Monday, August 8, 2011

Government Spending and Budget Cuts

There has been a lot of political effort and focus on the debt issue, and that is an improvement. So how big is the current change? Congress could only get a small down payment on cuts into legislation immediately. The Congressional Budget Office (CBO) scored the cuts as $917 billion over 10 years. To get more cuts, a Joint Select Committee is tasked with coming up with another $1200 billion more. If they fail, automatic cuts of $1500 billion are planned.

10 year cuts now: $917 B
Joint Committee: $1,200 B
Total: $2,117 B

So the total will be closer to $2.1 to 2.4 trillion, or 5% of expenditures. That is not enough with a current deficit at 40 % of expenditures. Compared to the projected expenditures of $45.8 trillion over this time frame, the effects will be small. A chart of the size of the initial cuts in blue compared to the projected expenditures in red puts the relative size in perspective:

The conclusion is that the best the government could do in making cuts is not enough to change the story that we will be spending more than we can afford, and that the scenario of dollar depreciation and gold rise will continue.

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