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Federal budget deficit shrinking faster than expected — perhaps too fast

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Your typical rank-and-file Republican probably knows nothing about THIS:

Since the recession ended four years ago, the federal budget deficit has topped $1 trillion every year. But now the government’s annual deficit is shrinking far faster than anyone in Washington expected, and perhaps even faster than many economists think is advisable for the health of the economy.

That is the thrust of a new report released Tuesday by the nonpartisan Congressional Budget Office, estimating that the deficit for this fiscal year, which ends on Sept. 30, will fall to about $642 billion, or 4 percent of the nation’s annual economic output, about $200 billion lower than the agency estimated just three months ago.

The agency forecast that the deficit, which topped 10 percent of gross domestic product in 2009, could shrink to as little as 2.1 percent of gross domestic product by 2015 — a level that most analysts say would be easily sustainable over the long run — before beginning to climb gradually through the rest of the decade.

“Revenues have been strong as the economy has outperformed a bit,” said Joel Prakken, a founder of Macroeconomic Advisers, a forecasting firm based in St. Louis.

Over all, the figures demonstrate how the economic recovery has begun to refill the government’s coffers. At the same time, Washington, despite its political paralysis, has proved remarkably successful at slashing the deficit through a variety of tax increases and cuts in domestic and military programs.

Perhaps too successful. Given that the economy continues to perform well below its potential and that unemployment has so far failed to fall below 7.5 percent, many economists are cautioning that the deficit is coming down too fast, too soon.

UPDATE: HERE‘s Steve Benen’s take on this matter:

There are several important angles to this, but perhaps the most politically salient one is the way in which the shrinking deficit leaves Republican talking points in tatters. GOP arguments about President Obama’s fiscal recklessness now look absurd. Conservative cries about the United States becoming Greece look ridiculous. Republican demands for austerity appear pointless and unnecessarily destructive.

And yet, the drive among congressional Republicans to hold the nation hostage and create another debt-ceiling crisis remains unaffected…

The deficit is already shrinking at a pace unseen in modern generations, but for many members of the conservative Republican Study Committee, unless Democrats agree to even more deficit reduction, they’ll embrace default and crash the economy on purpose.

There’s just no reason for any of this. It’s a strategy impervious to facts.

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15 Comments

  1. Neftali

    As usual, Benen has it completely backwards.

    Democrats have been crying for 2 years that Republicans won’t let them pass their “jobs” bill. As it turns out, unemployment and the deficit is slowly decreasing without the stimulus measures Democrats claimed we so desperately needed. Further, Democrats were throwing a temper tantrum of epic proportions about the massive economic problems the Republican-forced spending cuts would cause. As it turns out, we’re doing just fine. So the Democrats are wrong. Again.

  2. expdoc

    Neftali nails it again.

  3. What a laugh!

    Neftali asserts (and expdoc concurs) that “we’re doing just fine,” economically.

    They seem to have missed the part in the piece to which I linked where it says “the economy continues to perform well below its potential and that unemployment has so far failed to fall below 7.5 percent.”

    They also ignore the fact that this underperformance of the economy is largely due to Republican obstructionism and to the austerity snake oil that hasn’t worked anywhere in the world where it’s been tried, as we see here:

    http://blogs.e-rockford.com/applesauce/2013/04/26/wake-up-republicans-everywhere-austerity-has-been-tried-it-has-failed/

  4. Neftali

    But unemployment is dropping. All without the liberal demand to increase the deficit in a weird attempt to drop it faster.

    Again, I’d say things are going just fine, and in the right direction, the way it is. >shrug<

  5. Craig Knauss

    Man, I wish the rightwingers could get their act together just one time.

    The rightwing economic “experts” in Pat’s area are claiming the economy is progressing “just fine”.

    Simultaneously, even though the DJIA is way up, the S&P is way up, the NASDAQ is way up, unemployment is down, interest rates are down, etc. the rightwing economic “experts” in my area are claiming the economy is going to hell in a hand basket. So which bunch of these rightwing economic “experts” is correct?

    I would agree that the economy is definitely progressing, and has made considerable strides, but it’s not “just fine” yet. There’s still a lot of damage to repair.

  6. Robert

    Here’s an example of our improving economy. How often is this happening around our country?

    A friend is employed as an occupational therapist at a local retirement facility. It was recently bought by a Japanese based company. Apparently they’ve also bought 2 other facilities in this area. My friend had to resign her position along with all the others and then re-apply for her position. All the older staff were not rehired. The staff that did get rehired has to take a $2 an hour cut in pay per hour. Some of the rehires were given 30 hour shifts and some were given 40 hour shifts. The amount of time allowed for each patient is being reduced from 45 minutes to 30 minutes. My friend says some of these people take 10-15 minutes just to get ready for their therapy because many are there because of a stroke or other disabling maladies.

    This is what our improving economy looks like to many. It’s all about bring the wages and service levels down. You want premier care, you’re going to pay dearly. We boomers are not going to get anywhere near the care our parents and grandparents did. Because let’s face it, our workforce isn’t as desirable as it was when our country was a shaker and mover in the manufacturing years.

    China and India have taken that spot, but we kept being told how we’re the biggest economy in the world. I don’t know how we can still have that position considering the gains and modernization that China has gone through in the last 20 years and considering they have a much larger population to translate into consumers, than we do.

    America is being made into a paradise destination spot for the world’s rich and famous. Was told this was the direction our country was taking back in the mid 80s. Some areas are going to flourish, others are going to left to decay slowly. Places like Detroit and Rockford are good examples of once bustling little manufacturing centers struggling to find a vision of the future. If Rockford doesn’t get a grip on the violent crime that’s a daily occurrence, it’s never going to attract new business and residents.

    Rockford is too small of place for all the armed robberies and shooting that occur there. The once safer NE section is now just as much as target of the thugs destroying the livability of that town as the other 3 quadrants. 2 armed robberies just in the last 24 hours.

    Here’s another medal for Rockford to wear.

    #14
    http://abcnews.go.com/Business/worst-neighborhoods-violent-crime-us/story?id=19087850#.UZO8WkqDliM

  7. expdoc

    The changes you described at the retirement facility likely have nothing to do with the Japanese company that purchased them and everything to do with ongoing healthcare reform.

    Procedures and therapies for which providers were already underpaid are experiencing and will continue to experience declining reimbursement. The only way to reconcile that change is to decrease overhead and increase productivity.

    You have certainly nailed it with your worry about the care you and I will receive vs what was available to our predecessors. Care provided may end up being of equal or even better value (quality/cost), but it will have to be provided at a lesser cost and so the “nicities” are going to go bye bye.

  8. Robert

    Like I said in a prior post last week, I wouldn’t be surprised to see some of the lower cost healthcare govt paid premiums be for minimal care consisting of discount coupons for OTC painkillers, surgeries that can only be done with a needle or an exacto knife in the doctors office that has no regulations regarding cleanliness, no lab services for evaluation of whatever they remove, 3 days max stays at infirmary’s like Mother Teresa oversaw where treatment consist of a daily pain pill and a pleasant voiced person saying life will be better on the side while holding your hand for 2 minutes max, and pre-paid cremation services where your ashes are given to the survivor in last years overrun of metal fruit cake tins that the govt bought for $300 a piece.

    Of course the company’s providing the benefits will have cost plus govt contracts for all indigent care. The corporations got to make their profits. The corporations rule. They don’t care about the boomer generation. The corporations milked the last drop of cost effective productivity out of the general population and now their worry is how do we get out from under this burden of an old and tired workforce that is nothing but a drain on all that money going into medicare and social security they could get in the form of government contracts to the military for example. Of course the politicians made sure they got their Cadillac level services in their retirement benefits. Austerity is for the little people. The saying used to be let them eat cake, now it will be let them eat an aspirin. But I digress. What was the subject of this thread again?

  9. Robert

    I meant to say, …”3 days max stays at infirmary’s like Mother Teresa oversaw where treatment consist of a daily pain pill and a pleasant voiced person saying life will be better on the other side, while holding your hand for 2 minutes max,…”

  10. expdoc

    That kind of thing is not going to happen in this country ever. The benefit you describe would fall far short of Medicaid and Medicare are even now.

    Much more likely is restriction of access to care, limitations in what care can be provided to which type of patient (and when), and a much greater attempt to control the “health” of the population.

  11. Brian Opsahl

    Doc, you should be doing flips right now…the deficit is going down faster than thought…hhmm

  12. expdoc

    I am very happy about that, although it might only be a temporary phenomenon. We are still more than 600 BILLION dollars short though.

    I hope that the deficit continues to drop to the point that we can actually start to decrease the debt.

  13. Robert

    I realize that I was being extreme and actually trying to be humorous in a way. But you do note restriction of access to care as probable with limitation as to what care can be provided. Either way, its not going to be the level of care the older generations got unless you can afford the better care programs and the likewise higher cash premiums that come with them.

    I don’t expect organ transplants, but I would like to think I would be eligible for knee and hip replacements if that’s what I need and was young enough to make it worthwhile. Hip and knee surgery at 90? That’s questionable considering the cost effectiveness and I understand that. I would like access to cancer treatment beyond morphine to deaden the pain should I ever get that diagnosis and even open heart surgery if I need it. But I do realize that advanced age might be a disqualifier unless I can afford to pay for insurance that will cover at any age. My concern would be at what age is too old to approve coverage for some of the situations I noted. I think many people have that question. Especially if its being paid through Medicare.

    I’m not so sure the base programs are going to offer that kind of coverage. Hope so though.

  14. expdoc

    Robert,

    I share your concerns.

  15. Robert

    expdoc, The more I think about it, the more I suspect my first thoughts on what basic care might look like are closer to real than not. What if I can’t afford to pay the difference in price of what Medicare will pay on knee replacement and the actual cost? Doesn’t that mean I couldn’t have it till I can pay the difference. If I don’t have the cash, then I can’t pay it. Then I suspect I’d have to go without a knee replacement and OTC or slightly better pain killers might be all I can afford, then my initial attempt at humor might not be so off base and be what I have to live with. I can see that happening for many people. OTC pain pills being the only affordable option for those who don’t have supplemental insurance coverage and the cash to pay the difference.

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