Did The Office Of Management And Budget Just Throw In The Towel?

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Published : February 23rd, 2018
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Category : Opinions and Analysis

At some point you really have to begin to wonder if the U.S. government has simply given up on the idea of even pretending to have any sort of fiscal plan.

It’s almost as if they’ve stopped trying to even bother to maintain the appearance of solvency, and are just wondering how long it will take before the market notices and ends the charade.

A quick review is that the publicly stated debt is now over $20 trillion, with unfunded liabilities like Social Security and Medicare raising the real total somewhere north of $100 trillion (which seems to be somewhat agreed upon in the economic community, let alone Laurence Kotlikoff’s estimate that the true amount is well in excess of even that number).

In a sane world you might think this would have the alarm bells going off. Yet what’s the latest news out of Washington?

“The hard-fought budget deal would boost federal spending for both the military and domestic programs by almost $300 billion above limits set in a 2011 law over two years, in addition to nearly $90 billion in disaster aid for areas recovering from last year’s destructive storms. It would also suspend the government’s borrowing limit through March 1, 2019.”

So while the rest of the world continues to make new financial arrangements to trade outside of the dollar, a “hard-fought” budget deal has Washington breaking its own laws in order to go deeper into debt.

Even the director of the Office of Management and Budget seems to be noticing and throwing in the towel.

The blueprint underscores what has become clear in recent months: that the budget austerity Republicans pursued in 2011 has ended. GOP lawmakers and Mr. Trump are now pursuing fiscal policies that tolerate wider deficits in a bid to ramp up economic growth.

Mick Mulvaney, director of the Office of Management and Budget, said that the proposal shows Mr. Trump has—for now—given up on balancing the budget over the next decade.”

Of course it’s worth keeping in mind that as bad as the current numbers are, they’re also based on other assumptions that have an approximately 0% chance of actually occurring.

The budget forecasts lower inflation and government borrowing costs over the next decade than private forecasters project, a combination that allows the administration to show smaller deficits in the latter half of its 10-year budget forecast.

As John Williams of Shadow Stats details on a regular basis, the inflation data produced by the BLS (the U.S. Bureau of Labor Statistics that produces the numbers commonly referred to by Wall Street) has already been heavily distorted to mask the true amount of price increase.

Yet even using the BLS figures it’s pretty difficult to see how inflation could be lower than any of the forecasts being passed around. Primarily because of the last decade of Federal Reserve policy.

As for the borrowing costs, how exactly are they going to be lower if interest rates rise while the majority of the treasury debt is short-term? Which means that the interest expense is set to explode in that type of environment.

Perhaps if there were any indication of functionality within the political system there might be cause for hope. Yet the climate remains more divisive than ever, with no indication that any of the difficult choices required will ever be made.

Before the tax cut or budget agreement, deficits were projected to rise in coming decades because an aging population will require more spending on health care and Social Security. In June, the Congressional Budget Office projected annual budget deficits would hit $1 trillion by 2022.

But there is little appetite in Congress to tackle big changes that would reduce mandatory spending programs, such as Social Security and Medicare.

Amazingly it appears as if the plan is simply that there is no plan. Perhaps there never was. But it grows increasingly apparent by the day how this will ultimately be resolved.

Which is why it remains more important than ever to have our own personal sovereign plan. So that when the inevitable is finally priced into the market (which based on recent trading action in the stock and bond markets may have already begun) the government’s abuse of the public’s trust does not come at your expense.

With precious metals remaining one of the best financial responses that I can see in today’s market.

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Andrew Hoffman was a buy-side and sell-side analyst in the United States (including six years as an II-ranked oilfield service analyst at Salomon Smith Barney), but since 2002 his focus has been entirely in the metals markets, principally gold and silver. He recently worked as a consultant to junior mining companies, head of Corporate Development, and VP of Investor Relations for different mining ventures, and is now the Director of Marketing for Miles Franklin, a U.S.-based bullion dealer.
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