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U.S. Deficit Decline to 2.8% of GDP Is Unprecedented Turn

Posted by on Nov. 4, 2014 at 10:27 PM
  • 30 Replies
1 mom liked this

U.S. Deficit Decline to 2.8% of GDP Is Unprecedented Turn

By Christopher Condon

November 04, 2014 12:00 AM EST

533

Robust economic growth has helped push the U.S. budget deficit down to the lowest level since 2008, marking the sharpest turnaround in the government’s fiscal position in at least 46 years.

The shortfall of $483.4 billion in the 12 months ended Sept. 30 was 2.8 percent of the nation’s gross domestic product of $17.2 trillion over the same period, according to data compiled by Bloomberg using Commerce Department figures. The figure peaked at 10.1 percent of GDP in December 2009.

“That’s what happens when the government is holding itself back on spending and the economy is improving,” said George Goncalves, head of interest-rate strategy at Nomura Holdings Inc. in New York. “The question is, is that as good as it gets or will the deficit continue to shrink?”

Deficit Disconnect

The narrowing budget deficit has bought time for lawmakers to solve long-term threats to the economy such as the cost of retirement benefits. Gregory Valliere, chief political strategist for Potomac Research Group, said the fiscal relief may be short lived as austerity-weary lawmakers eventually boost spending on defense and other programs.

“I can see the beginnings of a pendulum shift away from fiscal restraint,” he said.

The Congressional Budget Office in August predicted the deficit will shrink further this fiscal year, to 2.6 percent of GDP, before rising to 2.9 percent in the presidential election year of 2016. Before the fourth quarter of 2008, the last time the deficit-to-GDP share reached 2.8 percent was in April 2005, the data show.

Debt Auctions
The reprieve is enabling the government to reduce the amount of debt sold in the short term.

The Treasury yesterday said its borrowing this quarter will decline to the least for the October-December period since 2007. The department made the projection in Washington ahead of its quarterly refunding announcement tomorrow.

Scott Brown, chief economist at Raymond James & Associates Inc., said the fiscal improvement has muted the political debate over the budget ahead of today’s midterm congressional elections. “The bigger problem with the budget is really the long-term pressure, and has to do with the retirement of the baby-boom generation,” Brown said.

Related: Singer's Elliott Says U.S. Growth Optimism Unwarranted as Data ‘Cooked’

The CBO’s baseline budget predicts spending on mandatory programs, including Social Security and Medicare, will expand by 72 percent to $3.63 trillion in 2024 from $2.11 trillion this year. That would raise the budget deficit as a proportion of GDP back to 3.6 percent, according to the CBO.

Low Rates
Concern over the long-term outlook for the deficit hasn’t hurt the government’s ability to borrow more cheaply than it has in the past. Yields on 30-year Treasuries have averaged 3.4 percent this year, compared with 6.09 percent over the past three decades.

Joe Davis, chief economist at Vanguard Group Inc. in Valley Forge, Pennsylvania, said neither the low current deficit nor the longer-term outlook for bigger shortfalls have had a big impact on Treasuries because those are outweighed by other influences, including the Federal Reserve’s loose monetary policies and the strength of the U.S. relative to other economies.

The Fed has held its benchmark interest rate at zero to 0.25 percent since December 2008. Expectations have increased that the Fed will raise rates in the middle of 2015 just as investors worry about slowing growth and potential deflation in Europe, pushing the European Central Bank in the opposite direction to the Fed.

Strong Dollar
That has helped the dollar strengthen about 11 percent against the euro in the past six months.

“Clearly the level of debt matters for fixed-income investors,” said Davis, whose firm is the largest mutual fund manager with about $2.64 trillion in assets. “The U.S. has been for years a special case because it’s the international reserve currency. But that right is neither permanent nor pre-ordained.”

Economists cautioned against doling out any credit in Washington for the improving budget numbers, given that political leaders failed to reach any broad compromise over long-term spending issues. Disagreement between Republican and Democratic leaders led to a government shutdown in October 2013.

“I see nothing to celebrate that we’ve wasted five years and didn’t deal with the problem we know is coming,” said Douglas Holtz-Eakin, an economist and former director of the Congressional Budget Office who advised Republican candidate John McCain during the 2008 presidential election.

Ratings Downgrade
Citing political gridlock over the country’s fiscal future, Standard & Poor’s lowered the country’s AAA credit rating one level to AA+ in August 2011, saying a deficit-cutting plan signed by President Barack Obama fell short of what was necessary “to stabilize the government’s medium-term debt dynamics.”

Investors ignored the downgrade as the yield on 10-year Treasuries ended 2011 at 1.88 percent, 68 basis points lower than on the day of the downgrade.

Surprisingly strong economic growth is helping to reduce the deficit by boosting tax revenue and reducing the cost of social programs such as food stamps and unemployment insurance.

The economy expanded at a 3.5 percent annualized rate in the third quarter, according to Commerce Department figures released last week, more than estimated by economists. That followed a 4.6 percent pace in the prior quarter, the strongest back-to-back readings since 2003.

Job Growth
The U.S. economy has added more than 200,000 jobs a month, on average, this year, driving down unemployment to a six-year low. The Fed last week focused on the labor market’s improvement as it announced an end to bond purchases designed to stimulate the economy by holding down long-term borrowing costs.

With voters heading to the polls in midterm congressional elections today, Valliere doubts a Republican takeover of the Senate will end budgetary gridlock because the political costs may be too punitive.

“The Republicans are talking a lot of trash now, but are you really going to go after senior citizens ahead of the 2016 elections?” he said. “The only way to get a grand compromise is a combination of entitlement cuts and revenue raises, and the House isn’t going to go along with that.”
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by on Nov. 4, 2014 at 10:27 PM
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Replies (1-10):
trippyhippy
by Platinum Member on Nov. 4, 2014 at 10:56 PM
4 moms liked this

I blame Obama...oh wait.

sweet-a-kins
by Emerald Member on Nov. 4, 2014 at 11:41 PM
2 moms liked this
Haha right

That damn socialist community organizer!


Quoting trippyhippy:

I blame Obama...oh wait.

Posted on CafeMom Mobile
littlemum41
by on Nov. 5, 2014 at 12:24 AM
1 mom liked this
They're going to miss him.after 2016. ;-)

Quoting sweet-a-kins: Haha right

That damn socialist community organizer!


Quoting trippyhippy:

I blame Obama...oh wait.

Posted on CafeMom Mobile
sweet-a-kins
by Emerald Member on Nov. 5, 2014 at 5:43 AM
2 moms liked this
The state of the US will cement his place in history

The lies of the racist right won't matter anymore.


Quoting littlemum41: They're going to miss him.after 2016. ;-)

Quoting sweet-a-kins: Haha right

That damn socialist community organizer!


Quoting trippyhippy:

I blame Obama...oh wait.

Posted on CafeMom Mobile
2007mommy2be
by Gold Member on Nov. 5, 2014 at 7:04 AM
I've been being in this group to help learn more political views and news and so I'm confused. I did skim the article but what I got out of it was that our debt is going down and the unemployment rate has dropped right? Then at the end I gathered something about Republicans saying they'll fix the debt problem. Am I right? If not, if so I'm curious about your comment. Blame Obama for what? Maybe I didn't skim the part where there was room to blame although I do understand he's blamed for everything. Even for me falling asleep before my movie started lol. Jk.

Quoting trippyhippy:

I blame Obama...oh wait.

sweet-a-kins
by Emerald Member on Nov. 5, 2014 at 7:42 AM
3 moms liked this
She's being sarcastic.

They blame Obama for everything from Bush's recession to Ebola but he gets no credit for the record breaking stock market gains and unprecedented economic turnaround after the global recession

In fact, the lying republicans will try and take credit for the ever improving economy in a year or two


Quoting 2007mommy2be: I've been being in this group to help learn more political views and news and so I'm confused. I did skim the article but what I got out of it was that our debt is going down and the unemployment rate has dropped right? Then at the end I gathered something about Republicans saying they'll fix the debt problem. Am I right? If not, if so I'm curious about your comment. Blame Obama for what? Maybe I didn't skim the part where there was room to blame although I do understand he's blamed for everything. Even for me falling asleep before my movie started lol. Jk.

Quoting trippyhippy:

I blame Obama...oh wait.

Posted on CafeMom Mobile
littlemum41
by on Nov. 5, 2014 at 9:37 AM

Yep,. Some day he will be applauded and recognized for many good things he did. For one, he saved the economy . It was in the toilet in 2008 and now we are doing so much better. But the right wingers pretend that is not true.

They need a scapegoat for their deeply entrenched hatred . They're so negative it makes me feel sorry for them.  Feeling that much resentment, hate and prejudice every day must be physically demanding and unhealthy.

I just worry about the future with the Republicans in control. That might create problems for the country.

But who are they going to hate after Obama leaves the White House???  LOL.  They will be so bored!

Quoting sweet-a-kins: The state of the US will cement his place in history The lies of the racist right won't matter anymore.
Quoting littlemum41: They're going to miss him.after 2016. ;-)
Quoting sweet-a-kins: Haha right That damn socialist community organizer!
Quoting trippyhippy:

I blame Obama...oh wait.


yourspecialkid
by on Nov. 5, 2014 at 9:45 AM
1 mom liked this

 Whoopee!  We are only spending $500 billion more than we are bringing in this year.  More money on an already overburdened credit card....the almost 18 TRILLION dollars of debt we have.  Only a Democrat would try and spin this into a good thing.

In case any have forgotten, I am not a Republican.  I am a Libertarian.

Donna6503
by Platinum Member on Nov. 5, 2014 at 9:56 AM
3 moms liked this
Federal government spending has gone down two years in a row; the first time that has happened since '53-'54. Honestly, it was because of the sequester agreed to by both parties.

Lower spending has always been a GOP issues; but, the spending decrease only happend because no one agree to things and it did hurt the economy. Hopefully, going forward the "Grand Bargain" can be reached by all.
Luvnlogic
by Platinum Member on Nov. 5, 2014 at 10:41 AM
2 moms liked this
There's no spin needed to be happy that things are headed in the right direction. You should try it.

Quoting yourspecialkid:

 Whoopee!  We are only spending $500 billion more than we are bringing in this year.  More money on an already overburdened credit card....the almost 18 TRILLION dollars of debt we have.  Only a Democrat would try and spin this into a good thing.


In case any have forgotten, I am not a Republican.  I am a Libertarian.

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