Sunday, June 10, 2018

Fun With Math: Guess the 2009 US Budget Deficit

Here's a really fun game you can invite your family, friends, and neighbors to play. I call it "How Much More Will Sammy the Beggar Owe in 2009?" Basically, the objective of this game is to guess how much the US will add to its national debt in fiscal year 2009 (October 2008 through September 2009). Needless to say, the US will set astounding new records for outright national profligacy over a one-year period. Even now, political matters are in a state of flux as the mother of all bailouts is still being fought over (although it should be finalized shortly) and Senate Democrats are proposing yet another economic stimulus package. Can the 2009 deficit really come to $1.5 trillion? Even I would be absolutely gobsmacked if it does. Note that the italicized items are not yet finalized at the time of writing. The CBO forecast made before a lot of subprime spit hit the fan called for a record $438B 2009 deficit. Add the other items in and things get pretty interesting in a multiple car crash cum Chernobyl sort of way.

What does it all mean? If you're an acolyte of that renowned economic sage Dick Cheney, absolutely nothing. Remember, "Reagan proved that deficits don't matter." If you aren't, well, these things are a rather heavy cross current and future generations of Americans will have to bear for living like there's no tomorrow.

To get you started on this exciting parlor game, I am furnishing you with a list of considerations you should probably take note of:

(1) The optimists may be right in that a bottoming out of US housing prices is near. Otherwise, count on more troubles as housing-related assets get dragged down further, necessitating yet more bailouts;
(2) Figures reported in the media will of course not represent the ultimate tab to the American taxpayer. For instance, the "$700 billion bailout plan" refers to raising the debt ceiling from $10.6 to $11.3 trillion. However, the last time I checked, the US deficit is "only" $9.788 trillion, Thus, depending on how the final bill is worded, up to a whopping $1.5 trillion can be authorized for mopping up impaired assets;
(3) Some bailout funds have already been spent in 2007 (like perhaps the Bear Stearns $29B), while others will be spent in 2010 and beyond;
(4) It's important to consider how enthusiastic America's suck...I mean honorable creditors will be buying all of Sammy's wonderful Treasuries begotten of subprime wonder and merriment. Last I heard, these creditors and their publics were becoming wary of getting royally shafted by Sammy's rip-off scheme.

One thing you can probably be sure of is that, for political economy reasons, US sovereign debt is unlikely to be downgraded from AAA status over the time period under consideration.

Commentators have been talking about whether this or that financial institution is "too big to fail?" Let me do them one better: since America's basic plan is to borrow more from loaded foreigners such as Middle Easterners and the Chinese, the real question becomes: "Is America too big to fail?"

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