Let's Not Do This Ever Again

The government is back open. Museums will reopen their doors, tax refund checks will resume being sent, and 700,000 workers can go back to work -- with pay, even!

Now that it's over, let's make a pact: Let's not do this ever again.

Seriously, we have to stop doing this. The economy is just now really starting to recover from the Great Recession. Pointless political shutdowns are the quickest way to short-circuit that recovery and self-inflict pain. As comedian John Stewart put it, America is "sitting on its own [male private parts]."

MacroEconomic Advisors estimates the shutdown cost the economy $12 billion. S&P used a broader forecasting model and estimates the 16-day shutdown cost the economy $24 billion, or about $1 million per minute. Since 2009, MacroEconomic Advisors estimates "fiscal uncertainty" -- debt-ceiling fights, shutdowns, threats of default, etc. -- have cost the economy $150 billion in lost output and 900,000 jobs. Gallup's Economic Confidence index suffered the largest drop since 2008 last week.

The need to tackle the nation's long-term deficit is real. But there's a term in economics called "false economy" that refers to short-term attempts to save money backfiring and costing more in the long run. Groups of Americans have spent the better part of the four years outraged at the cost of say, PBS and NPR's $450 million annual budget. But the shutdown cost the economy that much every eight hours. Surveys continuously show Americans are outraged at how much the government spends on foreign aid. But the actual amount spent on foreign aid -- about $56 billion a year -- has been dwarfed by the amount of money sucked out of the economy by four years of political pranks. 

And there are two dirty little secrets about the economy that were left mostly unspoken over the last two weeks of fighting.

One, the annual budget deficit as a share of GDP has plunged by more than 60% since 2009. Debt as a share of GDP is already on track to decline over the coming decade. Non-defense discretionary spending as a share of GDP is neara half-century low. None of this seems to change the rhetoric around talks of "runaway spending" and "exploding deficits." As Ian Shepherdson, chief economist at Pantheon Macroeconomics wrote, "We are baffled by the idea that the pace of deficit reduction needs to be increased, given how rapidly the picture is improving already."

Two, growth in annual health-care spending is near a 50-year low. The decline is persistent and can't be explained by a slow economy alone. And it's so large that the Congressional Budget Office is slashing its estimates of future entitlement spending. "The slowdown in health care cost growth has been sufficiently broad and persistent to persuade us to make significant downward revisions to our projections of federal health care spending," CBO director Doug Elmendorf said last month. Estimated spending on Medicare and Medicaid in the year 2020 was recently revised down by more than $200 billion. I didn't hear anyone mention this during the shutdown when worrying about runaway entitlement spending.

America has problems, but there's a tried-and-true way to deal with them: Win elections and pass laws. And more important, rely on facts. The more we govern by shutdown, standoff, threatening to default on national debt, and imaginary boogeymen, the harder it's going to be to keep our fragile economic recovery afloat. Let's not do this ever again.

No Pitch


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  • Report this Comment On October 17, 2013, at 10:56 AM, LogicalD wrote:

    The problem is that the voter base for the most extreme members of congress believe their representatives are doing a good job. Some would even say they haven't gone far enough.

  • Report this Comment On October 17, 2013, at 11:00 AM, Mathman6577 wrote:

    You made a lot of good points. A key takeaway for me is that things are getting better and aren't really as bad as many claim --- let's not make things worse by manufacturing a false crisis.

    I am hoping that the trends in deficits and health care continue.

  • Report this Comment On October 17, 2013, at 12:26 PM, MaxTheTerrible wrote:

    In that spirit, can Fool initiate a petition to repeal the debt ceiling(like you did with insider trading)? I'm sure you'll get quite a few people here willing to sign it.

  • Report this Comment On October 17, 2013, at 1:39 PM, michaelkm88 wrote:

    Are you guys really serious? 17 trillion in debt and we're doing ok? 50+ trillion in long term responsibilities... but today we're ok, so we don't have to do anything. I thought you people took a long term view. If you think we are on the right track, then you can't see past today, and allowing the government to keep borrowing a trillion dollars a year with no end in sight in naive. Just because some things are going down in cost doesn't mean that the whole pie is getting smaller. We are still maxing out our credit card almost bi-yearly. If you thought this was a stunt you need to step back and look at the long term picture because your a frog in a bowl of slowly boiling water.

  • Report this Comment On October 17, 2013, at 1:44 PM, TMFHousel wrote:

    Thanks for your comments, Michael.

    << Just because some things are going down in cost doesn't mean that the whole pie is getting smaller>>

    Debt to GDP is on track to decline over the next 10 years. That is indeed getting smaller.

    <<We are still maxing out our credit card almost bi-yearly.>>

    The debt ceiling is a self-imposed limit. It's not set by creditors in the way a credit card limit is.

  • Report this Comment On October 17, 2013, at 2:07 PM, michaelkm88 wrote:

    We have had two presidents double our debt from where it was at the start of their term, so how are things getting better? Bush went from ~5 trillion to ~10 trillion in 8 years. Obama went from ~10 trillion to currently ~17 trillion and now that ceiling has been increased. At the end of his term he will more than double the national debt from where it started on his watch. I don't see anything getting better because as we accumulate debt we owe more interest and that will offset everything you have said is getting better. If you say things are getting better please project when we will stop borrowing money and when the debt will be paid off. That is the only way things can get better.

  • Report this Comment On October 17, 2013, at 2:13 PM, michaelkm88 wrote:

    Ack, I just reread my first post and I apologize for the caustic tone.

  • Report this Comment On October 17, 2013, at 2:16 PM, TXObjectivist75 wrote:

    So what happens to deficit projections when the average interest rate on Treasury securities goes from 2% to 4% or 6% once the inevitable money flood from the Fed goes away? Current year interest expense is projected at $450B or 12% of the (never officially passed) budget. What would another $450B or $900B a year do to the future Debt to GDP ratio?

  • Report this Comment On October 17, 2013, at 2:18 PM, TMFHousel wrote:

    <<So what happens to deficit projections when the average interest rate on Treasury securities goes from 2% to 4% or 6% once the inevitable money flood from the Fed goes away>>

    More on that here:

    http://www.fool.com/investing/general/2013/09/16/what-happen...

  • Report this Comment On October 17, 2013, at 2:23 PM, Schneidku40 wrote:

    I'm sorry, but 10 year budget forecasts mean the same to me as 10 year weather forecasts. Nothing. I'd like to know what all the 10 year forecasts said between 2003 and 2007. I guarantee none of them had the deficit we have today. Any statistics with a 2009 opening timeframe are also irrelevent to me. That was such an outlier year that any statistic we derive from that, in either direction, is terribly misleading. Go back one more year, to 2008, and it shows our deficit has grown by 25% this year. The budget deficit is still the widest since 1992. Of course I'm not blaming you for using statistics to your advantage, since obviously I just did the same thing.

    Part of me thinks part of these theatrics are just to raise public awareness of the issues. Just like some people don't learn to wear their seatbelts until somebody they know dies from being ejected from a car, some people don't pay attention to what the government is doing unless it's shut down.

    It seems wild to me that the years 2009, 2010, 2011, and 2012 had the highest budget deficits in at least 100 years other than during WWII. They were higher than during the other wars the US fought in during the 20th century.

    In the decade following WWII, the US had several years of budget surpluses to bring down the debt-to-GDP percentage, which was about where it is today. There are absolutely 0 budget forecasts right now that have anything close to a budget surplus in the next 10 years. What happens WHEN interest rates rise?

  • Report this Comment On October 17, 2013, at 2:24 PM, michaelkm88 wrote:

    <<More on that here:>>

    That's a complacent attitude. What about the disclaimer "past results are no guarantee of future outcome". We need to be proactive about this and not find the facts that make us feel better. How many entitlements did we have back then? What was the population ratio of young to old? Unemployment? Household debt? Inflation? You just can't compare one time in history to another when you talk about performance.

  • Report this Comment On October 17, 2013, at 2:30 PM, TMFHousel wrote:

    <<How many entitlements did we have back then? >>

    All the same ones we do now.

    <<What was the population ratio of young to old?>>

    Higher back then:

    http://www.investmentu.com/images/usa_dependency_ratio.jpg

    <<Household debt? >>

    Higher then (debt payments to income is now at a 30-year low).

    <<Inflation?>>

    Much higher back then. Inflation averaged 4.8% from 1950 to 1980. It's averaged 2.4%over the last decade.

  • Report this Comment On October 17, 2013, at 2:38 PM, TXObjectivist75 wrote:

    That whole article rest on the supposition that we can achieve post-war growth rates again. We don't have the same strategic or economic advantage we had in the post war period (most industrial economies were in ruins, etc). Just eyeballing a chart of 1948 - 1980 shows about a 5-6% average yearly GDP growth rate. The best we've managed post recession (3rd Q 2009) is an average of 2.25%. You honestly expect to have a post war type boom sufficient enough to outgrow our debt increases in the next two decades?

    You also assume that rising interest rates will be because of a stronger economy. What if they're a response to increased inflation in a stagnant or anemically growing economy?

    Besides, going further into debt, but just keeping the rate of growth slightly below my growth in salary is a plan for getting nowhere.

  • Report this Comment On October 17, 2013, at 2:38 PM, michaelkm88 wrote:

    When did Medicaid and Medicare start?

    Both were created when President Lyndon B. Johnson signed amendments to the Social Security Act on July 30, 1965.

    When did Social Security start?

    A: The Social Security Act was signed by FDR on 8/14/35. Taxes were collected for the first time in January 1937 and the first one-time, lump-sum payments were made that same month. Regular ongoing monthly benefits started in January 1940.

    When did PPACA start?

    A: October 2013 which mandates that Americans have health insurance or face a fine. Taxes have gone up as a result and more people will get federal subsidies (NEW ENTITLEMENT) to help defray the cost.

    The more free stuff we pack in the more it costs my friend. As the population expands and more people get on these entitlements our expenses explode,

  • Report this Comment On October 17, 2013, at 2:42 PM, TXObjectivist75 wrote:

    Wrong about the entitlements. You didn't have medicaid/medicare pre 1965. Social Security was in a surplus (don't even get started on the SS trust fund Treasury notes. We all know the money to redeem those comes from somewhere)

  • Report this Comment On October 17, 2013, at 2:44 PM, michaelkm88 wrote:

    Ah, do not forget Pat D started by Bush in ~2006.

  • Report this Comment On October 17, 2013, at 2:49 PM, TXObjectivist75 wrote:

    SS will be the big snowball as worker to retiree ratios continue to fall.

    As Dave Ramsey recently put it the math term for SS is "this sucks".

  • Report this Comment On October 17, 2013, at 3:02 PM, TMFHousel wrote:

    <<You didn't have medicaid/medicare pre 1965. >>

    Right. It depends on your definition of "back then." 50 years is a long time.

  • Report this Comment On October 17, 2013, at 3:03 PM, TMFHousel wrote:

    <<Social Security was in a surplus (don't even get started on the SS trust fund Treasury notes.>>

    Keep in mind that in the 1970s Social Security was projected to be insolvent by the 1990s.

  • Report this Comment On October 17, 2013, at 3:04 PM, TMFHousel wrote:

    <<That whole article rest on the supposition that we can achieve post-war growth rates again.>>

    From the article:

    That's not a forecast of what might happen over the next 35 years. A lot of stars aligned to make the post-WWII period an economic miracle: We had a baby boom, a manufacturing advantage as Japan and Europe were left in rubble, and the banking system kept its act together. Plus uncomfortably high inflation to boot, which pushed up GDP.

    But the important point is that rising interest aren't necessarily disastrous, even for a country with a massive debt. What matters most is that a country can grow its economy as fast, or hopefully a little faster, than its debt is piling up. With recent budget improvements, we're quite close to doing that already."

  • Report this Comment On October 17, 2013, at 3:09 PM, TXObjectivist75 wrote:

    I was referring to your timeframe of 1945-1980. ~60% of that time you didn't have one of the huge entitlements we have now, plus the ACA now.

    And SS is actually insolvent now

    SS Trustees report

    "Social Security’s total expenditures have exceeded non-interest income of its combined trust funds since 2010, and the Trustees estimate that Social Security cost will exceed non-interest income throughout the 75-year projection period. The deficit of non-interest income relative to cost was about $49 billion in 2010, $45 billion in 2011, and $55 billion in 2012. The Trustees project that this cash-flow deficit will average about $75 billion between 2013 and 2018 before rising steeply as income growth slows to the sustainable trend rate after the economic recovery is complete and the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. Redemption of trust fund asset reserves by the General Fund of the Treasury will provide the resources needed to offset Social Security’s annual aggregate cash-flow deficits. Since the cash-flow deficit will be less than interest earnings through 2020, reserves of the combined trust funds measured in current dollars will continue to grow, but not by enough to prevent the ratio of reserves to one year’s projected cost (the combined trust fund ratio) from declining. (This ratio peaked in 2008, declined through 2012, and is expected to decline steadily in future years.) After 2020, Treasury will redeem trust fund asset reserves to the extent that program cost exceeds tax revenue and interest earnings until depletion of total trust fund reserves in 2033, the same year projected in last year’s Trustees Report. Thereafter, tax income would be sufficient to pay about three-quarters of scheduled benefits through 2087."

    Where will that money come from? It's not like it's coming our of the trustees mattress

  • Report this Comment On October 17, 2013, at 3:13 PM, TXObjectivist75 wrote:

    That article assumes we can outgrow our current spending levels, SS trust fund shortages, ACA payments, etc, etc, AND an increase in interest rates of between double and triple. Do you really honestly believe that? And can you outline the reasoning behind that hypothesis? I can't see it.

  • Report this Comment On October 17, 2013, at 3:19 PM, bamasaba wrote:

    Great article, Morgan. I'm amazed at your patience in finding new ways to explain the same facts over and over again. Keep up the good work.

  • Report this Comment On October 17, 2013, at 3:21 PM, TMFHousel wrote:

    <<The deficit of non-interest income relative to cost was about $49 billion in 2010, $45 billion in 2011, and $55 billion in 2012>>

    What was is with when you don't exclude interest income?

    <<And can you outline the reasoning behind that hypothesis?>>

    It was outlined briefly in this article. Current deficits are already about inline with nominal GDP growth. Long-term deficit projections are driven overwhelmingly by projections of runaway Medicare spending, but medical cost growth is coming in far below what was envisioned. Deficit projections are already being slashed by hundreds of billions per year in years 2020 and beyond.

  • Report this Comment On October 17, 2013, at 3:29 PM, TMFHousel wrote:

    <<don't even get started on the SS trust fund Treasury notes.>>

    Don't forget: If you don't consider trust fund securities an asset, you need to subtract more than $2 trillion from the national debt. You can't consider it someone's liability but no one's asset.

  • Report this Comment On October 17, 2013, at 3:33 PM, TXObjectivist75 wrote:

    I don't count "interest income" since it's one hand paying the other in IOUs. It's not like this interest comes from a source outside of the taxpayer and/or selling more debt.

  • Report this Comment On October 17, 2013, at 3:36 PM, TXObjectivist75 wrote:

    I do consider that part of the debt, since it's got to be paid either by taxation (unlikely) or the issuance of "public" debt. An asset that I owe myself isn't an asset.

  • Report this Comment On October 17, 2013, at 3:37 PM, TXObjectivist75 wrote:

    I asked what your rationale was for achieving the 4-5% GDP growth necessary to outgrow the deficit, not your deficit to GDP numbers. I see your projections. I want to know what evidence you have that would support GDP growth rates in that range over the next 10+ years.

  • Report this Comment On October 17, 2013, at 3:41 PM, TMFHousel wrote:

    <<I asked what your rationale was for achieving the 4-5% GDP growth necessary to outgrow the deficit>>

    2.5% inflation, 1% population growth, 1.5% productivity growth.

  • Report this Comment On October 17, 2013, at 3:51 PM, TMFHousel wrote:

    <<An asset that I owe myself isn't an asset.>>

    Then it isn't a liability either. Accounting is a two-ledger process.

    Think of it this way. The $2 trillion trust fund assets represent future SS liabilities. But those liabilities are already built in to future annual deficit calculations. So you can't, for example, say we have $17 trillion in debt *and* such and such SS deficit down the road. That's double counting. That's why most economists look at debt held by the public, rather than gross debt.

  • Report this Comment On October 17, 2013, at 3:53 PM, TXObjectivist75 wrote:

    So the lowest labor force participation rate since 1979, unemployment still at 7.3%, the persistent increase in part time labor since 2009 (which I'd wager will continue to worsen due to the ACA in both number of jobs and actual hours worked), none of that is going to have an effect?

  • Report this Comment On October 17, 2013, at 3:54 PM, fishers2tall wrote:

    You know in the interest of journalistic integrity (something libs avoid at all costs) I would like to know the political leanings of an author stated clearly at the beginning of an article. I would equate this to financial disclosure laws we have. If you are going to try and convince me more debt is fine and we will have no problem growing out of this mess then I want to know if you are a liberal democrat. By the way the only reason deficits have come down from the stratosheric levels of 2009 is because dems lost the house in 2010. No sane person would argue that they wouldn't be going higher if dems controlled both houses of congress currently.

  • Report this Comment On October 17, 2013, at 3:57 PM, Mathman6577 wrote:

    It might be difficult to achieve the 4% to 5 % GDP growth target needed to outgrow the deficit under the present economic conditions (but it was done in the past).

  • Report this Comment On October 17, 2013, at 3:57 PM, TXObjectivist75 wrote:

    And since jobs number are barely keeping up with population growth, you think your 1% pop growth component is solid?

  • Report this Comment On October 17, 2013, at 3:58 PM, TMFHousel wrote:

    LFPR doesn't have a clear relationship with economic growth; It was much lower in the 1950s than it is now, yet growth was much higher then. Unemployment is declining, and the persistent increase in part-time labor since 2009 has in fact been a persistent decline:

    http://research.stlouisfed.org/fred2/graph/fredgraph.png?&am...

    I think we're getting a bit off track, so I'm going to bow out. But thanks for your comments and have a nice weekend.

  • Report this Comment On October 17, 2013, at 4:04 PM, michaelkm88 wrote:

    @golfingfanatic Nope lets keep politics out of this completely. I like the fact that so far we have stuck to numbers.

  • Report this Comment On October 17, 2013, at 4:05 PM, TXObjectivist75 wrote:

    <<Then it isn't a liability either. Accounting is a two-ledger process.

    Think of it this way. The $2 trillion trust fund assets represent future SS liabilities. But those liabilities are already built in to future annual deficit calculations. So you can't, for example, say we have $17 trillion in debt *and* such and such SS deficit down the road. That's double counting. That's why most economists look at debt held by the public, rather than gross debt.>>

    All I'm saying is we have $17T in debt. I'm not double counting anything. And I was just pointing out that trying to include the interest income to try and say SS hasn't already gone negative in revenues vs expenditures is disingenuous.

    That gross debt will become public debt at some point, bar a massive increase in SS revenue.

  • Report this Comment On October 17, 2013, at 4:07 PM, TXObjectivist75 wrote:

    http://www.frbsf.org/economic-research/publications/economic...

    Pre-recession 17%, post recession ~19.5% for 4 years. Fed Reserve Bank of SF numbers. Your chart is Part-time for economic reasons, not full part time numbers.

  • Report this Comment On October 17, 2013, at 4:10 PM, TMFHousel wrote:

    The link you provided concludes:

    "We have shown that part-time work is not unusually high relative to levels observed in the past, most notably in the aftermath of the early 1980s recession."

    Total PT is rising due to demographics. PT for economic reasons is reflective of economic health, and it's in decline.

  • Report this Comment On October 17, 2013, at 4:16 PM, michaelkm88 wrote:

    TMFHousel,

    Thank you for the article and the responses to this topic! I see we are all very interested in this and I appreciate the facts you've brought up. Have a good weekend!

  • Report this Comment On October 17, 2013, at 4:19 PM, TXObjectivist75 wrote:

    Note that the 1980 level dropped off quickly, about a 1% ove rthe 1981-1984 period. This current rate has been consistent for almost 4 year, dropping maybe 0.1%-0.2%

  • Report this Comment On October 17, 2013, at 4:33 PM, wolfman225 wrote:

    As long as government spending is calculated as part of GDP, any claims of sustainability of debt levels calculated by ratio to GDP is suspect. By that model, it seems to me that any future administration can moderate (hide) the true burden of deficit spending by increasing the GDP component of the ratio.

    Since a large part of past government promised spending (entitlements) is being financed by current (and future) borrowing, it's an unsustainable spiral of good money after bad.

  • Report this Comment On October 17, 2013, at 4:37 PM, mdk0611 wrote:

    Let's also remember this about Social Security, prior to 1973 there were no COLA's.

  • Report this Comment On October 17, 2013, at 5:03 PM, CoreAndExplore wrote:

    Good article and entertaining (and informative) comments section today.

    I was reminded of one of Dr. William Bernstein's books (The Birth of Plenty, or A Splendid Exchange, I can't remember which) in which he stated that developed nations don't begin to experience truly adverse effects from sovereign debt load until it exceeds 150% of GDP. He studied many nations throughout history, going back centuries, and came to such a conclusion.

    While 105% debt-to-GDP or whatever the current figure is now, remains unpalatable, it is not necessarily a huge hindrance to growth and prosperity. The margin for error is getting thinner, however, and debt and deficit reduction are legitimate concerns. Still, relative to most of the rest of the developed world, the U.S. is sitting pretty both in terms of fiscal health, and in terms of long-term demographic trends (millennial generation is LARGER than the baby-boomer generation, for one thing).

    Thanks for another balanced, insightful article Morgan.

  • Report this Comment On October 17, 2013, at 5:08 PM, michaelkm88 wrote:

    I can't help but point out that your argument for not panicking is that we are the least sick person in a hospital for terminal patients.

  • Report this Comment On October 17, 2013, at 5:59 PM, bmcfadzean1 wrote:

    Does the pace of deficit reduction NOT need to increase? The sequestor plays a big role currently, but the party in power isn't at all supportive of its goals.

    How and when do we pay down at least some of the $17 trillion national debt?

  • Report this Comment On October 17, 2013, at 6:04 PM, DanHazelwood wrote:

    I do not subscribe to Motley Fool for political blather from any direction. I can read this in The Washington Post. I rather we had the article on Gold investing from April. Stick to investing and please eschew politics to the degree possible.

  • Report this Comment On October 17, 2013, at 6:08 PM, CoreAndExplore wrote:

    @michaelkm88

    That's your opinion. Unless you feel that the west and Japan are all doomed to economic collapse, relative economic strength remains very important, and is a reason for some optimism her in the U.S. Now, if you do feel that the developed world is doomed, then we'll just have to agree to disagree.

  • Report this Comment On October 17, 2013, at 6:41 PM, liberalguy wrote:

    Well you know there is a pretty easy way to reduce the deficit and to balance the budget. Raise taxes. If rates on the wealthy only went back to what they were before Bush we would turn the corner fast. The entire tax code needs reforming of course, including eliminating the egregious difference between the tax treatment of carried interest and regular income. I wonder if Motley Fool readers agree with that?

  • Report this Comment On October 17, 2013, at 7:18 PM, michaelkm88 wrote:

    @coreandexplore

    There is a point of no return when we have too much debt to ever pay back. We are getting to that point if we are already not there. What if we need to finance another war, or the economy goes back into recession, or a myriad of other things go wrong? Then we must spend more money to dig ourselves out of it. The argument that we are ok is a fallacy because nobody wants to listen to the people who say we need to have a plan. We have no plan for getting out of debt or cauterizing the wound. We only have useless short term forecasts that will be discarded when the political wind shifts to another regime. If anything happens and we need money we will be helpless.

  • Report this Comment On October 17, 2013, at 7:18 PM, kbeck02 wrote:

    RE: "Now that it's over, let's make a pact: Let's not do this ever again."

    ===============

    http://stateofthemarkets.com/report/30165/

    It is important to recognize that while the deal announced by Senate leaders on Wednesday will reopen the government and raise the debt ceiling, it does so only until January 15 and February 7 respectively. As such, it won't be long until the boys and girls will be back to calling each other names, pulling each other's hair, and pushing one another on the playground again. In fact, the country will be lucky to get through the upcoming holiday shopping season before the bickering and threats start anew.

    ===============

    If you don't want this to happen again, I suggest you write, or e-mail, your MOC telling them you don't want this to happen again. Especially those of you who are represented by Republicans in extremely conservative districts. I am one of those people and the Tea Baggers run rampant here. Petitions are not as effective as actual letters written by individuals. And, be polite!

  • Report this Comment On October 17, 2013, at 7:23 PM, michaelkm88 wrote:

    @liberalguy

    I agree that our tax system needs reform. But blaming it on people who find loopholes I do not agree with. The way our tax system is set up you would pay 60% and up if you made over ~$450k. Why should they give you their money? When dumb people make simple things difficult, smart people find ways to even the game. Politicians vs People that actually contribute to society.

  • Report this Comment On October 17, 2013, at 7:25 PM, michaelkm88 wrote:

    @kbeck02

    Your response is disrespectful of Americans trying to change things for the better. Be polite? Take your own advise.

  • Report this Comment On October 17, 2013, at 8:00 PM, kbeck02 wrote:

    michaelkm88:

    By being polite, I was referring to calling people "dumb", as an example.

  • Report this Comment On October 17, 2013, at 8:12 PM, CoreAndExplore wrote:

    @Michael, I agree that the debt is a problem. I am just pointing out our "predicament" doesn't exist in a vacuum, and it's important to consider relative fiscal health as well as absolute, especially in light of America's demographic advantage (lower current and projected average age) over most of the rest of the developed world. That plays very significantly in future employment, health care costs, and overall GDP.

    If we focus exclusively on the debt, without due consideration of GDP, then we lose any useful context in which to measure/view it. You can call GDP forecasts useless, and I'm don't totally disagree, but then again, what else do we have? In any event, you have a point - our debt needs to come down and government spending needs to be reigned in, but let's not throw the baby out with the bathwater here and forsake GDP growth with poorly-implemented and knee-jerk austerity measures.

    We need to be smart about how we handle these challenges. Simply gutting the ACA, SS, or Medicare/aid, is not politically practical, and it's not economically viable. True bipartisan reform, be it through COLA adjustments or what have you, is needed.

  • Report this Comment On October 17, 2013, at 8:43 PM, CommonScents wrote:

    Hey Morgan,

    I agree with your points about the economy moving in the right direction, but I'm not sure about the advice "let's never do this again". The Post had a great article outlining the 17 government shutdowns since 1976. This is politics as usual. I personally think the Tea Party guys are nuts, but they are playing by the same rules as any minority perspective in the government. This is just 1 of the levers in place to force some compromise. (And I'm all for groups shaking up the status quo in either political party.)

    Now if you'd made this article a plea to eliminate the debt ceiling as one of those levers, I would DEFINITELY be on board with that idea. Someday a group is going to miscalculate and cause all kinds of economic havoc playing with that deadline.

    Thanks, as always.

    Michael

  • Report this Comment On October 17, 2013, at 8:46 PM, Circumspicio wrote:

    The bottom line is, what would the fiscal situation look like if the "elite" (e.g. government, senior members of the financial institutions and big business, etc.) refrained from downloading the tax burden on to the declining middle class?

  • Report this Comment On October 17, 2013, at 8:48 PM, jojoswims wrote:

    Why doesn't the Fool stop preaching to the choir and branch out? How about a print ad or some social media exposure? There are still folks out there who have yet to 'connect the dots' between the deficit and the economy. Perhaps the Fool could help out with that . . . just saying.

  • Report this Comment On October 17, 2013, at 9:26 PM, Intherealworld1 wrote:

    If our trillions of dollars of debt was from spending on more infrastructure and programs that were truly beneficial(i.e. more efficient transportation, better roads, etc) I might at least buy into your way of thinking when you say all is right with the world. However, I live in the real world. I see billions of dollars wasted every day on entitlement programs. i see 20, 30, and 40 year old adults already drawing disability checks because they're too depressed to hold a job or maybe they had a migraine last month. Most of them have never even held a job. Add to their disability checks--- Medicare (which they start drawing 30 to 40 years earlier than it was intended) food stamps, housing, childcare, etc. etc. etc. The majority of people on entitlements have no desire to better themselves or contribute or give back to society. Entitlements were never meant to be for a lifetime but rather as temporary assistance. I agree with a previous on politics from the Fool. I clicked on this linking to read an article about gold; or was that just a sly ploy. I don't pay to hear the blather I can listen to on CNN or NBC/ABC for free. Never have given my opinion before but I won't pay to read someone's political views. My subscription will be cancelled. In my opinion anyone who wants to contribute to entitlements should feel free to give over and above what you are already taxed(if you actually pay taxes). However I can't afford more taxes because unfortunately I have to pay my own health insurance premiums and if I lose my coverage with the beginning of the Affordable Care Act by premiums with increase by over 500 dollars/month just for the "bronze" plan. (Oh, by the way I didn't get the "supplement" assistance the members of congress voted for themselves).

  • Report this Comment On October 17, 2013, at 9:28 PM, michaelkm88 wrote:

    @ coreandexplore

    I don't disagree that we have to take a logical approach to our situation as it is our situation, and I ma not sounding the austerity bell either. All i am saying is that we keep racking up debt with no one wanting to answer for it and I want it to stop. I want a plan for the debt to go down in a practical way. What is happening now in this article and other like it is a bunch of forecasts that say we won't have a deficit in ten or 50 years. That's unacceptable and irresponsible and doesn't address the debt one bit. I want a solid plan to reverse our indebtedness and help everyone along the way. That means the poor still get help, but the rampant fraud we allow goes away (example: no required income check when you get a subsidy from the PPACA... aka honor system). No more deficits because all 535 members of congress need 3 billion for a dam... Mitch Mcconnell... that means no more spending money to make a national chess day during the shutdown... Harry Reid... Seriously, our problem isn't the deficit because we need more money than we have its the crap we keep spending money on!

  • Report this Comment On October 17, 2013, at 11:00 PM, Chowboy100 wrote:

    Dear Michaelkm88, I'm writing as an outside Fool follower looking across the big ditch some call the Pacific i.e. From Australia. The 51st state of America as some will claim.

    Mate, your economy is a 15.685 trillion dollar economy. having 17 trillion in debt while remaining (maybe only just) the reserve currency in the world puts it into perspective a little and considering the interest bill % is pretty darn low by historical standards and even though we have a much lower debt to GDP ratio, from the outside looking in, Obama is the man for the job (even though I would vote more centre left republican). Even though it's an untested, never-known-before, unchartered territory, money printing strategy. From what I can see, he has done the only thing that just might get you guys out of the s&%t the last to administrations put you in. In essence, it was the least worst option.

    I envy your collective countries diversification and attitude to getting out of this (except the tea drinkers). All we have is one big dirt pit and Agricultural products to sell to China.

    I say last two administrations because it was the Clinton admin that put in the Act that allow banks to proprietary trade and package those ridiculous mortgage packages they tried to get me to promote to my clients in 2007 (I’m a financial adviser) When I asked details about the assets backing then – they took off. The worst of it from our standpoint is, they seem to be at it again and this whole 2007-08 sausage sizzle will happen again at some point. It’s the Goldbag Sucks you need to focus on – not the tea bags.

    These ‘tea’ guys have missed economics of getting-out-of-the-sh&%t 101 and need to be shipped off to somewhere overseas like Tasmania (where we would like to send the much hated Greens here in Aust) Maybe Alaska will do?

  • Report this Comment On October 17, 2013, at 11:14 PM, hughesgcc wrote:

    michaelkm88, I appreciate your comments.

  • Report this Comment On October 17, 2013, at 11:54 PM, CoreAndExplore wrote:

    @michaelkm88

    Well said, and I agree with that very much!

  • Report this Comment On October 18, 2013, at 12:30 AM, Big50BMGShooter wrote:

    Has anyone thought of what the rising interest rates will do from an inflationary aspect?

    If the Fed increases the rates, which seems to be inevitable, won't there be a giant FLOOD of US dollars (and other currencies) from foreign reserves coming back into the US money supply, thus adding to and accelerating the inflationary effect of the fed's QE tactics over the last few years?

  • Report this Comment On October 18, 2013, at 1:51 AM, kyleleeh wrote:

    "There is a point of no return when we have to much debt to ever pay back"

    If your debt is denominated in a currency that you have the ability to print limitless amounts of, you

    need to worry about inflation, but you will never ever reach a point when you can't pay the debt back.

    I also find it odd that so many people think we can't achieve a 4-5% nominal GDP, when nominal GDP includes inflation...really? You don't think the Fed can print enough money to produce 5% inflation.

  • Report this Comment On October 18, 2013, at 2:28 AM, whereaminow wrote:

    Curious question for Morgan.

    How did a government, that just one month ago, had enough money to bomb Syria to the stone age, suddenly not have enough money to pay a fraction of its workforce?

    David in Liberty

  • Report this Comment On October 18, 2013, at 6:59 AM, skypilot2005 wrote:

    “Let’s not do this ever again”

    I disagree.

    There is plenty of tax revenue coming in each month so that the current “Regime” doesn’t need to default on our debt. It’s all political theater and most of you have been led to believe this nonsense. There was never any possibility of default.

    It’s both political parties playing to their “bases” and laughing all the way to “The Bank” with political contributions from their respective special interest groups.

    Morgan is correct. The way to avoid future shut downs is to win elections and pass laws. The downside is that you may then have “One Party Rule” Government. That’s not good whichever party is in power unless you enjoy living in a totalitarian State. Because power does corrupt eventually.

    A positive coming out of this is that more citizens seem to be taking an interest in politics and that is good. Voter turnout and participation is way too low. I. M. O.

    Sky

    I vote for incompetents in both parties.

    BTW. Our “back & forth” is pretty tame today compared to the days of John Adams.

  • Report this Comment On October 18, 2013, at 8:45 AM, NYUnited wrote:

    It's time to stop depending on Washington.

    We have a cesspool of lifetime politicians, lobbyists and government apparatchiks who are leading the markets, the economy and the people around by the nose.

    DC is nothing short of an organized crime unit.

    It's time to openly start waving the Constitution -- OUR SHIELD -- which has been demonized by the politicians and their media lackeys BECAUSE THEY FEAR IT.

    It's time for SIGNIFICANT TERM LIMITS on Congressional members. Lifetime Senator seats need to go away. The Senate should be one, six year term and they're done. The House: Two, two-year terms and you get a Thank You Note. DONE.

    That is the only way we're going to have a shot at stopping this corruption. And I say "shot" because the corruption extends so deeply into both political parties that it's entirely possible they'll continue to send their hand-picked cronies and thieves into power just to keep the mob machine rolling.

    Wake up people. Stop listening to the media. Start reading between the lines. Start realizing that everything that's put out there is propaganda, spin and disinformation. Start holding public officials accountable for lies and for not upholding the oath to YOUR DOCUMENT: The Constitution.

    You should trust the Federal government about Oh...ZERO PERCENT.

    The hand the gives, can take away just as quickly.

  • Report this Comment On October 18, 2013, at 9:06 AM, pondee619 wrote:

    "Now that it's over, let's make a pact: Let's not do this ever again"

    This is almost funny. A few days ago two members of congress appeared on TV to do a joint interview about the looming crisis. The two members of congress, before the interview started, had to be introduced to each other. They had never met, never talked to each other before then.

    HOW DO YOU HAVE A PACT BETWEEN TWO PEOPLE/ PARTIES/ FACTIONS etc., IF THEY AREN'T TALKING TO EACH OTHER? They don't even know each other. There can be no resolution, no solution, to any problem without discussion. Unless one holds dictatorial power over all. These people aren't talking, they don't even know each other, how can we expect a resolution? Throw the SOB's out, but re-elect YOUR Member of Congress. (90% of those running will be re-elected) "Some people say that there's a woman to blame, but I know, it's my own damn fault". We got the Government we wanted, or, at least, voted for and will vote for again.

  • Report this Comment On October 18, 2013, at 9:18 AM, patriot4971 wrote:

    I don't understand the need to post political commentary in guise of financial analysis. Budget deficit is down because of sequestration cuts across the board and because of that the economy has picked up a little. We were told that the cuts will devastate the economy, but the opposite happened Your assertion about deficit.projections for 10 years is nothing but political hackery to take advantage of the reduction in projected budget deficit this year and project that reduction over 10 yrs. The sequestration cuts were opposed toot and nail by this administration but you give full credit to them for deficit reduction.

    This article is so wrong on so many levels that I don't have time or patience to refute every little piece of disinformation in this article.

  • Report this Comment On October 18, 2013, at 9:29 AM, cdullnig wrote:

    The problem is that tax revenue is not sufficient to cover expenses. No brainer. But, when talking about medicare in 1965 and social security in 1937, you are only talking about out-go. How about the 91% marginal tax rate we had in 1945, or the 77% in 1965. 10% of the people make 70% of the income in this country, and the marginal tax rate is below 40% now!!! That is where the problem came from. We lowered it too much and we now need to increase it to see where the right %, for the current economy, needs to be.

  • Report this Comment On October 18, 2013, at 9:29 AM, cdullnig wrote:
  • Report this Comment On October 18, 2013, at 9:44 AM, sevenheart wrote:

    This is great, why it seems we can continue to raise our debt ceiling forever, after all, we only need to present each baby born in America with their bill for their share of the national debt of $125,000, in addition to the taxes they'll pay for the rest of their harmonious lives. Yay! We won, spend spend spend, after all the government is no longer a confiscator of personal wealth in the form of taxes it is a creator of wealth and a contributor to the GDP. Buy more government products and stimulate the economy some more. Come on Morgan, your big government pom pons are getting worn out.

  • Report this Comment On October 18, 2013, at 9:50 AM, gkirkmf wrote:

    Morgan,

    With due deference to the old saw… “Those who ignore history are doomed to repeat it”, I have a problem with your solution of economic growth getting us out of the jam we will be in if interest rates rise.

    I subscribe to the theory that we are faced with an entirely different set of circumstances than was the case after WW2. Energy was very cheap in the late 40’s and early 50’s. That was a time where you could still stick a steel stick a few hundred feet in the ground and pump hundreds of barrels of oil a day from it. Coal strip mining was just starting, and coal prices were decreasing. We had an essentially infinite supply of fossil energy.

    Fast forward 50 years… We have pretty much exhausted our “easy” fossil fuel resources. In the case of oil, that has pushed its price to record highs. There is still plenty of oil in the world, but it becomes more expensive to retrieve it with each passing day. The implications for the US economy are enormous. Growth in the U.S. is adding energy demand faster than any nation on earth (1). If one uses this perspective to look back at the last 20 years or so, a different picture of our economic cycles emerges. We repeatedly bump into a rapid rise in fossil fuel prices, followed by a general economic down turn. Our entire economic system was built around $10/barrel oil. Our huge suburban population is built on happy motoring and cheap oil. The increase in the cost of oil and other fossil fuels can’t be ignored any longer when projecting what may happen to our economy in the future.

    Each time since 2000 we have a recession, more folks have been laid off, and they have not been brought back in to the employed labor force due to productivity increases and outsourcing (2). They have become poorer, with no steady well-paying jobs as were available back in the 50’s. They consume less energy, because they simply can’t afford it. This drops demand, resulting in lower energy cost, and the economy then picks up. Unfortunately, as soon as the economy picks up, prices rise, causing the entire cycle to repeat.

    Since our government is pretty much run by corporations which benefit from higher fossil fuel prices (Koch brothers, EXXON, and others) I do not hold out much hope that the current dysfunction in congress will end anytime soon. All that will result is that we will steadily become a poorer nation, unable to muster the resources to maintain the infrastructure (3) that has been built to facilitate our high energy economy.

    Thanks for a great thought provoking article as yours always are.

    (1) http://physics.ucsd.edu/do-the-math/2013/09/the-real-populat...

    (2) http://research.stlouisfed.org/fred2/series/LNS12300001

    (3) http://www.usatoday.com/story/news/nation/2013/09/15/bridges...

  • Report this Comment On October 18, 2013, at 10:41 AM, stan8331 wrote:

    Great article, Morgan. A lot of folks are emotionally invested in a falling sky, facts be damned. One huge problem in this debate is the dangerous tendency of people to conflate national finance with personal finance. They are two very different things - the sort of austerity that may make sense on an individual level would be absolutely ruinous for our country.

    National debt only becomes a problem when the ratio vs. GDP gets too high, and as stated in the article our ratio has already come down significantly and the long-term trend looks positive. The dollar amount of the debt means nothing in isolation. Inflation is always a concern, and we need to keep a close eye on the debt/GDP ratio, but the sort of draconian action to lower the debt favored by the Tea Party would kill the fragile recovery and throw us into recession or even depression.

  • Report this Comment On October 18, 2013, at 11:01 AM, dannyclyde1 wrote:

    Morgan, your considered and cogent comments on the economy are very welcome in the current "sky is falling" environment. This article, in context of your other writings shows that you understand that there is work to do to keep our economy robust. But, it is cooperative and thoughtful work, not name calling, rock throwing fights.

    Thanks for your articles.

  • Report this Comment On October 18, 2013, at 2:51 PM, Zombie111 wrote:

    The numbers involved seem too big for the human brain to cope with (but I guess that is partly what politicians are paid to do).

  • Report this Comment On October 23, 2013, at 12:51 PM, ddepperman wrote:

    Another bang-up article from Mr. Housel!

    Nothing like some factual material and not the crap sloshing around the airwaves and web.

    Yay!

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