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$260 billion in budget cuts is not enough
Raymond Richman, 11/29/2012

If they can't agree to bring the budget toward a sustainable balance when the next elections are 2 years away, when will they do it?

According to Politico, the tax increases and spending cuts of the compromise deal being worked out between President Obama and the Republican House leadership will only reduce the federal budget deficit by about $260 billion per year.

Currently the U.S. federal government budget deficit is $1,327 billion per year. Without this deal, the tax increases and spending cuts of the fiscal cliff would have reduced the deficit to $825 billion per year. This deal will only reduce the budget deficit to $1,067 billion per year, resulting in a 6.7% rate of budget deficit growth which is about 4% faster than GDP growth.

Here's how this growing debt to GDP ratio will eventually play out, according to the Congressional Budget Office:

If the fiscal tightening was removed and the policies that are currently in effect were kept in place indefinitely, a continued surge in federal debt during the rest of this decade and beyond would raise the risk of a fiscal crisis (in which the government would lose the ability to borrow money at affordable interest rates) and would eventually reduce the nation's output and income below what would occur if the fiscal tightening was allowed to take place as currently set by law.

And here is how my father, son and I described this future in our American Thinker article about the fiscal cliff (The Fiscal Cliff is a Good Thing):

The actual scenario is even worse than the CBO makes out. If the U.S. national debt continues to explode, then, eventually, when the Federal Reserve raises interest rates to prevent inflation, the rising interest rates will greatly increase the interest component of the federal budget.

From then on, either alternative would be a disaster: (1) the federal government could default, or (2) the Federal Reserve could take the brakes off inflation. In either case, the dollar would collapse in the currency exchange markets, interest rates and import prices would go sky-high, and the U.S. standard of living would hit the bottom with a splat.

They are sacrificing America's economic future in order to avoid a minor recession. Isn't there an adult left in Washington?

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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

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  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]