The Amazing Shrinking Budget Deficit

What Budget Deficit?

While no one was paying attention, the budget deficit has been rapidly disappearing. Despite the widespread hysteria, the budget deficit has plunged.

At its peak during the financial crisis, the deficit was $1.4 trillion, according to the U.S. Department of Treasury. In the last fiscal year, which ended on Sept. 30, 2013, the deficit was $680 billion.

No one seems to have current estimates for this fiscal year. But the results for the first three months of the fiscal year are simply astounding -- a further decline of 41 percent compared to last year.

At this pace -- and no one can guess whether it will continue -- the deficit would be about $400 billion. This level -- approaching 2.5 percent of GDP -- is something most economists consider easily sustainable.

Certainly the latest quarter contains special factors but then every quarter does. The most significant thing is that a big economy doesn't change course quickly and right now it's on course to shrink the budget deficit to insignificance.

That doesn't mean there are no problems with government debt, entitlement spending or lagging infrastructure.

But it does mean that all the overheated rhetoric about the budget deficit will need to find a new home.

The Bull Market Continues

An Encore Performance?

After the best year for the U.S. stock market in nearly two decades, what's left? 

Will investors be left with happy memories and thin gruel to look forward to?

Only a few months ago, most people were pessimistic. Congressional deadlock and a bleak five year period for the economy took their toll.

Now we've had a series of good economic reports. While it's not a totally rosy picture, the outlook is much improved over that of a few months ago.

The economic recovery is entering its fifth year and showing similarities to the great recovery of the 1990s. That recovery, too, was sluggish but set a record as the longest peacetime recovery in American history.

No two periods are the same but one lesson for investors is that the length of a recovery as well as the pace are of importance. Given that the Dow Jones Industrial Average is at a record level, can it keep appreciating?

The New Year is always a time for hope but we still need to be realistic. While it's unlikely that the stock market will top last year any time soon, it's impossible to predict when a bull market will end. All investors can do is enjoy the ride and try not to get shaken off early