Balancing the Federal Budget

[Steven Carleton]

Creating a balanced budget is going to be incredibly important for the American economy over the next ten years while the rest of the world deleverages.  While other countries, such as China, continue to increase their growth in GDP, the world is beginning to look elsewhere for a source of a stable currency away from the United States Dollar, which would make debt issuance incredibly difficult once the larger countries base their currencies off of another reserve currency.  Typically, countries default on debt payments when the debt servicing costs exceed 22% of tax revenue (see Sweden, Mexico, Argentina), the US is currently paying 24% of tax revenue, and this is rapidly increasing.  History has shown that dominating economies are not free from financial distress caused by overspending: the Roman Empire; the British Empire; the Holy Roman Empire.  What really matters is whether we can maintain stable currencies and strong demand for our products.