Still, the total deficit for 2002 will be at most $80 billion, less than 1 percent of GDP. This is miniscule compared to the massive budget deficits of the 1970s and 80s and shows no sign of being chronic.
In fact the deficit is unlikely to be even as large as earlier projections indicated. The budget assumes total GDP growth in 2002 of 0.7 percent. The economy surpassed that in just the first quarter of the year. The budget is also tiny in contemporary terms. This year Germany and Japan are running deficits of approximately 3 percent and 7 percent, respectively.
Despite the hit the current recovery may expect to take due to the government's debt issuance, there are still two silver linings. First, a short-term dip in growth should not be noticeable. The March stimulus package, combined with a steady stream of defense spending, should be sufficient to buoy growth in the second quarter.
Second, Federal Reserve Chairman Alan Greenspan and his compatriots had their formative years in policymaking during Reagan administration deficits. The structure of the current deficit is very similar, but not nearly as large. Barring unforeseen developments, keeping growth chugging along should be easy for the Greenspan team. The most likely policy track will be to delay pending interest rate cuts until July or August, which will allow the private sector to get more traction and grant debt-laden Americans a summer of breathing room before they must begin to service their debts again in earnest.
Additional analysis from STRATFOR.com can be found in our LINKS section or at:
http://www.stratfor.com .
This article is reprinted with permission from the publisher.
In fact the deficit is unlikely to be even as large as earlier projections indicated. The budget assumes total GDP growth in 2002 of 0.7 percent. The economy surpassed that in just the first quarter of the year. The budget is also tiny in contemporary terms. This year Germany and Japan are running deficits of approximately 3 percent and 7 percent, respectively.
Despite the hit the current recovery may expect to take due to the government's debt issuance, there are still two silver linings. First, a short-term dip in growth should not be noticeable. The March stimulus package, combined with a steady stream of defense spending, should be sufficient to buoy growth in the second quarter.
Second, Federal Reserve Chairman Alan Greenspan and his compatriots had their formative years in policymaking during Reagan administration deficits. The structure of the current deficit is very similar, but not nearly as large. Barring unforeseen developments, keeping growth chugging along should be easy for the Greenspan team. The most likely policy track will be to delay pending interest rate cuts until July or August, which will allow the private sector to get more traction and grant debt-laden Americans a summer of breathing room before they must begin to service their debts again in earnest.
Additional analysis from STRATFOR.com can be found in our LINKS section or at:
http://www.stratfor.com .
This article is reprinted with permission from the publisher.