Friday, October 26, 2012

Why deficit, WHY?!

So, the country has been running a deficit the last few years. This is not news. Many in the media credit it to a vast run-up in government spending under Obama. Yes, spending has gone up on things like food stamps and other government relief programs that are used more in a recession. BUT, a large drop in government revenues also occurred and this comprises a large part of the deficit. The corresponding chart below shows taxes collected as a percentage of GDP.

Note how the most recent peak was around 2007, before a sharp drop when the recession hit, with the government's take going from ~18 down to 15% of GDP. Considering the size of our economy, that is a lot of revenue lost. Another relevant point I'll make is that politicians occasionally will make a platform out of promising to fix government spending at a certain percentage of GDP. With the huge baby-boom cohort now retiring, Social Security and Medicare will be soon be covering a large portion of the population. Thus, it's quite impractical (and a little insane, really) to think this can be done with the same amount of spending or revenue.

In a day or two I'll highlight how the markets are essentially yawning at this heightened amount of debt the government has issued, despite our politicians recent (and hypocritical) freakout about it.

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