There is a lot of discussion going on right now about cutting the budget, the dangers of deficits, and the projected deficits as we go into the future. There are a few things I would like to point out about some of the numbers currently being thrown around. One of the things to remember as the discussion goes forward is that the Congressional Budget Office (CBO) calculates its numbers based on the information it is given–it does not evaluate the information in any way. We need to keep this in mind as we hear various numbers.
On January 8th, the Wall Street Journal posted an article about the interest rate on our debt. The numbers given to the CBO assume an interest rate over the next decade of 3 percent.
According to the article:
“Low interest rates, however, won’t last forever — assuming the U.S. economy doesn’t succumb to long-term, Japanese-style stagnation. The CBO estimates that interest rates on 3-month bills and 10-year notes will reach 5.0% and 5.9%, respectively, by 2020. That, together with a rapidly rising debt load, would cause annual net interest payments to more than double by 2020 — to $778 billion, or a record 3.4% of GDP. That’s closer to what the government spends every year on national defense.”
No one who follows financial matters believes that the interest rate on the 10-year note will remain at 3 percent over the next ten years.
On February 7, Rich Lowry posted an article at the New York Post about what it would actually take to cut federal spending and bring down the deficit. Paul Ryan is suggesting that we reduce the level of federal spending to the levels of 2008. President Obama has asked for a budget this year that would increase spending by 12 percent (that budget was never enacted–spending is currently being done through continuing resolutions), Paul Ryan is suggesting that this budget be reduced by 9 percent.
The article in the New York Post reports:
“Returning to 2008 can be “draconian” only if the last two years were extravagant. According to Congressional Budget Office numbers, the Department of Education saw an 11 percent increase in its budget from 2008 to 2010, and a 181 percent increase when the stimulus is included; the Department of Energy saw a 10 percent and a 171 percent increase, respectively; the EPA a 36 percent and a 130 percent increase. Washington has been on a binge of Charlie Sheen-like proportions.”
Bringing the budget back to 2008 is a beginning. It is time to take serious action to rein in government spending.