Federal Deficit at Record Pace

Given all the bailouts and stimulus checks being written it can be no surprise that the Federal Deficit hit an all time high for November coming in at a hefty $164.4 billion. Yes you read that correctly. Federal revenues fell a modest 4% approximately while outlays soared nearly 25%. At this pace we will reach a deficit for the year of around $1 trillion or about 6.5% of GDP. Not only would that be the largest deficit ever, in dollar terms, but it would eclipse the record deficits of the Reagan years as a percentage of the GDP. Back during the first few years of Reagan’s first term we had a deficit of about 6% of GDP. Now we can expect to beat that, and some, over the next few years as we grapple with the mess of our current economy. Fiscal conservatism was never a strong point of the Reagan/Bush era!

While all this red ink is necessary in the short term, it should start to worry those of us who intend to borrow sometime down the road. Without doubt the flood of Government bonds being sold currently will drive interest rates up after the recovery. That will feed future deficits since the interest payments on that mountain of debt will have to be financed from revenues in those future years. That is why it is so essential to limit the damage now and get the deficit back under control. The reckless fiscal policies of the past eight years have undermined our ability to disregard the impact of the current stimulus. Had we been fiscally conservative during the Bush administration and kept the national debt under control the huge stimulus we are now contemplating would have had less detrimental effect of future budgets. As it is we have no choice, and we will have to deal with the damage later.

‘Cut tax and spend’ is a whole lot worse than ‘tax and spend’. Please: can we all remember that?