US Budget Deficit Creeps Up

The BBC reports that the US budget deficit rose unexpectedly in May. Here’s their report: US budget deficit higher in May

There are some “technical” factors making the increase temporary: the medium term outlook is still for a slight improvement for the current fiscal year.

We shouldn’t get excited though. The very existence of a deficit after several years of good economic growth is a disaster. Good fiscal policy dictates that in the good years of a business cycle the deficit should be minimal, or even eliminated as it was in the late 1990’s. It shouldn’t be anywhere as big as it is. Even though as a percentage of the total economy the deficit is smaller than that of the terrible Reagan budgets, it is still too large. All the signs are that the economy is beginning to slow down from its hectic pace of the past few quarters. If that’s true then the deficit will start to grow again. When that happens rates will go up making the economic slowdown worse, and possibly driving us into recession.

That will be the consequence of the reckless policies of the current Administration. Deficits do matter.