Never one to shy away from a good fiscal debate, Niall Ferguson, financial history professor at Harvard, sounds the alarm on the Obama administration’s looming federal deficit problem in a Tuesday FT comment piece.
As he concludes (our emphasis):
The reason is clear. While the stimulus package had a sound macroeconomic rationale, the growing structural imbalance between federal revenue and spending scares the hell out of voters. A recent USA Today/Gallup poll showed that 59 per cent of Americans think government spending is excessive. Mr Obama receives his lowest approval ratings for his handling of the federal budget deficit.
Six months in, Mr Obama still has the look of a lucky, two-term president. But that could change if voters become even more disenchanted with the legislative branch and start blaming the president for the looming fiscal train-wreck. The scariest possibility for Mr Obama is that the runaway deficit could leave him with the worst of both worlds: exploding debt and flat-lining growth.
Over at Diapason Securities, meanwhile, Sean Corrigan provides us with the following visual aid to highlight the extent of that scary problem:
As Corrigan notes:
Outlays are rising at 20% YOY, the fastest nominal pace since 1976. With receipts falling 14.8% YOY, their fastest drop in at least 40 years, the gap between their growth rates is also the widest in the record. The percentage cover for outlays has been a pacesettingly poor 56% so far in calendar 2009, taking the deficit to no less than 78% of receipts and to a staggering 14% of private GDP where it is on track to reach between $1.6?$1.8 trillion for the full year — equivalent to the entire GDP of Spain, Russia, or Brazil
We can see why that would be scary to voters.
Related links:
A runaway deficit may soon test Obama’s luck - FT
Krugman: ‘Back at you, Ferguson’ – FT Alphaville