DO NOT REJOICE, BUSH LOVERS!
The GDP might be growing now, but
the Chimp is making sure it tanks later

The Economist on Bush's federal spending deficits:

The combination of a sharp economic slowdown, tax cuts and higher spending has transformed America's budget. When Mr Bush ran for office, the fiscal surplus was 2.4% of GDP, one of the highest among big rich countries. By fiscal 2003, the budget deficit had reached 3.5% of GDP. Next year, by official forecasts, it is expected to reach 4.3%.

According to the Bush folk, this shift is unfortunate but hardly worrying. America, they claim, was hit by an unprecedented combination of economic slowdown, terrorist attacks and stockmarket collapse. But now, boosted by tax cuts,buoyant growth coupled with disciplined spending will soon stem the red ink.

Not everyone shares this nonchalance. A poll by ABC News and the Washington Post, published on November 2nd, showed that 53% of respondents disapproved of Mr Bush's tax policy. The large cast of Democratic presidential hopefuls claim Mr Bush's tax cuts have been a giveaway to the rich, wrecking the economy and mortgaging the future for America's children.

And

Add these factors together, and America's budget outlook is far worse than the official forecasts suggest. Among Washington's independent budget experts, the consensus is that the official figures understate the cumulative deficit by about $5 trillion. Rather than a budget that returns to surplus by 2012, America is more likely to see deficits that average 3% of GDP over the next decade.

All these projections assume a healthy average rate of real GDP growth, at 3% a year. Faster growth would improve the outlook, but would not eliminate the spectre of deficits. Contrary to the Bush team's rhetoric, America does not have a small, temporary fiscal problem. It has a large and growing one.

The economic consequences are indisputably negative. Big budget deficits reduce America's already abysmally low saving rate. As the economy's slack is worked off, Uncle Sam's demand for dollars is likely to crowd out private investment and reduce long-term economic growth. Even if the global capital market helps out, America is already enormously reliant on foreigners to fund its spending: the current-account deficit, the measure of annual borrowing from foreigners, is at an historic high of 5.1% of GDP. Big budget deficits will aggravate these external imbalances and so raise the risk of financial volatility, even a dollar crisis. Over the next few years, that is perhaps the biggest risk that Mr Bush's fiscal policies pose for the world economy.

We really are in big trouble. Click here.

Thanks to Eschaton for the link.

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