White House claims that America is experiencing an economic recovery defy reality. In fact, according to leading economists, the next recession will “blow out the U.S. budget.”
Economist John Mauldin attests that the next economic recession will “blow out the U.S. budget.” He says that the current economic “recovery,” by 2017 will be the “third-longest recovery without a recession since the Great Depression. By 2018, it will be the second longest.”
Economic growth has hovered at roughly two percent. And by 2017, the national debt will exceed $20 trillion. The current deficit is nearly $500 billion, and is expected to rise.
The national debt is the total amount of money that the federal government owes due to borrowing money every year to cover each year’s budget deficit. A deficit is the difference between what income the government receives (tax revenue, excise, social insurance taxes, fees) and what it spends. Because the government spends more than it takes in, ever year there is a deficit, and every year the Treasury Department borrows money to pay for what it has already spent. It also sells securities (T-bills, notes, Treasury Inflation-Protected securities and savings bonds). Because the federal government continues to spend more than it takes in, and has not paid more than the interest it owes on accumulated deficits, the debt continues to grow exponentially. The national debt is the total amount of the accumulated deficits.
New deficits can only be reduced by cutting spending, raising taxes, or authorizing the Federal Reserve to monetize the debt.At the rate of current spending and egregious mismanagement and negligence, by 2019, the federal government will only be able to use tax revenue to spend on:
- Entitlement programs (Medicare, Medicaid, Social Security, Disability, all free programs for illegals and “refugees”),
- National Defense (US military, contractors), and
- Interest owed on debt.
The government will not be able to pay for anything else, including Obamacare and running the federal government, etc., without having to borrow money. Mauldin explains in this graph:
By 2019, the deficit is projected to reach $738 billion. This means the government must borrow $738 billion to operate.
By 2023, the Congressional Budget Office projects this deficit will rise to over $1 trillion. This means the only areas tax revenue will be able to pay for is entitlement programs. The U.S. government will have to borrow money to pay for any and everything else, including running the government, the U.S. military, etc.
Imagine living entirely on credit cards while living with a friend or family member. That is the situation the U.S. government will be in by 2023.
Mauldin points out that any CBO projections, however, are based on the assumption that no recession will occur within the next ten years. This likelihood is nearly impossible; meaning, a recession is more than likely to occur over the next ten years.
In light of this plausibility, Mauldin, and his associate, Patrick Watson, calculated what the U.S. budget might look like in 2018, if there is a recession, assuming the percentage of lost revenue from the last recession is repeated.
Based on their calculations, in 2018, spending on entitlement programs and interest alone, would greatly exceed revenue.
(And, Mauldin explains that the outcome for 2017 or 21019 would be similar because “the relative numbers are the same.”)
Mauldin reports that,
The deficit would balloon to $1.3 trillion. And if the recovery occurs along the lines of our last (ongoing) recovery, we will not see deficits below $1 trillion over the following 10 years—unless we reduce spending or raise revenues.”
He offers solutions for policies changes that could save the budget, but also writes, “The situation is merely hopeless, but not critical.”
April 13, 2016