There are signs that the USA fiscal situation is out of control and unsustainable. This is trouble for the Republicans, for all Americans, and for the entire world’s financial system.

Fed Chaiman Greenspan says our budget deficit is out of control. (below).

Plus, the GAO calls our fiscal policy “unsustainable”. We’ll take a look (below) at a 2004 report by the GAO that keeps using the warning word “unsustainable” in describing our economic path.

Interspersed, we’ll talk about pork and hurricanes too.

Republicans have been in full control for a long time, and things are getting out of control. I think we’ve had time since 9/11 to stabilize things, but instead things are getting worst, fiscally speaking.

To put the time into perspective, it’s been longer now since 9/11 than World War II lasted for the USA. And 9/11 is not another World War II.

Too much power in the hands of one party. Power corrupts, as the old saying goes. Our best fiscal days were during Clinton’s second term, according to statistics from the GAO.

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FIRST GREENSPAN

Fed Chairman Alan Greenspan seems to have told the French Finance Minister that the US budget is “out of control”. See American fury over Greenspan leak - French claim Fed chairman admits US has lost control of budget.

See also Hurricanes hammer U.S. deficit plan - French Finance Minister Thierry Breton said Mr. Greenspan made the ominous comment during a private meeting Saturday. ” ‘ We have lost control, ‘ that was his expression,” Mr. Breton told reporters. “The United States has lost control of their budget at a time when racking up deficits has been authorized without any control [from Congress].”

Click the links and check it out - The Fed claims Greenspan was misquoted of course.

Greenspan is short timer - he’s retiring soon. He’s probably losing his edge and getting careless.

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SECOND - DEBT AND DEFICIT STUFF

We’ve all heard of the budget deficit issues that might arise from hurricanes Katrina and Rita, combined with Iraq.

The media have been curious to ask Bush and his supporters whether Katrina and Rita and Iraq will continue to be financed with more and more borrowed money, or whether Bush might roll back tax cuts or find spending cuts to help pay our national bills.

Looking silly proposing tax cuts now
Bush looks plain silly on camera trying to justify tax cuts in these times. Congressional leaders do too. Fiscal conservatives feel squeamish watching Bush try to justify tax cuts when we just keep getting further and further in the red. Some Republicans are jumping ship though, and I expect that trend to continue.

I think that mostly the die-hardest political Republicans (not the economic Republicans) are still on Bush’s cut-taxes-and–borrow-heavily bandwagon. The modern Republican Party has no problem borrowing huge amounts of money to finance tax cuts and ordinary spending (not even national emergency spending).

Not much pure pork left, but hell being raised about it anyway
And if you think there is an enormous amount of “Pork” in the budget, let’s see what the conservative Newsmax says: Republican ‘Porkers’ Urged to Stop Spending - “Citizens Against Government Waste states that pork barrel spending has increased from $10 billion in 1995 to $27.3 billion this year, much of it by Republicans, and most recently, in the transportation bill. Republicans have now controlled the House for more than a decade and taxpayer watchdog groups believe the political parties have changed their views on government spending.”

We’ve all heard that the hurricane relief efforts might total $100 - $200 Billion. So, the amount of pure pork, $27 Billion, is a much smaller fraction than we would expect.

I went after some answers, and instead found interesting deficit stuff from the GAO in 2004
I wondered if the evils of interest payments offset any growth caused by tax cuts? These are complicated issues. I wondered what the experts said. So I went looking. In 2004 the Government Accounting Office published an FAQ about the debt and deficit. We’re gonna take a look at parts of it below. I think you’ll be surprised at what the GAO says. I didn’t get an answer to my original question, but I found some interesting stuff.

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REPUBLICAN FISCAL POLICY APPEARS UNSUSTAINABLE

Take a look at the excerpts below from a very long FAQ from the General Accounting Office.

The GAO in 2004 presented statistics and commentary using the word “unsustainable” several times in describing our fiscal policies. Since the Republicans have been the major power since 1980, we have to hold them accountable.

One bright spell - the second Clinton term
The only bright fiscal spell in the past 25 years occurred during Bill Clinton’s administration, when Clinton was a better Republican than any of the Republican presidents have been. Clinton balanced the budget, avoided reckless tax cuts, and didn’t get us into expensive unfunded foreign wars. And of course the Republicans in Congress held his feet to the fire. Why can’t Congress hold its own feet to the fire when the Republicans control Everything?

The Report mentions that budget controls were put into place by Congress in 1995 which have expired, and says that the Congress has not replaced those controls yet (as of 2004).

Huge borrowing without emergency - Keeps interest rates higher
Since Reagan got elected, the Republicans have really been the party of “Borrow”, breaking historical tradition in a big way by borrowing without a national emergency to justify it.

And now, with Iraq and the hurricanes, we probably are really in a national emergency, fiscally speaking. And we’ve already overloaded ourselves with deficit for non-emergency things. So we’re in trouble.

We should have had a tax increase to pay for Iraq. Then, with the hurricanes, we could have borrowed rather than risk slowing down the economy with tax increases.

But still, higher interest rates are a form of “tax”. The more we borrow the more interest rates stay up, costing us all more money to finance things.

GAO-04-485SP, Federal Debt: Answers to Frequently Asked Questions, An Update

[Below is from page 1 preface]

Although the federal government has carried debt throughout
virtually all of U.S. history, in the past publicly held debt rose
substantially only as the result of wars and recessions.

However, annual budget deficits from the 1970s through the
mid-1990s sharply increased the total amount of debt owed to
the public during a period marked by the absence of a major
war or depression.

The Congress and the President responded
to the high deficits and rising debt over the 1990s by enacting
several deficit reduction initiatives.

These actions, along with
economic growth, helped shrink annual deficits and led to 4
consecutive years of surpluses in fiscal years 1998 through
2001, which in turn reduced debt held by the public.

However, tax cuts, increased spending, and weak economic growth
returned the unified budget of the federal government to
deficit in fiscal years 2002 and 2003.

This budgetary climate comes at a time when the budget controls enacted in the 1990s
have expired, and there is no agreement yet on what should
take their place.

… Long-term simulations by GAO, CBO, and the Office of Management and
Budget show that absent policy changes, debt held by the
public would rise to levels ultimately unsustainable by the U.S.
economy.

[Below is from page 7 ]

Thus, the ratio of debt held by the public as a share
of GDP is a good measure of the burden on the current
economy. In these terms, the federal debt burden grew in all
but 2 years from 1980 through 1993 and then began a steady
decline through 2001.

Since then the federal debt burden has
increased to about 36 percent of GDP at the end of fiscal year
2003. (For additional information on the debt held by the
public as a share of GDP, see fig. 5 in sec. 2.)

Current growth in the debt-to-GDP measure does not necessarily create problems
in the short term, but continued growth would further reduce
future budgetary flexibility and ultimately lead to an
unsustainable fiscal path.

[Below is from pages 17-19]

As figure 5 shows, prior to the 1980s, the debt-to-GDP measure
rose substantially only as the result of wars and recessions.
Borrowing during these times helped protect the nation’s
security interests and stabilize the economy.

From the early days of the republic until the 1980s, debt held by the public
exceeded 30 percent of GDP during periods surrounding the
Civil War, World War I, the Great Depression, and World War II.

Recent increases in the debt held by the public broke with
historical patterns by climbing significantly during a period
marked by the absence of either a major war or depression.

Beginning in the late 1970s, rising federal budget deficits fueled
a corresponding increase in debt held by the public, which
essentially doubled as a share of GDP over a 15-year period
through the mid-1990s and reached about 50 percent of GDP in
1993.

The budget controls instituted in the 1990s successfully
restrained fiscal action by the Congress and the President
and—together with economic growth—contributed to the
budget surpluses that materialized by the end of the decade.

These surpluses led to a decline in the debt held by the public,
and from fiscal years 1998 through 2001, the debt-to-GDP
measure declined from about 43 percent to about 33 percent.

Tax cuts, increased spending (including spending for increased
homeland security and defense commitments), weak economic
growth, and lower-than-expected capital gains receipts have
led to a return to annual deficits and a rise in the debt-to-GDP
measure.

In addition, the budget controls that once helped to
lower deficits have expired, and no agreement has yet been
reached on a successor regime.

The sharp reversal in the government’s fiscal position is reflected in the debt numbers.
From the end of fiscal years 2001 through 2003, debt held by
the public rose by about $594 billion from $3.3 trillion to
$3.9 trillion.

As a share of GDP, debt held by the public at the
end of fiscal year 2003 was about 36 percent of GDP, still lower
than about 49 percent of GDP reached in the mid-1990s.
Figure 6 shows debt held by the public and debt held by
government accounts as a share of GDP from 1960 through
2003.

Above is FROM Pages 17,18,19