Wednesday, January 15, 2014

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.