U.S. Budget and Economy

My prior post suggested that the initial events that lead to financial crises are more likely wars, not the periods of paying down the resultant debt. The following graph shows the federal debt held by the public during major wars since 1790: The actual numbers and sources can be found at this link . The graph shows the federal debt as a percentage of GDP, as opposed to my prior post which deals with the current dollar amounts. The debt as a percentage of GDP gives a better measure of our ability to service the debt since the government receipts used to pay the interest have remained around 18 percent of GDP for the past 50-plus years (see the first graph at this link ). In any event, the graph shows that there was a tremendous growth in the debt during the Civil War, World War I, and World War II. The growth in debt was much more rapid than any paydown in debt after the war. The growth in debt during the Mexican-American War and the War of 1812 was much more modest but the paydo...

According to this link , Frederick C. Thayer, a professor of Public Administration at George Washington University, wrote an article titled "Do Balanced Budgets Cause Depressions?" for The Washington Spectator on January 1, 1996. Following is an excerpt: Even though the sequence that begins with budget-balancing and ends with depression has been common in American history, the question of a linkage has been ignored. The following paragraphs include all the basic data: 1817-21: In a period of five consecutive years, the national debt was reduced by 29 percent, to $90 million. The first acknowledged major depression began in 1819. 1823-36: In a period of 14 consecutive years, the national debt was reduced by 99.7 percent, to $38,000, a virtual wipeout. This didn’t help either. A major depression began in 1837. 1852-57: In a period of six consecutive years, the national debt was reduced by 59 percent, to $28.7 million. A major depression began in 1857. 1867-73: In a period of s...

As stated here , the OMB (Office of Management and Budget) released the final volumes of the President's FY 2010 Budget on May 11th, 2009. These included the Analytical Perspectives which contains a section on the long-run budget outlook. On June 25th, the CBO (Congressional Budget Office) released the Long-Term Budget Outlook . The following graph shows the outlook for the federal debt held by the public as projected by both documents. The actual numbers and sources for this and the following graph are at http://www.econdataus.com/pro2010.html . As can be seen, the CBO document provides two projections, one for the "extended baseline scenario" and one for the "alternative fiscal scenario". The former appears to be very close to 2010 Budget projections. Regarding these projections, the 2010 Budget states the following on page 190 of the Analytical Perspectives: The long-run budget projections in this section extend the particular policies proposed in the ...

As reported by numerous news sources, California now faces a $21.3 billion gap between revenues and spending. Many have attributed this gap chiefly to increases in spending. For example, a February 18th article from the Reason Foundation is titled "What Caused the Budget Mess? California's Spending Has Nearly Tripled Since 1990". According to the article, state spending (including the General Fund, special funds, and bond funds) has nearly tripled from $51.4 billion in FY 1990-91 to $144.5 billion in FY 2008-09. The numbers in the first table at this link agree with the 1990-91 figure but show $136.2 billion in 2008-09. The small difference is likely because this latter figure is an estimate which continues to change. Still, this represents an increase of 165 percent. The problem with this comparison is that the figures are not corrected for inflation or the growth in California's population. In fact, the article states the following in a later paragraph: If ...

According to a number of news stories, Chinese Premier Wen Jinbao expressed concerns about China's holdings of U.S. government debt on March 13th. Following is the opening paragraph in a March 14th article in the Washington Post : Exerting its new influence as the U.S. government's largest creditor, China yesterday demanded that the Obama administration "guarantee the safety" of its $1 trillion in American bonds as Washington goes further into debt to combat the economic crisis. Further on, the article states: China surpassed Japan last year as the largest foreign holder of Treasury bonds. Any indication that it intends to cease those purchases -- or, worse, stage a sell-off -- could drive up the cost of borrowing for the U.S. government, as well as send mortgage rates higher for millions of Americans. To my knowledge, the chief source for the amounts of Treasuries held by foreign countries is the Treasury Department. Each month, it posts updated estimates of the fo...

An overview of the fiscal year 2010 U.S. Budget was released on Thursday, February 26th. A link to the overview can be found on this page , along with the following description: A New Era of Responsibility: Renewing America’s Promise , provides a description of the Obama Administration’s fiscal policies and major budgetary initiatives. This document is an overview of the full Fiscal Year 2010 Budget expected to be released this spring. The overview contains 9 summary tables which give actual budget numbers for 2008 and projected numbers for 2009 through 2019. These numbers can be combined with historical budget numbers from the prior budget to look at historical and projected budget data from 1940 through 2019. The following graph shows selected measures of the deficit since 1970: The most commonly discussed measure of the deficit is the unified deficit, shown in purple. The graph shows the actual values of the unified deficit through 2008 and projected values from 2009 forward. In ...

On February 6th, the Bureau of Labor Statistics (BLS) released its Employment Situation report for January of 2008. Following is the opening paragraph: Nonfarm payroll employment fell sharply in January (-598,000) and the unemployment rate rose from 7.2 to 7.6 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment has declined by 3.6 million since the start of the recession in December 2007; about one-half of this decline occurred in the past 3 months. In January, job losses were large and widespread across nearly all major industry sectors. The following graph shows the labor force, household survey employment, nonfarm employment, and unemployment rate since 1998: The actual numbers and sources for this and the following graph can be found at this link . As can be seen, employment has decreased and the unemployment rate has increased sharply since December 2007, especially in the past few months. Also noticeable is the fact tha...