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November 04, 2005
Feeling That Old-Time Deficit-Cutting Religion
The Bush administration's highest economic priority for its remaining three years is to control the growth of federal spending and bring down the US budget deficit, John Snow, US Treasury secretary, said.
“The clear priority of the administration right now is the deficit, making sure that we achieve the president's objective of cutting the deficit in half by the time he leaves office,” he said in an interview with the Financial Times. This would put the deficit below 2 per cent of gross domestic product, low by historical standards...
What type of numbers are we talking about?
When he came to office in 2001, the president inherited a projected 10-year surplus of $5,600bn. But tax cuts and growing spending for the military and homeland security have contributed to a sharp reversal, with the Congressional Budget Office now predicting a $2,100bn deficit over the next decade. The annual deficit has been falling, however, from $413bn in the 2004 fiscal year to $316bn this year, according to CBO figures.
Mr. Snow did make it clear from where the deficit reduction won't come:
Mr Snow made it clear that, in spite of the focus on the deficit, the administration would not reconsider its low tax policies, pointing out that strong growth was producing the highest tax revenues in US history. “We have dealt with one of those important economic policy, philosophical and political issues are low tax rates consistent with fiscally responsible behaviour? I think the answer is clearly ‘Yes' as long as there's an intense focus on spending.”
You have to be a little careful with the "highest tax revenues in US history" bit. It's important to think in terms of revenues relative to GDP, and here it remains the case that receipts still look low relative to recent history -- and they are projected to remain so under current law:
Meanwhile, the president of the European Central Bank is warning the euro zone countries that it is time to get in the deficit-cutting habit too :
[Jean-Claude Trichet, European Central Bank president] issued another warning to eurozone governments to restore fiscal order, saying that the deficits in some countries were “a matter of great concern”.
So the official jawboning has begun. Now comes the hard work.
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September 27, 2005
Morning Round Up, Odds and Ends
More stuff I read this morning:
--William Polley asks bloggers to weigh in on FOMC policy, and Everyone's Illusion predicts three more rate hikes are coming. William hopes it isn't so.
-- Barry Ritholtz continues his campaign against the notion of core inflation. Debate is good -- but I'm holding my position for now.
-- David K. Smith does some China myth-busting.
-- Econbrowser kicks out another must-read post on the origins of the U.S. current account deficit. Jim is worried. Mark Thoma helps out with some advice from The Economist. The bottom line -- the U.S. should save more, China and other emerging-economy countries should save less.
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July 14, 2005
Maybe it won't last, but if you were looking for some sign of "improvement" in U.S. deficits, both government and trade varieties, yesterday was your day. First on the deficit on U.S. international trade in goods and services for May, from Bloomberg:
Record exports and a decline in oil prices helped the U.S. trade gap unexpectedly narrow to $55.3 billion in May, suggesting that trade gave a boost to quarterly economic growth for the first time since 2003.
The imbalance in goods and services trade dropped 2.8 percent from $56.9 billion in April, the Commerce Department said today in Washington. The median forecast in a Bloomberg News survey of economists called for no change from April. The dollar gained against the euro after today's report.
True, not everyone was ready to be that impressed. The New York Times had this rather confusing combination of headline and story:
May Trade Deficit Shows Slight Improvement
The nation's trade deficit shrunk markedly in May as a drop in oil prices offset increases in imports of other products, the government reported today.
Hmm. Maybe the headline writer was just taking the broader perspective...
"Despite the improvement in May, our trade deficit is still on track for a record breaking year," Mr. Hoffman said.
... or looking ahead, like this AP report from the Chicago Tribune:
The trade deficit fell in May, reflecting a rise in U.S. exports to the highest level in history and a temporary decline in foreign oil prices. But the improvement was likely to be short-lived, with oil prices again near record levels.
Reasonable points, and Brad Setser, for one, agrees. (So does Calculated Risk. And General Glut. And The Prudent Investor. And all of these are noticed by The Skeptical Spectator. Andrew Samwick doesn't disagree, shares my belief that sky won't fall as the inevitable deficit reversals take hold for good.)
If the trade report was not dramatic enough for you, maybe you were more impressed with the news on the government deficit front. From Bloomberg:
White House budget officials today cut their estimate for this year's deficit to $333 billion -- the first such decline since President George W. Bush took office -- citing rising tax receipts from job, income and corporate revenue growth.
The mid-year estimate is 23 percent lower than the Office of Management and Budget's February forecast of a $427 billion deficit for fiscal 2005 and will help Bush make the case that his economic policies are working and he is on track to fulfill his promise to cut the deficit in half by 2009.
There is a bit of a catch, of course...
The figure doesn't include spending for military operations in Iraq and Afghanistan, which are funded through special appropriations outside the regular budget process. Congress has authorized more than $300 billion for those wars since 2003.
... and if you insist, there is plenty to fuel your anxiety:
"It's good news for today, but I wouldn't go around popping champagne corks,'' said Bruce Bartlett, a former tax official under President George H.W. Bush.
The ex-Treasury Department official said a plunge in the deficit estimate may not last long because many baby boomers will begin retiring in 2008, placing more burden on government health programs, driving up costs.
"We're looking at serious long-term problems, even if the budget were balanced today,'' Bartlett said.
That, of course, was true during the presumed glory surplus years of the late 1990s as well.
The Capital Spectator counsels caution about the federal government deficit improvement, and says "even the Bush administration is staying cautious."
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July 02, 2005
Germany Follows Italy
Germany is projecting a deficit/GDP ratio over the 3% limit until 2007 and is set to follow recent black sheep Italy and Portugal into an excessive deficit procedure this autumn.
The German Finance Ministry is forecasting the country's budget deficit/GDP ratio at 3.7% in 2005, 3.4% in 2006 and 3.1% in 2007, heading downwards but still in breach of the rules of the Stability and Growth Pact.
The figures mark a change from previous statements by Germany's Finance Minister Hans Eichel that Germany only risked breaking the deficit in 2005.
Given that news, you may find this statement somewhat surprising:
... addressing a conference hosted by the national banks of Poland and Hungary, Economic and Monetary Affairs Commissioner Joaquín Almunia was busy defending the recently reformed Stability and Growth Pact."Contrary to certain interpretations, the reform has confirmed the Treaty rules for economic and budgetary co-ordination, and cemented the Pact as the core instrument to foster budgetary discipline in Europe,"
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