The budget deficit is shrinking faster than at any time since World War II
The budget deficit is shrinking faster than at any time since World War II
By Tim Fernholz November 21, 20124 Comments
With the fiscal cliff spurring all this talk of deficit reduction in the US, you might think the government hasnt been reducing the deficits it accumulated fighting the 2008 recession, not to mention the two wars of the last decade and the costs incurred by the countrys structural imbalance between revenue and spending. But youd be wrong.
The chart above shows the yearly change in the federal budget balance since 1950. In 2008, the deficit ballooned to nearly $300 billion, and nearly $1 trillion after that in 2009 with the introduction of the fiscal stimulus bill. That year the deficit hit its crisis peak of $1.4 trillion, as the chart below shows. Since then, however, deficit reduction has been the norm. In 2010, the deficit shrank by $120 billion, held steady the next year at $1.2 trillion, and will shrink by another $210 billion this year, for a forecast deficit of $1 trillion.
Now, of course, a $1 trillion deficit is still huge. And because the deficit is huge, Americas overall debt is still growing. (We were going to include yet another chart to show that too, but you get the point.)
Its also worth acknowledging that the main reason the deficit is now currently shrinking exceptionally fast is that, before this, it was growing exceptionally fast. The stimulus at a time of economic contraction made the deficit explode. Now the economy is growing, theres less stimulus spending, and some of what was spent to prop up banks got paid back.
Nonetheless, the fact remains that this years $210 billion reduction in the deficit represents the fastest year-over-year fiscal consolidation since World War II. And as Investors Business Daily points out, the deficit has shrunk by 3% of GDP over the last three years, slightly more than it did between 1995 and 1998, when the economy was growing much faster than it is now.
http://www.govexec.com/oversight/2012/11/budget-deficit-shrinking-faster-any-time-world-war-ii/59707/?oref=river