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The False Conflation of Deficit and Debt

The False Conflation of Deficit and Debt
October 23
12:12 2015

While the U.S budget deficit is lower than before the 2008 financial crisis, experts are still concerned with the nation’s debt load and economy.

The baby-boom generation is set to retire within the next few years, and a massive spike in health care costs and retirement benefits will accompany their transition into the twilight years of life. By only being concerned over the current deficit, both political parties could potentially overlook the daunting challenges posed at the end of the decade.

The deficit is at its lowest level since 2007, but the U.S. has added nearly $8 trillion in debt, an increase of 140%. In an interview on Fox News Sunday last week, the Senate’s second-ranking Democrat, Dick Durbin of Illinois, said the Obama administration was going to “reduce the overall debt of the United States by $3 trillion over the next 10 years.” Instead of going down $3 trillion, the best estimate of the debt over the next 10 years is that it will rise by $8.6 trillion.

Throughout the media, even in the political world, we are seeing a false conflation between deficit and debt. The deficit, the difference between what a government spends and what it takes in, has fallen from $1.41 trillion in 2009 to 439 billion in 2015. Despite the drastic reduction, the overall debt is still rising and over $18 trillion.

The non-partisan Congressional Budget Office (CBO) has warned that these shrinking budgets won’t last if the nation maintains its current spending and taxing policies. Primarily driven by Medicare and Social Security, the CBA expects to see a rapid deficit increase for the next 25 years.

Many financial analysts are reasonably terrified when the watch either political debate. Republican presidential candidates are pushing tax cuts that even under generous assumptions would add hundreds of billions of dollars to deficits over the coming decade. Democratic candidates are touting costly expansions of college education and social benefits. Both party’s suggestion could push America into a crippling decline.

Inflation risks are also a serious threat. Quantitative easing, the printing of trillions of dollars by the Federal Reserve to purchase bonds from private banks like Goldman Sachs, has filled our economy with purely created money. Despite the risk of declining the value of the dollar, the stock market and housing market both have become dependent on the steady flow of money. Like a junkie unable to have their fix, stopping quantitative easing would cause tremendous withdrawal issues – including a massive increase in interest rates across the board.

While many politicians are gloating about the improved economy, we are far from out of the woods. Even former market powerhouse Wal-Mart expects to see profits drop up to 12% this upcoming quarter. By not taking these threats seriously, both Democrats and Republicans are choosing electioneering over the general health of America’s economy.

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Sean Gibbons

Sean Gibbons

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