Thursday, February 28, 2013

deficit falling?

Although Wall Street hasn't reacted to Washington lately, we have to consider that the deficit problem isn't as big as it was just a few years ago. In 2009, the country ran a $1.41 trillion deficit. This year, the Congressional Budget Office predicts the deficit will be down to $845 billion, or 5.3% of GDP, and if Congress does nothing (which looks likely) by 2015, the deficit will be $459 billion, or 2.4% of the economy.

These numbers look large, but in the grand scheme of the world's biggest economy they're not anywhere near uncharted territory. Since 1980 the federal government has run a deficit larger than 3% in 18 years -- more than half of the time. A 3% deficit is widely considered to be sustainable, because if the deficit grows as much as or less than the economy does, then the debt-to-GDP ratio will fall. And 3% should be an attainable long-term level of economic growth -- at least, that's the theory at least.

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