Trump "Boom" in One Picture

-edited

Deficits have only been at this level in or shortly after a recession. Unfortunately, this is the new normal.

Deficits Should Rise During Recessions, Not Booms

The Committee for a Responsible Federal Budget notes the Deficit Has Never Been This High When the Economy Was This Strong.

Rarely have deficits risen when the economy is booming. And never in modern U.S. history have deficits been so high outside of a war or recession (or their aftermath).

The federal budget deficit has only exceeded 4.6 percent eight times since 1950. Four of those years were during and immediately following the Great Recession of 2009, and the other four followed the 1981-82 recession (which was followed by large tax cuts and a defense buildup near the end of the Cold War). Most smaller spikes in the deficit also took place during or immediately after a war or recession.

Output Gap

Going Forward

Going forward, deficits are projected to rise even assuming the economy remains stable. Under current law, CBO projects deficits in 2028 will exceed 5 percent of GDP, and under a (perhaps more realistic) Alternative Fiscal Scenario that assumes Congress continues recently enacted policies, deficits will reach 7.1 percent of GDP in ten years.

The same pattern holds with employment rates – the deficit has typically moved in the same direction as the unemployment rate. Yet the current unemployment rate of 3.7 percent is the lowest since 1969, and the deficit is high and rising. All other recent periods of high deficits have been accompanied by high unemployment.

What's the Problem?

Apparently, there is none.

Trump brags about the stock market every chance he gets.

To support Trump's mind-blowing deficits, he needs lower interest rates.

Moreover, the Fed is willing to accommodate Trump.

Bubbles Be Goode

In case you missed my musical Fed tribute, please enjoy Bubbles B. Goode: Musical Tribute to the Fed.

Mike "Mish" Shedlock

Comments (45)
No. 1-14
Menaquinone
Menaquinone

200% tariffs can balance the budget. I like tariff taxes. If ever there were a tax legal to avoid the tariff is it. I don't buy imports and I don't pay the tax. Tariffs on German cars are coming. Tariffs on made in Viet Nam are coming. Chicago, Detroit, and East St. Louis have enough surplus labor to supply USA with textiles.

we_will_be_Ok
we_will_be_Ok

Not fair to Trump. He did not start deficits, he will not end them. Obama presided over a period of 0% federal funds rate. Bush II oversaw the greatest housing bubble in the human history. Trump took over at the tail end of a 'boom', Fed decided to hike, Trump had to do something, if it's not monetary intervention or consumer debt, then it must be tax cut/fiscal spending. The choices are limited. Not fair to him to expect him to lay over and wait till he gets kicked out of office because of an unfortunate coincidence of his presidency and an approaching bust in the business cycle.

In any event, why are we surprised by the federal deficit? In one of my previous posts I made the case that when the population can't earn money through work, because everything is made overseas and sold to them, then they must get money through debt or government spending/hand outs. It will take a bit of time, but neo-industrialization will take care of federal deficits.

Axiom7
Axiom7

What could possibly go wrong?!?! Everything is perfect! It is amazing gold isn’t soaring as the dollar gets continually debased.

mark0f0
mark0f0

A narrow output gap? Good lord, there's enormous numbers of Americans unemployed or underemployed, and large amounts of excess industrial capacity. Whomever came up with that statistical 'estimate' of the output gap being minimal is completely and utterly out to lunch. The real output gap is so wide that you could drive a bus or fly a 747 through it.

MorrisWR
MorrisWR

Mish, trump deserves shame for deficits but Congress deserves more. They have been happy for years to continue wasting money (both Republican and Democratic leadership). In general the entire Federal Government is to blame for the sorry state of our deficits and overall debt burden.

Realist
Realist

Trump is just following his personal playbook. Soon he will declare bankruptcy.

TheLege
TheLege

Nice idea, except defaulting on the national debt is unlikely to be a popular move, especially as more than half is owned by Americans in some form or another. Not exactly a vote winner I’m gunna say. That includes the Social Security Fund.

Advancingtime
Advancingtime

Questioning the whole "Trump Economy" may seem in poor taste to those who have benefited so much but it is something we should do. What is being ignored is the structural issues that haunt America's competitiveness and far outweigh the benefits of lower taxes. Trump's economy is simply one of deficit spending gone wild. We must face the fact that deficit spending can only take the economy so far and carries with it a fair amount of negatives. The article below explores Trumponomics in all its glory and why this won't end well.

https://brucewilds.blogspot.com/2019/04/the-trump-economy-is-mirage-based-on.html

lol
lol

That's the "official"(pretend) deficit number meant only for public consumption ,which is complete bs,add the off balance sheet dept,the phony scam bait n switch accounting,real deficit is easily double (triple)the "official"number!

RonJ
RonJ

"Unfortunately, this is the new normal."

I am still trying to find normal. No two decades are the same.

RonJ
RonJ

"Yet the current unemployment rate of 3.7 percent is the lowest since 1969, and the deficit is high and rising."

In who's book? What is the participation rate of the population? It is up from the lows of 2009, but supposedly some 100 million working age people are not working. What is the real unemployment rate when exclusions are added in?

As far as the deficit going up as a % of GDP, by the top chart, it looks like that started in 2015 and is accelerating under Trump. There is a presidential election next year and the pump is being primed. I read once that Nixon's 1972 election strategy was "Keep California Green." Politicians love to spend the tax payers money to keep themselves in office. Governor Arnold was gong to cut up the California credit card- until it was time for the next governor's race.

shred1
shred1

Same thing would've happened under Killary.

nic9075
nic9075

People are going to be paying more in some cases alot more due to Tariffs that have already taken effect and will be showing up across the board in the 3rd and especially the 4th quarter of this year as inventory turns.. The newest Iphone is going to be at least 15% more expensive just due to the 25% tariffs that have ALREADY taken effect, same with apparel, appliances and pet food & supplies.. It has been reported that the average consumer will be spending between $800 - $2300 a year more just due to the tariffs (not to mention higher wages & utility costs that are being passed thru)

Eighthman
Eighthman

Japan shows that this craziness can go on indefinitely. We will get MMT by default, like it or not, this way