Have a look of this five minute video which describes and shows clearly how bad the US Budget deficit is. Basically it is impossible to close, which means I’d say the US will have to print money in a big way to cover the debt, which will of course mean the NZ dollar will keep rising relative to the US. We can do nothing to stop this, unless we have hundreds of billions to waste on trying to stop it happening.
The presenter tells us how the spending is $3.8 trillion for 2013, the income $2.5 trillion and deficit $1.3 trillion.
Now expenditure is in three categories. Mandatory entitlements, interest on debt and US Federal Government discretionary spending. The mandatory entitlements are $2.2 trillion and interest is $0.2 trillion which is (rounded) $2.5 trillion. So the federal income is just enough to meet mandatory entitlements (Social Security, Medicare etc) and debt interest.
Now of the $1.3 trillion “discretionary”, $0.9 trillion is on security such as the military.
So to balance the Budget, there are three options:
- Increase taxes by 50%
- Abolish the Federal Government, including the military
- Massively cutback entitlements on social security and Medicare which would probably lead to Greece style riots
It would be nice to think if you get the economy growing, then that will increase tax revenues enough. But the spending has been increasing far faster than the economy.
The presenter concludes it is a matter of when, not if, the US gets downgraded again.