How’s That Debt Ceiling Deal Working?
Since August 1st our national debt has quietly grown $278 billion as of August 18th – in just 17 days.
In the August 1st debt ceiling agreement the ceiling was immediately raised by $400 billion and then authorized another $500 billion before 12/31/2011. That is a total increase of $900 billion to the national debt allowed for the rest of this calendar year.
A “super committee” is charged with making recommendations for at least $1.5 trillion more in cuts. If Congress doesn’t act by mid-January on any recommendations then the debt ceiling is automatically raised by another $1.2 trillion when automatic cuts of the same amount take effect on 1/15/2011.
In other words, government deficit spending is limited to $900 billion through 1/15/2012 unless Congress acts earlier.
Will we last that long?
Current National Debt Growth Rate
The $278 billion already spent is 31% of the total available to spend until early next year. Subtracting $278 billion from the $900 billion leaves $622 billion remaining to last until 1/15/2012.
The average growth rate of the national debt since the agreement was made is $16.4 billion/day.
That figure is deceptive because there was a $238 billion one-time payback on August 2nd to catch us up from the “extraordinary measures” taken between May 16th and August 1st to keep government afloat.
Excluding the payback day the current average growth rate of the national debt is only $1.2 billion/day. That is suspiciously only 1/3rd of the daily debt growth rate for last year.
Added Note: 8/22/2011
On 8/19/2011 the national debt leaped up to $19.1 billion. That ups the average growth rate since Aug 2nd to $3.44 billion/day. In just one day it almost jumps back up to last year’s $3.7 billion average. The national debt can have wild daily fluctuations both down and up, but mostly up.
Is there enough to last until 1/15/2012?
There are 150 days left from 8/19/2011 to 1/15/2012. In order to stretch the remaining $622 billion left until then we’ll have to keep our debt growth under $4.1 billion/day.
At $16.4 billion/day we wouldn’t stand a chance. It would only last 1/4th the time. But at only $1.2 billion/day there is enough to last more than a year and a half. The actual rate will be somewhere between.
Last year we averaged a debt growth rate of about $3.7 billion/day. This year the economy doesn’t look like it is doing as well so the average will likely be more than $3.7 billion/day. Just how much more is open for debate.
If the economy goes into a double dip recession, though, we might actually come up short and have to resort to “extraordinary measures” again for a short time to bridge the gap through to the 2012 elections.
The debt ceiling deal passed the 1st of this month raised the debt ceiling just barely enough to tide us through until after the 2012 elections. That should not surprise anyone. This is exactly what it’s limited purpose was designed to do. It was all the current political climate would allow.
That means, of course, there isn’t any money left for investment in job creation. That was a short sided oversight by both Congress and the President..
With the real threat of a double dip recession looming there are few options left for The Fed to do anything about it. Talk about bringing back “The Twist” from the early 1960s only underscores how desperate The Fed has become.
President Obama is coming out with a jobs plan next month. In an interview with CNN’s Wolf Blitzer the President hinted that he would come back with his “grand plan” proposal “front loaded” to create jobs.
“Front loaded” is a euphemism meaning that the federal government has to figure out where to come up with the cash right now to pay for funding job creation programs right now.
Massive spending on infrastructure projects like we did in the 1930s may be one of the few options left to government to generate enough demand in the economy to help. The difference now, though, is that in the 1930s the federal government’s debt level was a fraction of what it is now. We could afford it then.
With a debt level near 100% of GDP, we can’t afford it now. Ending the “Bush-era Tax Cuts for the Rich” could raise some money – about $45-50 billion/year – but that isn’t enough to make a difference.
Where, then, is the money to pay for job creation programs going to come from?
Posted on Aug 20, 2011, in 2012 Elections, Barack Obama, Debt, Deficit, Deficit Reduction Committee, Economy, Federal Reserve, Federal Reserve Bank, Job Creation, Jobs, National Debt, National Infrastructure, Politics, spending cuts, Super Committee, The Fed. Bookmark the permalink. 2 Comments.