The deficit is not shrinking, it's an accounting slight of hand. Do you really expect somebody with $3 trillion of annual revenue to be able to deal with $60 trillion or more of debt? It’s impossible. Wait until interest rates go up. If the deficit is falling and the country is not insolvent, then why the continuous need to raise the debt cealing? Obama claims it's to pay bills, but the reality is that it proves that the country can't pay its bills.
We don't have $60T of debt. We do have unfunded liabilities, although I think your number for that is high.
Congress used to have to directly authorize each bond issuance by Treasury. Beginning in the 19th century, Congress ceded this power to the Treasury, but retained the power to approve an increase in the total amount of debt the US issued. Total amount of debt. Hence, annual deficits can decrease while the total debt increases. It just means the rate of increase decreases, which is what is happening.
Since 2009, the President and Congress have been unable to come together on a budget, but have instead passed continuing resolutions to keep the government funded. So we don't have a budget, let alone a balanced budget.
Current spending levels incur annual deficits. That's why the debt ceiling needs to be raised every year. This will happen until the deficit is zero, or we start generating surpluses.
But these spending levels have been approved by Congress. The proper way to eliminate the deficit is through compromise on a viable budget that does that. But that hasn't happened, obviously. Yet.
There are not enough jobs and income to support the governments that we have. The disposable personal income and wages keep going down. The U.S has 50 million people on food stamps, and 1 in 5 on some form of social assistance. Pensioners will inevitably take the same "haircut" as the people in Detroit.
Inflation-adjusted disposable income is going down only for working people. The well off are raking it in more than ever.
The reason we have so many people on assistance is the Great Recession, and I believe you are counting those on Social Security and Medicare, as being on "social assistance."
The $85 billion a month in stimulus is no longer making a dent in the economy. They are stuck. The FED is the buyer of last resort and no one will want the billions in bonds they are buying each month. Who will they sell to? Foreign nations are not going to keep buying U.S debt. The loss of reserve status is being hastened and will happen. When it does look out for the inflation to come. We may not even have to wait for that if the FED completely loses control of the bond market though. Things are going to get very bad in 2014, not based on doom and gloom, but the true reality of the poor fundamentals of the economy. People would be wise to brace accordingly.
I don't think the stimulus really did very much. It wasn't targeted properly and wasn't big enough.
Foreign countries hold about one-third of our debt. Two thirds is held by private companies or individuals or the government.
I agree with you that the Fed will have a tough time tapering, but I don't think it will lose control of the bond market. Who else would control it?
I also don't think the US dollar will be dropped as a reserve currency anytime soon. There are no good candidates to replace it. That of course might well change if the antics of the past few weeks are repeated.
