The US Budget Strategy is "Disneyland Thinking"

In just ten short years — according to the government’s $3.8 trillion 2011 budget — the interest payments alone on US debt will amount to nearly $1 trillion annually. It’s a massive and clearly unsustainable sum. Amazingly, there has not been much widespread criticism of the budget. Much of the media has welcomed its candor, and the openness with which it lays out what now appears to be an insurmountable problem.

Although, in its honesty one would think it must offer some solution for moving forward into the future with a balanced budget. It doesn’t. As it turns out, the only plan it offers for reining in the budget isn’t so much a plan in itself as it’s a plan to create a plan.

As explained by the Washington Times:

 “The trivial, temporary freeze in some non-security discretionary spending is touted as an example of how the president will control spending. Another purported example is the bipartisan fiscal commission. Page 39 of the budget describes the commission as being “charged with balancing the budget excluding interest payments on the debt by 2015.” The Democrat-controlled Senate decisively rejected such a commission, yet Mr. Obama’s budget numbers assume this commission will specify sufficient budget cuts and tax increases to reduce the deficit to sustainable levels.

“Even the supplemental tables buried in the back of Mr. Obama’s proposed budget contain an ominous warning: “The [commission] is projected to stabilize the debt-to-GDP ratio at an acceptable level once the economy recovers.” In other words, if the commission doesn’t make the unspecified cuts in the deficit, the U.S. debt burden won’t be stable.”

The take away here is that there is no strategy to get the budget under control in the foreseeable future. Or, from the Forbes’ perspective, to the extent there is a plan it looks like the kind of strategic thinking one might find in a cartoon. 

According to Forbes:

“The administration clearly believes that we can spend our way out of a slow economy and has put us on a path to have total government spending over 40% of GDP. This is Disneyland thinking.

“While it is true that we can spend our way into a depression, there is little evidence we can spend our way out. It didn’t work last year, when we allocated $787 billion in stimulus spending on the threat that unemployment would go over 8% otherwise. (It is now at 9.7% — 16.5% if you count the underemployed and those who are too discouraged to look for work.)

“Excess spending didn’t work for President George W. Bush. It didn’t work for Presidents Roosevelt or Obama.

“When the government spends $3.8 trillion, there is no net multiplier effect. There is a divider effect. We become divided from our income and wealth. The government taxes inefficiently and spends inefficiently, wasting a big chunk of the transfer.”

The fiscal problems are continuing to build, quickly, and yet there remains little political will to address the issues directly. It’s a global game of hot potato of a magnitude the world has never encountered before.

The Forbes article authors, David Malpass and Eric Singer, liken the experience of reading the budget to what must have been felt by the two lead characters in “Thelma and Louise” when they catapulted themselves in their car over a cliff. Heck, they also had a plan of sorts… and judging by their faces they probably even felt a fleeting moment of freedom… but, in the end, they were destined to hit an unforgiving rock bottom.

Take a look at the Washington Times editorial on the deficit avalanche and the Forbes commentary of the high cost of the US budget to learn more.

The Daily Reckoning