State of Innovation

Patents and Innovation Economics

Federal Budget Deficit: Omnibus Spending Bill Killed

The federal budget deficit is $14 trillion not including unfunded liabilities.  Presently, the US is planning on having budget deficits of around $1 trillion for at least the next ten years.  This means that by 2020 the US will have debt of about $24 trillion.  If the economy starts to grow or inflation picks up or US bonds are downgraded, the interest on this debt will be significantly higher than we are paying today.  The most optimistic scenario for the interest rate in 2020 is around 5%.  That would mean the US will be paying $1.2 trillion in interest.  Since I do not believe the US economy will grow very fast this decade, no more than 2% per year – see Long Term Economic Predictions, I do not believe the federal budget will grow very much.  As a result, the $1.2 trillion in interest will by about one third of the federal budget.  If inflation picks up or investors lose confidence in the US government’s ability to pay its debt, the interest could be easily 10% and payments could be as much as $2.4 trillion, which would be 66% of the federal budget.  This is unsustainable.

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December 17, 2010 Posted by | -Economics | , , | 1 Comment

Phoenix: Mythical Fed Chairman Muses on the Economic Growth of the 90s

Phoenix: Mythical Fed Chairman Muses on the Economic Growth of the 90s

The Federal Reserve Chairman was sitting in his office contemplating the fantastic problem that he and the other fed governors were trying to solve.  The Federal Reserve, since its inception in 1913, had never faced such a dilemma.  Huge federal budget surpluses were likely to wipe out the federal debt in the next couple of years and the fed chairman was concerned how the Federal Reserve was going to control the money supply.  Buying and selling treasury notes was one of the major methods the Federal Reserve used to control the money supply.  Controlling the money supply was necessary to control inflation, ease recessions and deal with banking crises, such as 1930’s style runs on banks.  The Federal Reserve buys treasury bills when they want to increase the money supply and sells treasury bills when they want to decrease the money supply.  If the federal deficit was paid off, then the Federal Reserve would have difficulty using open market operations to control the money supply.  The Federal Reserve could still alter the discount rate or the required reserve ratio of banks to alter the money supply, but open market operations have a more immediate. Continue reading

June 15, 2009 Posted by | -Economics, -History, Innovation, Uncategorized | , , , , , , , , , , | Leave a comment