Bacon's Rebellion

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Whatever Happened to Boomergeddon?

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Peter Galuszka
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By Peter Galuszka

And now for something completely different.

I read with great interest James A. Bacon Jr.s “Boomergeddon” work a couple of years ago. It printed a very bleak picture of our financial future and Jim says, “We need to cut hundreds of billions of dollars” from the federal budget.

But something has been bugging me for about a week now — news that the federal budget is actually shrinking faster than expected.

I’m not making this up. It comes from the Congressional Budget Office. It is supposed to be down to $642 billion by October and may fall to $400 billion a year or so after that, according to new projections. I gather the government is collecting more taxes, even though Apple, like General Electric, manages to pay little if any, which conservatives hate to bring up.

If I recall, the worst deficit was about $1.3 trillion. According to Jim, Obama says it will go down and then bounce up to $1 trillion by the end of the decade if there is no recession. “The reality is that a recession is inevitable,” Jim writes.

I can’t claim to know if there will be a recession  before 2020 but the new budget deficit projections show the deficit growing back to the level of about $750 billion (not $1 trillion as was apparently forecast earlier).

I hate to be a nag, but where was Mr. Bacon when the news came out that the budget deficit was shrinking faster than expected and that this puts a damper in the urgency to cut budgets again and again?

So there it is. On the table. I’m counting off 10 paces. Your draw, Jimbo!

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6 responses to “Whatever Happened to Boomergeddon?”

  1. larryg Avatar
    larryg

    it’s definitely a troublesome thing for those who said we had to kill entitlements and to boot – it appears that Paul Krugman was more correct than the screaming meemie minions.

    To be sure, we need to deal with entitlements, no question about that but all this blather about death squads and pushing grandma over the cliff are proving to be mostly bellicose blather from the boisterous blowhards who basically pray for disaster!

  2. James A. Bacon Avatar
    James A. Bacon

    Gee, Peter, I’m glad you asked. There’s a lot of ground to cover but I’ll try to be brief.

    First, yes, the deficit is declining. That’s what you’d expect five years into an economic recovery. The CBO expects a deficit of $642 billion in FY 2013, which is indeed considerably better than the $1,550 billion in FY 2009. And it’s also what you’d expect when the President and Congress get semi-serious about fighting the deficit.

    A few things have happened since early 2010 when I wrote “Boomergeddon.” One difference is that we’ve raised taxes. Another is that, thanks to a Republican majority in the House of Delegates, the federal government has begun to exercise a modicum of spending restraint. While I’m no fan of the tax increase, which I think will dampen long-term economic growth, it does reduce the short-term deficit.

    A third difference is the Fed’s monetary stimulus, pushing down short-term interest rates to near-zero, which among other things, lowered the Treasury’s borrowing costs and saved tens of billions of dollars a year in interest payments. Yes, I’ll admit that I did not anticipate that move. The open question is to what extent Ben Bernanke managed to goose short-term growth at the expense of future inflation (if he fails to end the stimulus in time) or at the expense of future growth (if he ends the stimulus before inflation kicks in).

    As you allude to, the CBO forecasts that, absent any change in policy, the deficit could drop as low as $388 billion in FY 2015. But the CBO alludes to the same long-term challenges that I wrote about in “Boomergeddon” and expects deficits to climb back to around $800 billion a year by 2022 and 2023. Of course, those projections assume non-stop economic growth — no recessions — for what would amount to 13 straight years, one of the longest economic expansions in U.S. economic history.

    Perhaps you think that Obama/Bernanke’s stewardship of the U.S. economy is so brilliant that we can achieve such a feat. I don’t. But if you really do think the U.S. economy is truly capable of such a performance, I’d advise you to invest all of your money in the stock market right now because we have a heck of a bull market ahead.

    Here’s the problem: We now have a national debt of roughly $17 trillion. We can carry that debt as long as interest rates remain super low. If interest rates start climbing toward their historical norms, the interest burden on the debt will explode. The Obama administration forecast does forecast that interest rates will rise a couple percentage points and it (presumably) incorporates those added interest rate payments into its projects. However, should interest rates increase more than projected, it could prove disastrous. A one percentage point increase in average interest rates will mean an extra $170 billion in annual interest payments. A two percentage point rise will increase interest payments by $340 billion. Doesn’t that possibility worry you just an eensy teensy bit?

    Another worry is whether the economy will achieve the Obama administration’s economic growth forecasts. The latest projections call for annual growth rates (inflation adjusted) around 3.5%-per-year range through the middle of the decade. While lower than the delusional rates forecast in previous years, they still strike me as high. If a recession occurs sometime in the next half decade, they will prove to be disastrously awry.

    When I wrote Boomergeddon in 2010, I figured we had 15 to 20 years before the wheels fell off the bus. Many people thought I wasn’t pessimistic enough, but I figured that Uncle Sam still had some tricks up his sleeve. In the year 2013, we still have 12 to 17 years to go. I’m sticking to my prediction.

  3. Peter Galuszka Avatar
    Peter Galuszka

    Larryg,
    Please slap me around a couple of times. I may be hallucinating.

    I thought I read that Jim Bacon said that raising taxes is OK!

  4. Darrell Avatar
    Darrell

    Still trusting the government, eh?

  5. Peter Galuszka Avatar
    Peter Galuszka

    SHould I trust Apple or GE?

  6. larryg Avatar
    larryg

    re: taxes are “ok”.

    guess Bacon didn’t plan on that either, eh?

    Of course, the GOP, bless their pea-picking brains… got themselves backed into a corner – on the issue…

    re: 17 trillion

    yes… bad karma… what did the GOP say to do about it? Like Paul Ryan?

    why the man said that if we cut taxes, growth will balance the budget by 2030 but he neglected to say anything about how the debt (which would be about 30 trillion by then) would be fixed.

    re: GOP spending restraint..

    bahahahahahahah

    tell me what the budget they advocate looks like…. did they cut DOD and National Security? Nope. well what did they cut? ObamaCare (which CBO says SAVEs money but the GOP says that’s wrong – but they do believe CBO when it says we have a debt…..)….

    how many times has the GOP voted for continuing resolutions to continue deficit spending at the same time they get up in front of the cameras and say we have a “spending” problem?

    We need another BRAC and it needs to include both DOD and Homeland security…. we are currently spending about a trillion on the two and we are currently taking in about 1.3T in taxes… either that – or we need to man up and pay for it. One way or the other. We can’t spend 3/4 of our taxes just on National Defense and Homeland Security… it’s more than the next 10 countries – including China – COMBINED!

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