For the past two years or so, my prediction for the cumulative debt of the United States government over the next ten years has been in the $15 to $20 trillion range. This would more than double the current amount of government debt outstanding.

Since the events of the past few days in Washington, D. C., my prediction for the cumulative debt of the United States government over the next ten years is still in the $15 to $20 trillion range.

The most descriptive characterization of the “debt deal” that I have heard is that Congress (and the President) has just “kicked the can down the road.”

In this, the United States government seems to be in the same league as their “kin” in the eurozone. One has to look hard to see any evidence of leadership. (Link)

As far as the Obama administration is concerned, in my mind, this “team” has observed the creation of three “camels” on its watch. The first camel was the health care bill. The second was the Dodd-Frank financial reform bill. (Link)

The third camel is, of course, the just passed “debt deal”.

The general comment about all three is that at the birth of all three, people were very unhappy with them.

Never can I remember, except maybe under President Jimmy Carter, a President that exhibited less leadership in such important areas. President Obama presented no “plan” to Congress in any of these efforts. People say that the administration was responding to the “health care plan” rebuff experienced by the Clinton administration in the 1990s and wanted to involve Congress more from the start of any legislative attempt. I believe that this was a gross mis-reading of the events surrounding the Clinton initiative.

However, this strategy of holding back and letting Congress take the lead in proposing and disposing resulted in something more like chaos or anarchy than leadership. And, this strategy has produced three camels that nobody really likes.

And then people worry about jobs and the state of the economy. How can you create smaller deficits through cuts in government spending without causing further danger to the health of the economy?

It seems like we are in some kind of situation in which everything that is proposed contradicts everything else. President Obama, after the passage of the “debt deal” stated very clearly, that the issue now becomes one about jobs. In fact, the President plans a bus trip in the Midwest the week of August 15 as part of his new jobs push. Whoopee!

To me, there is only one thing that ties all the different problems we are experiencing together. It is the fact that there is just too much debt outstanding today…and, this debt load extends throughout the nation (and throughout Europe). Consumers are still burdened with too much debt. So are many businesses. So are state and local governments. And, so are sovereign nations.

“Consumer Pullback Slows Recovery,” we read in the Wall Street Journal. Why are consumers not spending? They are saving…they are paying back debt…to get their balance sheets in line. They are not buying homes because of the problems with bankruptcies and foreclosures (Link).

Many businesses are not borrowing because of a decline in their economic value and the increased pressure this puts on the amount of liabilities they are carrying on their balance sheets. (Link)

And, the state and local governments are also getting headlines about their budget problems. What about the city in Alabama that is declaring bankruptcy? And the municipality in Rhode Island? And, what about the problems in Harrisburg, Pennsylvania? And, California? And so on and so on?

This is the scenario called “Debt Deflation”. Debt deflation occurs after a period of time in which credit inflation has dominated the scene. Credit inflation eventually reaches a tipping point in which the continued inflation of credit can no longer be sustained. Once this tipping point is reached, people, businesses, and governments see that they can no longer continue to operate with so much debt and so they begin to reduce the financial leverage on their balance sheets.

This process is called “Debt Deflation” because it is cumulative. As these economic units begin to reduce their financial leverage, it becomes obvious to them that they must reduce this leverage even further than first imagined. Whereas “Credit Inflation” is cumulative and leads to people adding more and more debt to their balance sheets, the reverse process is also cumulative.

The only short-term way to avoid this debt deflation from taking place is to create the condition called “hyper-inflation.” This is exactly what Mr. Bernanke and the Federal Reserve System has tried to do. I say short-term because all hyper-inflations come to an end sometime.

We have had fifty years of government economic policy based on the Keynesian assumption that fiscal deficits and the consequent credit inflation that results from the deficits are good for employment and the economy. This assumption has, to me, been disproved given that the compound rate of growth of the economy has averaged only slightly more than 3 percent over the last fifty years, about what was expected in the 1960s, and the amount of under-employment in the economy has gone from less than 10 percent of the workforce in the 1960s to more than 20 percent of the workforce, currently.

Furthermore, the income/wealth distribution in the country has become more skewed than ever toward the wealthy during this time period. This is because the wealthy can protect themselves against inflation and even position themselves to take advantage of it. The less wealthy do not have similar opportunities. And, in the current situation, some, the more wealthy, are doing fine because they are not as indebted as others and so can continue to prosper during these difficult times of excessive debt burdens.

Getting back to my projections for the cumulative federal deficit over the next ten years and the “debt deal”: I really don’t see a fundamental change in the underlying economic philosophy of the Obama administration (which includes Mr. Bernanke) and/or Congress. They seem to see the current problems as a “temporary” aberration from the existing “Keynesian” credit inflation philosophy that underlies all that they do. They seem to believe that once this “period of discomfort” is passed that business will continue on as usual.

Until this attitude is changed, I see little reason to change my prediction for the cumulative federal deficit over the next ten years.