In response to a post where I noted that the US had in the first two months of fiscal 2010 generated $292 billion of deficit, a commenter 5Live asked what has changed since my posting of Sept. 2008 where I compared national debt of different countries.
Below I show that projections are that the debt to gdp ratio is heading to 95-110%. This would put the USA just ahead of Italy and Japan in the OECD debt chart.
During the administration of President George W. Bush, the total debt increased from $5.6 trillion in January 2001 to $10.7 trillion by December 2008, rising from 54% of GDP to 75% of GDP. The total debt is projected to continue increasing significantly during President Obama’s administration to nearly 100% of GDP, its highest level since World War II. The total debt could be 5-15% of GDP higher than that projection based not slowing the annual deficits to 1 trillion instead of $1.5 trillion where the US is now. This would put the US in the top 3 of GDP debt ratios. Only Italy or Japan might have a worse situation as per the chart of OECD debt ratios. This is not financial doom but it is not good.
Greek Finance Minister Giorgos Papakonstantinou announced three weeks ago that his country’s budget deficit would reach 12.7 percent of gross domestic product this year, instead of the 6 percent originally forecast — and well about the 3 percent limit foreseen by European Union rules. Greece already pays almost 2 percent more in interest on its debt than Germany. In other words, at a total debt of €270 billion ($402 billion), Greece will be paying €5 billion more in annual interest than it would if it were Germany. And, with rating agencies threatening to downgrade the country’s already dismal credit rating, the situation is only likely to get worse.
Ratings agency Standard & Poor’s cut its sovereign debt rating for Spain to AA plus from AAA, citing the country’s weak economic growth, large current account deficit and rapidly deteriorating public accounts.
Note: that although Japan has a very high public debt, almost all of the debt is to people in Japan. Japan has a high savings rate. Debt problems are more serious when you have a high public debt that is to external sources.
It is important to note the difference between the fiscal terms gross debt and public debt. In brief, the public debt is the gross debt less the amount the government owes itself. The figure below shows the trend in public debt with the background colored by the party controlling the executive.
During March 2009, the Congressional Budget Office estimated that public debt will rise from 40.8% of GDP in 2008 to 70.2% in 2012. The first two months of fiscal 2010 are running 25% ahead of the May 2009 projection.
So the difference between Sept 2008 and now $1.7 trillion in added debt and the public debt is now about 50% of GDP and likely heading to 75% of GDP in 2012.
5Live also tried to say that all the defecit is still the fault of the Bush Administration:
By every account, nearly all of the deficit the current administration is burdened with is due to mismanagement by the previous White House, namely, an unfunded Medicare prescription drug benefit with no cost controls, two unfunded wars and a tax cut that was paired with spending decreases. It was, in fact, accompanied by a large increase in non-defense spending, to say nothing else of defense.
Neither war is being ended and Obama has been in for ten months. Obama and the current administration are running things now.
So how much is the current situation Obama and the white house and the current congress ?
How did that division of blame work in the previous congress ? Democrat house and senate and President Bush ?
I do think Bush was a bad president, but Obama also appears to be a bad president.
I agree that a recession is not the time to crush the government spending but the spending and policies do not appear to be very effective in countering the recession. There does not appear to be any moves to control the deficit. Any Healthcare bill that is passed looks likely to increase the deficits. Energy and climate bills also look to increase deficits. There does not appear to be any plan/policy that is to rein in the spending. If I am missing the fiscal responsibility starting to come together then please comment and let me know.
But by next year, causes of the deficit will be secondary to the conversation about how to cure it. The pressing need will be to demonstrate to financial markets that, even if deficits remain large for years, there is a vehicle in place that can be counted on to bring them down over time.