Will US Pay Off National Debt? Budget Deficit & Bob Brinker's GDP Estimate

Bob Brinker's comments "Will the US ever Pay Off Its National Debt?" 

Moneytalk with Bob Brinker Commentary for October 28, 2012 Radio Show

The following commentary is from my "Retirement Advisor" writing partner,  David Korn. 

Brinker Comment: Bob opened the broadcast discussing the new figures on gross domestic product. Bob said his projection has been for a slow-growth economy as defined by a slow rate of growth in real GDP (adjusted for inflation) and we continue to see that with the number for the third quarter coming in at 2.0%. When you couple that number with the first half of the year, you are looking at an annual rate of growth of 1.8% for the first 9 months which is the type of slow growth that Bob thinks we will see for the remainder of the year. 

DEBTS AND DEFICITS

Caller: At some point, the Federal Government will start to have to pay off the national debt. The caller said he thinks it seems like an unsustainable situation that will either be addressed by cutting spending or raising taxes. Or the government could start printing more money which could lead to inflation or hyper-inflation. How likely is it that we would see inflation or hyper-inflation and is there anything the average investor can do to hedge against this possibility?

"Witnessing the Republicans and the Democrats bicker over the U.S. debt is like watching two drunks argue over a bar bill on the Titanic."   Kirk Lindstrom

 Bob said there are essentially no cases in the history of the world where the country has paid off its national debt and we will probably never even make a serious down payment on paying off the $16 trillion national debt. We will pay the interest on the national debt as long as we can afford to do so. As far as the national deficit, that is in play and must be addressed and that is a big deal. Hopefully, Congress will get to work on the annual deficits which at the current pace is not sustainable.

EC (David Korn): Our $16 trillion dollar national debt amounts to $51,484 for every man, woman and child in our country. Check out this interesting article entitled, “Breaking down the national debt” at the following url: http://tinyurl.com/8p9vy5u

Kirk's Comment:  I don't think enough attention goes to just how large the deficit is and how much borrowing occurs for every dollar spent.  I like how Bob Brinker has warned about excessive spending for years and I'm doing my part to spread the word.  Read my Seeking Alpha article:

 U.S. Borrowed 31 Cents Of Each $1 Spent In Fiscal 2012:
Final Deficit Is $1.1 Trillion

Kirk's Comment:  Can you imagine asking anyone for a loan, home equity or a refinance of a home loan, if you knew you would never pay it back?

The above commentary is courtesy of my writing partner, David Korn: 

David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service.  Copyright David Korn, L.L.C. 2012

More from David Korn:

• June 10: Review of Bob Brinker's Five (5) Root Causes of a Bear Market

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Bob Brinker's GDP Growth Forecast

In the July 2011 Marketimer, Bob Brinker projects US GDP will grow by two to three percent in 2011.  He says he is "slightly more conservative than the revised Federal Reserve forecast of 2.7% to 2.9% growth in 2011."

Brinker seems to not understand what "central tendency" for GDP growth means.  "Central Tendency" is  2.7% to 2.9% but the full range of estimates that includes the three highest and three lowest estimates from FOMC board members is 2.5% to 3.0%.   

You can read the exactly what the FOMC forecasts in their June 22, 2011 release at Projections Materials (80 KB PDF)

Brinker's forecast for GDP growth matches that of the International Money Fund (IMF)

In the June 20, 2011 "Concluding Statement of the 2011 Article IV Mission to The United States of America," the IMF makes the following forecast for US GDP growth:

• 2011: 2.5 percent
• 2012: 2.7 percent
• 2013: 2.7 percent
• 2014: 2.9 percent
• 2015: 2.9 percent
• 2016: 2.8 percent

 See "IMF Economic Outlook for US GDP growth, Inflation, Unemployment &Current Account" and "MF Economic Outlook for the US"

 Also, by claiming he predicts "two to three percent" he'll be "correct" if growth comes in between 1.50% and 3.49% when rounded to a single digit. It is a nice trick perfected by the Wizard of Oz since 1.50% rounds up to 2% and 3.49% rounds down to 3% when you only use one digit of precision!

The Fed and the IMF are far more precise in their predictions since they are not trying to sell "market timing newsletters."