Us Budget Deficit Eco 360 Essay

987 words - 4 pages

US Budget Deficit 1 US Budget Deficit PAGE 4
US Budget DeficitThe article I read was The US Budget Deficit: On an Unsustainable Path, published in New Economy. The article was written by William G. Gale, Senior Fellow, Economic Studies and Peter R. Orszag, Senior Fellow, Economic Studies.Since the beginning of World War II the national budget has grown immensely. But revenues have not kept up with spending, and the federal budget has had annual deficits since 1969. During the 1960s and 70s, the overall economy grew faster than the deficits. In the 1980s, however, annual deficits grew to over $200 billion. When President Bush took the reins at the White House in January 2001, budget analysts forecast annual surpluses well into the future. However, lower revenues amid economic recession and a slow recovery, large-scale tax cuts and rising government defense spending have all played a role in getting us to where we are today.According to a forecast published in Washington by the Congressional Budget Office (CBO), the non-partisan research organization, the deficit for the fiscal year 2005 is likely to be $331bn or 2.7 per cent of Gross Domestic Product (GDP), compared with $412bn for fiscal 2004. Could you imagine if we all kept track of our personal finances that way? The Outstanding U.S. Debt as of Jan 2006 is over 8 Trillion dollars. The estimated population of the United States is about 300 million so each American citizen's share of this debt is about $28,000.00. The debt is increasing by $1.54 billion each day - that's right, each day, those are sobering facts considering that someday, somehow, We Americans are going to have to pay off all that debt."It took Congress 101 years to spend its first $500 billion dollars. But it took just 10 years to spend the next $500 billion; and now just four years to spend the last $500 billion." 

"Milton Friedman, the revered Nobel Prize-winning economist, declares this unbridled spending "is the single greatest deterrent to faster economic growth in the United States today."Under reasonable projections, the budget deficit is likely to amount to about 3.5 per cent of Gross Domestic Product (GDP) in each year over the next decade. Thereafter, deficits are likely to grow much larger, as health and retirement costs mount for the baby boom generation.The projections above suggest substantial deficits over the foreseeable future in the US. But why do such budget deficits matter? The reason is that they reduce national saving. National saving is equal to private saving minus the budget deficit; so when the budget deficit goes up, national saving goes down.The federal deficit increased by more than six per cent of national income between 2000 and 2003, which triggered a substantial decline in national saving over that period. Indeed, in 2003, the net saving rate for the US amounted to less than two per cent of income. This level of national saving was the lowest since 1934.But...

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