Trying to Make Sense of It

April 11, 2011

WASHINGTON — Congressional negotiators held what were described as “productive” talks Tuesday afternoon in an effort to pass a spending measure that would cut tens of billions of dollars from the federal budget. But with just days remaining before the federal government runs out of money, there was only muted optimism that lawmakers would be able to avert a government shutdown.

The above paragraph was ripped from the headlines on Wednesday April 6th

What do you make of all this talk?

You can turn on any cable channel and the coverage is 24/7. The American press seems to be obsessed with the moment.

Japan??? ………That happened over a month ago

Libya…….That sound bite may last 30 seconds

Now we are faced with a Government shutdown!!!!….

Is it possible?

Will it happen?

I found myself being drawn to this topic. Numbers are constantly being discussed.

What are we really dealing with?

Can we just focus on making cuts to 12% of the budget and tackle the deficit issues?

What about the sacred cows!!!!!!

Defense….Social Security….Medicare…..Medicaid

Let’s look at some numbers:

On February 14, 2011, President Obama released his 2012 Federal Budget.

The report updated the projected 2011 deficit to be $1.645 trillion.

This is based on estimated revenues of $2.173 trillion and outlays of $3.818 trillion.

Observations

The federal deficit of $1.645 trillion is for 1 year (2011)

The federal deficit of $1.645 trillion is 75.7% of the $2.173 trillion total revenue the Government brought in last year.

The US Government is currently funding only 56.9% of their current expenses ($3.818 trillion) with the total revenue they received ($2.173 trillion).

The federal deficit of $1.645 trillion helps fund 43.1% of the $3.818 trillion in expenses.

You hear Congress arguing over whether to cut $30 billion or $40 billion in expenses.

That number may seems like a large amount, but what is it in the scheme of things?

Let’s take a quick look at where we are spending this money.

The federal budget in 2011 was projected at $3.83 trillion in total spending.

Below is a breakdown of the budgeted expenses for 2011. (This budget has never been passed, yet!!!)  

Obama’s new 2012 budget calls for reducing these cost by $12 billion dollars to $3.818 trillion from the proposed 2011 figure of $3.83 trillion.

You can now……. all play along….

Where do you want to take the $12 billion from?

$787.6 billion in pensions, $898 billion in health care expenditures, $140.9 billion for education, $928.5 billion in defense spending, $464.6 billion in welfare spending, $57.3 billion in protective services such as police, fire, law courts, $104.2 billion for transportation, $29 billion in general government expenses, $151.4 billion in other spending including basic research, and          $250.7 billion on interest payments.

Let’s not get too aggressive…..

What are our options?

 

How do we reduce cost and lower the deficit?

There is some talk of cutting all the expenses, 5%  across the board.

They’ll be no discrimination, everyone will take a hit.

That would reduce overall cost by $190.9 billion.

Guess what…..

the deficit would still be $1,454.1 trillion for this year.

Now what?

…………..I’m thinking…….I’m thinking

More factors to think about

 

The overall deficit is just under $15 trillion,

Our existing $1.645 trillion deficit makes up just under 11% of the overall deficit.

Recently, Robert Gates said the Pentagon has identified $178 billion in cuts for the five years from fiscal year 2012 to 2016. The Pentagon plans to reinvest about $100 billion of that into its own services, leaving the remainder for deficit reduction.

Hmmmmm!

Gates can identify $178 billion in cuts but wants to keep 57% of it?

This week, Portugal was looking to raise money by selling 6 month T -Bills for 5.117%.

Just 60 days ago the same T Bill was selling for 2.984%.

The US is currently selling T Bills for under 0.5%.

What do you think will happen if there is a Government shutdown?

There is the looming question of raising the debt ceiling.

How long before the world loses confidence in our ability to control cost?

Somehow I think we really took our eye off the ball.

Just this morning, experts were discussing the fact that the Government is expected to run with a deficit,

But……. $4 to $5 trillion is a more acceptable number.

How do we get from $15 trillion to $5 trillion?

Let’s try cutting the deficit by $1 trillion a year.

That means ………

In 10 years we can be within the acceptable numbers.

If we have already budgeted for a deficit of $1.645 trillion; to save $1 trillion this year, we would have to cut expenses $2.645 trillion dollars.

That means, we cut expenses from $3.818 trillion to $1.173 trillion.

We would only have to cut expenses by 70%!!!!

That doesn’t sound too promising!

How about we take 20 years to get the deficit from $15 trillion to $5 trillion?

Then we would only have to cut expenses 35%.

Do I hear 30 years?

Where am I going with all this fuzzy math?

I wish I knew!!!

No one seems to want to stand up and address any of these questions?

Ask anyone, we already feel we pay our fair share of taxes.

Can the American public be asked to pay more?

If you want to get reelected,

you better not be talking about raising taxes!

Cut our taxes but don’t dare cut our programs….

Is the US Government up for the challenge?

Will they be able to make the tough choices?

Or will the push the ball forward.

At HBS we pride ourselves on providing Smart Solutions for Smart Business

I am not sure where we would place this budget category?

I am just trying to make some sense of it.

Your comments are welcomed.

You may email george@hbsadvantage.com

Visit us on the web www.hutchinsonbusinesssolutions.com

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