Sunday, February 7, 2010

The Deficit And Federal Expenditures

With the recent unveiling of the proposed FY2011 budget, I would like to make a few comments with regard to budget deficits and federal expenditures.

Here is a historical chart of federal expenditures. This chart is from the St. Louis Federal Reserve website. This chart helps one put rising government expenditures in a historical context:

A February 1 Wall Street Journal article concerning the FY2011 proposed budget noted the deficit in the proposed budget would shrink from $1.6 trillion this year to $700 billion (4% of GDP) in 2013.

Various underlying economic assumptions from which this future deficit figure is derived can be found here:

I believe these assumptions are rather sanguine - even if one believes that we are in a sustainable recovery.

Our nation has a long history of being far too optimistic during budgeting. This appears to be yet another example in-the-making. What is particularly disconcerting in this instance is that even if these economic assumptions are met, there is still a $700 billion shortfall in 2013. This deficit level does not continue to decrease after 2013, as seen in the budget.

SPX at 1066.19 as this post is written

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