Most economists agree we are heading into a recession. It’s just a matter of when. The Federal government will take in less revenue as taxes are being cut. At the same time, spending on government programs such as public assistance and unemployment insurance will skyrocket. The inevitable result is an increased deficit and another recession. The deficit is anticipated to increase by $800 billion in the next decade. It was John Maynard Keynes who advised, “During recessions, run government deficits, and during times of prosperity, run surpluses.”
History has proven him right. In March 2001, when we were going through a slight recession, the government went from a surplus of $156 billion to a deficit of $158 billion.
The deficit increased to $378 billion in 2003 and rose to $413 billion the following year. This was the result of a boom in real estate leading to the financial crisis a few years later. By 2008, the federal budget was up to $459 billion. This turned into the largest economic crisis since the Great Depression. By 2012, the deficit exceeded $1 trillion.
As the demand for entitlement programs and government spending rises, the Federal deficit will increase. President Obama combined sky-high spending with sizeable tax cuts for a huge increase in the Federal deficit. By 2015, the deficit had decreased to $442 billion. However, it has risen in the past five years, continues to rise, and is believed to reach $1 trillion again eventually.
After peaking at over $1.4 trillion dollars in 2009, the budget deficit declined steadily through 2015, reaching a low of $442 billion. And since then, it has risen steadily, with deficits of over one trillion forecast for the coming years. This trend is anticipated due to President Trump’s planned tax cuts, which will decrease government revenues. The economy is flourishing at the present time, with unemployment at record low numbers. But the demand for spending programs keeps increasing.
The U.S. economy is already showing signs of slowing down, overwhelmed with government and corporate debt. As companies file bankruptcies and go out of business, the revenues needed by the U.S. government will simply keep shrinking.
The Federal government keeps growing and is suffering from insufficient revenues and an overabundance of debt. When income and expense keep being at odds, economic turmoil will surely follow.
The U.S. major expenses are Social Security, Medicare, security and interest on the monies already owed. The government has paid $600 billion on just the interest alone in Treasury bonds in 2019. That’s just the interest. As these debts continue to rise, the government loses more of its spending power and is forced into a deficit.
It’s a good idea to protect yourself against the upcoming financial turmoil. If the Federal Reserve Bank continues to keep interest rates at a low and below zero levels, it will weaken the dollar, which is currently the world’s reserve currency. A weakened dollar decreases individual spending power as it keeps losing value. Gold, however, has stood the test of time and will always remain a hedge against a weak dollar or a weak economy.
