patrick.net

A year ago the national debt was $1.2T less.

Say we close this over 10 years, that's $120B/yr in ratcheting adjustment to make.

Say $60B/yr in spending cuts and $60B/yr in rising taxes.

That's $500 per household in each category -- in 2012 each household pays $500 in more taxes, by 2022 this will be $5000/yr in higher taxes, good for about half the deficit.

The $60B/yr in new cuts each year will fuck over about a million new people each year assuming each $60,000 of spending benefits only one person (of course, gov't spending generally benefits two people, the provider of the public good and the recipient of the public good).

Plus on top of the fiscal contraction we're going to need to raise taxes to start paying for the baby boom's retirement pensions and Medicare.

In 2026 the baby boom will be aged 65-80. This is going to be the point of maximal systemic stress.

But if we went with this 10 year austerity plan, the national debt (held by the public) would top out at $16T in 2022. If we're paying decent interest rates again the annual interest burden will "only" be $800B/yr, or $6000/household.

$5000/yr in higher taxes, $5000/yr in government cuts, $6000/yr in interest burden, maybe a doubling of Medicare taxes to cover the baby boom -- and none of this is getting into state and local budget imbalances, which are just as bad as the Feds, really.

Running these numbers just makes me want to book a flight on Lufthansa or KAL and GTFO again.

God help the middle quintiles if the Republicans start running things again and actually walk their talk about "broadening the base".

The Mother of All BOHICAs more like

The Interest alone on that simplified budget is $7,100.00 pr yr.
(30 yr @ 5%)
That means 30% of the OUR income is used to pay ONLY the interest.
The budget is being cut by 1/100.

What do we need to do to get them to FIRE themselves ?

Bellingham Bill says

Say we close this over 10 years, that's $120B/yr in ratcheting adjustment to make.

We won't. Spending is a drug like addiction, and there is not enough political incentive to stop it.

Politicians usually don't run for the office so they can stop spending, they usually run to give more to their friends. Ron Paul is running for cutting spending, but he is a alone.

Bellingham Bill says

mere fiscal and monetary intervention is just postponing a worse collapse

And or our standard of living is going to have to take even more of a hit.

It's as if some sort of transition needs to occur, but our current system isn't set up to handle it.

Or perhaps a period of true sacrifice and restructuring at all economic levels, for several years.

In theory, some degree of deficits aren't a problem, if there is sufficient growth and some inflation later. We were in a situation in 2004 where our only financial hope was extreme growth in GDP. Instead we got a housing bust and recession, all of the negative feedback loops that came with it.

marcus says

It's as if some sort of transition needs to occur, but our current system isn't set up to handle it.

We need $5+ gasoline to destroy some of our demand, and the alternate transport infrastructure built up such that that price level doesn't just slaughter everyone.

Gas price in Tokyo right now is $7/gallon, more actually since their economy is not quite running at what the FX says it should be.

We need to remove the Health Tax that we're paying -- $4000 per capita MORE than the global average for health care is unsustainable. Eliminating the rents in health care would help a lot, but also hurt the millions of people in that field:

http://research.stlouisfed.org/fred2/series/CES6562000101

(title of that chart: "Recession? What recession?")

We need to get our domestic "Job Creators" out of the parasitical specuvesting -- mainly land -- and into actual job creation.

Maybe manufacturing is a lost cause, but we need some way of closing the $30B/month trade deficit with China, like via tariffs or something.

http://www.census.gov/foreign-trade/balance/c5700.html

Each $100B the Chinese rake off their trade surplus is the collective salary of TWO MILLION jobs lost from the paycheck economy.

Chances are we're going to add another $6T to the national debt over the next 5 years, pushing it over $20T. A 5% interest rate on that will be . . . one trillion in interest per year. This might be partially why the TNX is under 2 now. Everyone understands that the US simply cannot pay any higher interest, not until we get our fiscal house back in some semblance of order.

I was thinking if anything's not completely fuxxored right now, and I guess the natural gas glut qualifies. Increasing production from fracking + a thus-far mild winter have pushed natgas down to the gasoline-equivalent of 30c/gallon!

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2012/01/17/bloomberg_articlesLXVBKF07SXKX01-LXYOW.DTL

Too bad my car doesn't run on natgas!

We could balance that budget if we didn't waste over half our income shit-kicking the brown kids down the street in order to steal their lunches. We could make our own clean, sustainable lunches for far less.

One factor missing from the equation:

What is the value of the assets we're borrowing against?

A $140k credit card debt is no big deal if you have a over a couple of million in assets.

And start cutting a budget by starting with the luxuries and discretionary income first, not by looking to cut your IRA contributions or groceries.

In other words, before we commit to Ramen noodles and deciding to work another 3 years before retirement, we might want to cut our spending on the gun range and new firearms from a $1000 a month to $100-200.