankrupt long ago. But the government, through its non-owned agency, the Federal Reserve, has the luxury of printing paper money to fund its budget deficit and debt. If a business did that—printed money to pay its bills—that would be illegal.
Today, the U.S. national debt stands at $17.6 trillion with about $7.0 trillion of that incurred under the Obama Administration. (Is it any wonder a CNN/ORC International poll said this morning that 35% of Americans say they want President Obama impeached with about two-thirds saying he should be removed from office?)
But what happens to the budget deficit once interest rates start going up? We’ve already heard from the Federal Reserve that interest rates will be sharply higher at the end of 2015 and 2016 than they are now.
Earlier this month, the U.S. Department of the Treasury was able to borrow money (issued long-term bonds) at an interest … Read More
While the Federal Reserve has cut back on its money printing program, the fact of the matter is that the “official” U.S. national debt is closing in on $18.0 trillion. The unofficial national debt (when obligations like Social Security, Medicare, Medicaid, welfare, and now Obamacare are taken into consideration) is closer to $200 trillion.
The Japanese national debt just hit one quadrillion yuan.
Many countries in the eurozone are drowning under debt. The European Central Bank recently started talking about printing money to finally get the eurozone out of its mess.
All of this is very well-known to Profit Confidential readers.
Why do I bring this up again today? I’m back focusing on debt because it is becoming more and more apparent that the only way to reduce the record national debt many industrialized countries have accumulated since the Credit Crisis of 2008 is to print even more money.
And the collapse in the volatility of gold bullion prices could be pointing to just that. To see what I’m talking about, take a look at this chart:
In April of 2013, when the sharp decline in gold bullion prices began, volatility for gold prices was very high. Since then, the volatility index for gold, an index that essentially gauges investors’ fear factor for gold bullion prices, has collapsed.
And when we look at the price chart of gold bullion (see next chart below), we see strong support for the metal just below the $1,200-an-ounce level. This level has been tested twice and on both occasions, gold failed to fall below $1,200. In technical analysis, this is … Read More
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 the early days of the 2008 financial crisis, the Federal Reserve said, “Job losses, declining equity and housing wealth and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment.” (Source: Federal Reserve, March 18, 2008.) As a result of this, the central bank came up with the idea of printing paper money to stimulate the economy; thus, “quantitative easing” was born.
Five years later, the Federal Reserve’s balance sheet has grown to $4.2 trillion. We also saw the U.S. government increase spending to stimulate the U.S. economy after the Credit Crisis of 2008. The U.S. national debt skyrocketed from around $9.0 trillion back then to over $17.0 trillion today.
With all this money being created (by the Fed) and borrowed (by the government), the logical assumption is that there’s finally economic growth in the U.S. economy.
Paper money printing by the Federal Reserve and out-of-control spending by the government hasn’t really given much of a boost to the U.S. economy (aside from the stock market bubble it has created). Problems still persist. The amount of paper money that has been printed out of thin air is huge—an unprecedented event in American history.
Now that the Federal Reserve is putting the brakes on quantitative easing (it will print less money each month), will we see businesses pull back on capital spending? Of course we will. When money is tight, businesses pull back on research and development, expansion, and acquisitions.
Consider this: since December of last year to this past … Read More
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