

What's the real Federal Deficit? - smanek
http://www.usatoday.com/money/2006-08-02-deficit-usat_x.htm

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TFrancis
I'm curious why no one is asking if this is hacker related news? An article
like this seems very similar to the article posted about Obama winning the
Democratic nomination and that posting received a significant amount of
criticism.

Is it that the effort expended ranting in the comments of the Obama article
has exhausted you? Is it that you haven't seen this news covered by as many
news sources? Or, do you genuinely find this information different than that
of Obama's nomination?

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smanek
To be perfectly honest, the primary reason I posted this was that I found it
interesting. It's just fun to know how things really are - even if there is no
direct applicability to my current circumstances. I didn't see this covered
much in the mainstream news, so I posted it here in the hopes others would
also find it interesting.

For a more tangible reason, I'd say it's important for would be entrepreneurs
to understand the state of the US (and world) economy. The fact is that
America is borrowing vast sums of money, which is going to have a direct
impact on us.

In the short term, it's likely to increase inflation, telling us that maybe we
shouldn't be hording cash right now (and maybe it's a good time to borrow
money ;-)). In the long run, it may deepen the credit crunch and cut many
consumer's effective discretionary spending power.

But mostly I just posted it cause I found it interesting ;-)

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Xichekolas
> _"Congress has written its own accounting rules — which would be illegal for
> a corporation to use"_

It stupid to treat a Federal Government (of any nation with it's own sovereign
currency) like a business when it comes to accounting. The nature of being the
entity that creates a lot of the money (in the form of Treasury bills, banks
create the rest via loans) means that doing this type of single entry
accounting just doesn't make sense. Unfortunately this kind of article plays
great for USA Today, where anything that terrifies the readership is great for
business, like any other mass media outlet.

To see what I am talking about, check out this peice.[1] I'll even quote the
relevant part:

> _"When government spends and runs deficits, it credits private bank accounts
> more than it debits them, thereby increasing the savings of [dollar
> denominated] US financial assets of the non-government sector. In fact, non-
> government savings [...] can only increase if the government runs deficits,
> and they increase by that exact amount. The reverse is true of surpluses.
> Government surpluses necessarily reduce non-government savings by that exact
> amount as well.

Therefore, the projection of a $5.6 trillion government surplus a few years
back was also in fact necessarily projecting a $5.6 trillion drop in non
government savings! For all practical purposes, this was a ludicrous
projection, as there is no way private savings can be reduced by that amount
without virtually eliminating everyone's retirement accounts and in the
process eliminating private spending, employment, and income."_

[1] <http://www.cfeps.org/pubs/sr/sr0402/sr0402.html>

The rest of the policy proposals and case studies: <http://www.cfeps.org/pubs>

By definition, running government surpluses means sucking more money out of
the economy in tax revenue than it puts back in. At first this would be done
by buying back all those treasury bills that make up the debt, taking
trillions of savings away from private holders of said bills. Then, with
nothing else to do with the excess tax revenue, the government would have to
start buying assets, which would remove said assets from the private market,
effectively sapping wealth from the private sector. In the end, all assets
would be owned by the government. Of course, there isn't any real danger of
this actually happening, but I'm trying to point out that the government will
never _get it's act together_ or _be profitable like a business_ like so many
people seem to desire. It just doesn't work that way.

What matters is that the government has enough tax revenue to pay interest on
the money it creates (treasury bills), which it does. In fact, interest
payments as a percentage of tax revenue are at the lowest point in the last 15
years.

On the other hand, I totally agree with the guy from Harvard:

> _"Accounting matters, the deficit number affects how politicians act."_

If it takes a big scary (and meaningless) number like the National Debt to
keep them from going hog wild on the pork, then so be it I guess.

As for Social Security and Medicare:
<http://www.cfeps.org/pubs/sr/sr0501/sr0501.html>

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nazgulnarsil
USA fiscal policy is to adjust taxes to match spending, not adjust spending to
reflect taxes.

~~~
DTrejo
The only problem is that when they raise taxes they do not have the Laffer
Curve in mind. I won't explain it because there are better explanations out
there.

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dhimes
It's also amazing how few people understand the difference between deficit and
debt.

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justindz
I'm still unclear about the difference between defecit and deficit.

~~~
ckinnan
The deficit is the annual shortfall...it is the amount added to the national
debt in a given year, and that debt is the total amount owed.

~~~
dhimes
I used to teach at a college, and a lot of my students didn't realize that.
Just yesterday I was talking with a vendor, and somehow the talk (mostly his)
turned to politics, and he didn't realize it. I think if articles like the one
here explained it, more people would have the chance to understand that we're
behind that much more every year, and the accumulation now is startling.

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goodkarma
No wonder they can't control spending - no one is being honest about how
excessive the spending actually is!

I hope Obama can help clean up this mess..

~~~
anamax
Does the new spending that he has proposed exceed the cuts that he's proposed
plus the expected revenue from any tax increases? (He's on record supporting a
rate increase that he admits leads to lower revenues.)

