Let's Get Real About Deficits
This week, while President Bush took credit for supposedly cutting the enormous budget deficit in half, the Commerce Department reported that the trade deficit in August was a record $69.9 billion. Annualized, the trade gap comes to well over $800 billion of foreign-made merchandise tacked onto our national charge card, a figure that dwarfs the federal budget deficit by comparison.
In the first place, the fact that President Bush maintains a straight face while claiming to be a deficit cutter is a testament to his political skills and the media's and Wall Street's gullibility. Who does the President think he is kidding? So far, the national debt has increased by about three trillion dollars during his presidency, or about $500 billion per year. Those are the real numbers. The non-sense budget deficit the government reports excludes off-budget items and money borrowed from government "trust funds." However, expenditures excluded from official budget numbers still must be financed, and the money borrowed to do so adds to the national debt. In addition, those numbers do not reflect expenses accrued during the year but not yet paid. Were such expenses properly accounted for, the official deficit would be several hundred billion dollars higher. Finally, the numbers do not include any growth in contingent liabilities, which now exceed $40 trillion, making the actual national debt over eight times the official figure, which includes only the funded portion.
While President Bush claimed credit for restraining federal spending, his 2006 budget included a record $2.65 billion in outlays, a 7.4% increase over the prior year. Spending on education increased 28%, Medicare spending rose by 12.5% and interest payments on the debt rose 15%. Tax revenue also rose to a new all time high of more than $2.4 trillion. So just what is it that the President is bragging about? Presiding over the fourth largest budget deficit ever (after having presided over the largest) while simultaneously being the biggest tax and spender in our nation's history?
In the second place, how can the President's disingenuous claims of deficit reduction attract media attention, while the record high trade deficit is virtually ignored? The budget deficit merely reflects what the government borrows, while the trade deficit reflects what the entire nation borrows. For the President to proclaim that the U.S. economy is healthy despite the record trade deficit is like a doctor declaring a patient healthy while ignoring the basketball sized tumor growing in his intestines.
The combination of enormous budget and trade deficits reflects a terminally ill American economy. Both the public and private sectors borrow to consume, while the domestic economy lacks the savings or productive capacity necessary to support either. Foreign savers/producers sacrifice their own desires merely to indulge ours, artificially strengthening an otherwise dying economy. However, my guess is that before the end of the Bush term, foreigners will finally pull the plug.
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