deficit 101

ratio of debt to GDPJournalists and politicians will not use this formula as their headline or sound bite to scare us.

Instead we read that we are living on unsustainable deficits and robbing from our children.


The fact is that none of Obama’s programs are under threat by the extra spending that is needed to stabilise the very poorly performing US economy. They may be under threat politically but that is another question. He can still conduct comprehensive health care reform and reduce the US dependency on foreign oil and start building a renewable energy sector. He always has the fiscal capacity to do that. Whether now is the time is another matter. It has nothing to do with the current size of the deficit.

Whenever a demagogue wants to whip up hysteria about federal budget deficits, he or she invariably begins with an analogy to a household’s budget: “No household can continually spend more than its income, and neither can the federal government”.


The Federal Budget is NOT like a Household Budget – Here’s Why.