Wednesday, April 18, 2012

Spending too much, as usual

kw: deficit spending

I have been hearing much, pro and con, about the Federal deficit and the danger in which it puts us. No doubt, we are mortgaging the future of our children, but that is nothing new. Take a look at this chart, in which the dollar deficits are divided by GDP (the chart is from a blog post at Daily Speculations):

I believe the vertical axis is in percent; the trillion dollar deficit in 2010 was about one tenth of the ten trillion dollar GDP. What saved us from the giant deficits of the WWI and WWII eras of pre-1920 and pre-1946? Inflation. As someone about to shift from gainful employment to a nearly fixed income (pension plus social security), I certainly hope we don't get inflation rates that match those of the Carter years and the late Nixon years. If Reaganomics did nothing else, it ensured at least three decades of inflation in the 2-3% range, and sometimes less than 2%. I can handle twenty or thirty years of 3% inflation, but not much of 15% or so!

Thirty years at 2% is a factor of 1.8; at 3% it is 2.4. To get to 2.4 at 15% takes a mere six years and four months. But our children and grandchildren, absent high inflation, are going to be paying off the Bush-Obama deficits for decades to come.

I guess what I find surprising is that the recent deficits aren't higher than they are, given that we've been fighting two (and briefly, three) wars. On one hand, I think WWIII started twenty years ago. On the other, it is clearly a different kind of war, a low-grade war of attrition. At present, it is hottest in a certain part of Afghanistan, where a determined wing of the Taliban has decided (rather foolishly) to start driving NATO out, rather than wait for NATO to creep away on its own, following the lead of our Quisling-in-Chief. I expect the timetable of withdrawal to change dramatically in the coming months, and it will likely affect the way the election in November goes, though I couldn't hazard a guess which way just yet.

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