US Fiscal Policy

Let’s assume that President Obama really wants to reduce the federal deficit by trillions of dollars over the next 10 years rather than mint platinum coins. Then most of that money will have to come out of defense spending if the Republicans won’t let him increase taxes again and he won’t cut spending on entitlements. Over the past 12 months through November, federal government spending totaled $3.6 trillion, with “non-discretionary” spending on social benefits accounting for 61%. Discretionary spending on defense accounted for 19%, and all other such outlays were just 20% of the total. By the way, during Q3-2012, spending on entitlements by federal and state governments accounted for 15% of nominal GDP, while federal defense outlays was 5%. The spread is likely to widen.

Chuck Hagel was nominated on Monday by President Obama to run the Defense Department. David Brooks wrote in his 1/7 column that Hagel was picked “to supervise the beginning of this generation-long process of defense cutbacks. If a Democratic president is going to slash defense, he probably wants a Republican at the Pentagon to give him political cover, and he probably wants a decorated war hero to boot.”

Yesterday, when asked whether the administration would rule out minting a trillion-dollar coin, White House Press Secretary Jay Carney didn't outright deny the option: "You can speculate a lot of things, [but] nothing needs to come of these speculative notions" so long as Congress does its job, he said.

Today's Morning Briefing: The Trouble with Trillions. (1) Homer Simpson, Paul Krugman, and Bill Clinton. (2) The coin of the realm. (3) Change we can spend. (4) Democrats and Republicans kicking cans. (5) Altman sees a lid on the debt can. (6) Going over the sequester cliff. (7) Another deal to postpone a deal. (8) Boehner’s Rule vs. Obama’s rule. (9) A trillion here and there. (10) Global economic growth should improve this year, boosting revenues growth. (11) Our favorite Materials industries are Industrial Gases and Specialty Chemicals. 

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