Budget Deficit Estimate Drops to $296 Billion

The White House is making a big deal over the lower budget deficit estimate today. I think the dangers of the budget deficit are very much overrated. According to the latest projections, the deficit will be about $296 billion this year. But the total economy is about $13 trillion. That’s a gigantic number. This means that the deficit works out to about 2.2% of GDP, which isn’t that large. In fact, it will be smaller than every budget deficit the country ran from 1980 to 1995.
The level of debt doesn’t matter so much. What’s important is that you’re growing faster than you interest rate. The economy has been growing by about 7% to 8% a year, while interest rates on government debt are still around 5%. One of the most amazing features of our times is how inexpensive debt has become.

Posted by on July 11th, 2006 at 11:35 am


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