Budget Deficits Justified by Intellectual Deficits

Today's news brought a couple of contrasting headlines.

First, AP reported that "US deficit soaring to record half-trillion dollars as Bush leaves; sagging economy blamed." Apparently, "government's budget deficit will hit $482 billion in the 2009 budget year that will be inherited by Democrat Barack Obama or Republican John McCain, the White House estimated Monday. That figure is sure to rise after adding the tens of billions of dollars in additional Iraq war funding it doesn't include, and the total could be higher yet if the economy fails to recover as the administration predicts." Then the article repeats the White House view that this budget deficit would be around 3% of the GDP.
In FY 2007, the total interest expense paid by the U.S. Government was nearly $430 BILLION,on an average debt of 8,778 BILLION - an approximate interest rate of 4.9%.

A 2009 deficit of $550 billion (a conservative $68B for the war funding) will increase outstanding debt by more than 6%, and will increase the interest expense by $27 Billion per year at the 4.9% interest rate.

The total Receipts or Revenues for FY 2007 were $2,568 Billion dollars. The Receipts for FY 2008 are projected to be lower, at $2,521 Billion dollars. The OMB projects receipts to rise in FY 2009 to nearly $2,700 Billion. Even if we give this optimistic (foolish) forecast credibility, the total Interest Expense of approximately $450 Billion in FY2009 will account for 16.7% of receipts.

Would any fiscally responsible bank lend money to a person who is already paying more than 16% of his or her income in interest on existing debt? Whose debt level is more than 3 times his or her annual income? And the debt is 'unsecured?' Banks lending money without looking at these metrics is the primary reason behind the current financial crisis.

Sen. McCain, in his supposed 'straight talk,' says that he will balance the budget upon taking office by

• cutting pork - something he never truly cut in his twenty five years plus in Congress because he actually loves 'pork'
  
• cuting taxes for wealthy individuals and businesses- the' supply side economics' actions that GWB and Ronald Reagan have embraced and saddled us with the current big deficit problem
• Committing to keeping troops in Iraq for 'as long as it takes, even hundred years'- though how this reduces the deficit is yet to be explained

Mr. Obama wants to achieve deficit reduction by

• Selectively repealing Bush tax cuts
• Increasing tax cuts for the lower income people
• Reducing troop levels in Iraq but increasing them in Afghanistan
• Increasing public spending.

Again, what is implicit is that Mr. Obama waves a magic wand and the deficits disappear.

Debt as a % of GDP is misleading and simply fools people. What is fundamentally important is the revenue picture and the interest payments as a % of revenue. No one looks at a company's financial statements and looks at interest payments as a % of GDP.

Story # 2:
WSJ reported today that "India's Swelling Deficit Has Potential to Set Off Cascading Economic Trouble. "The writers criticize the Indian Government for running up a deficit "that could hurt much-needed investment in India's ramshackle infrastructure, boost inflation and undermine growth." It deplores a proposed once-a-decade salary increase that Standard & Poor's estimates could mean pay increases of as much as 40% for 2.9 million central government employees.
The money is going to government servants who have been historically underpaid and have had to deal with the skyrocketing inflation.

Both these articles show the partisan nature of the business news media, with little care of intellectual honesty. The politicians have a vested incentive to prevent the public from 'getting educated' and 'thinking about the problems.' The major mass media support the politicians because they have a vested interest in exploiting the gullible public.