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Maybe the federal deficit is not as bad as we think

In his latest Capital Gains and Games column, Stan Collender tell us that the folks who warn us that increasing deficits will lead to fiscal hell may have it all wrong.

Some excerpts:

. . .the absolute guarantee that we’ll be economically doomed if we don’t immediately repent on the deficit and live a virtuous balanced budget life — has never worked for me because it’s never been proved to be true. In addition, those who have insisted that reducing the federal deficit no matter what the economic situation have seemed to be proselytizing to validate their personal beliefs or accomplish their unrelated political goals rather than actually analyzing anything.

. . .

As the deficit rose to the point we’ve been told would bring immediate and unmistakable retribution from an angry economic deity, interest rates have fallen, the private sector has been reporting record earnings and is hoarding cash, and inflation is about as absent from monthly economic statistics as it can be.

. . .

the combination of economic conditions the United States is experiencing puts the current federal budget deficits and those who have championed them on the side of the angels rather than the demons because none of the other components of gross domestic product are making growth possible. State and local governments continue to increase revenues and cut back on spending, consumers and businesses aren’t spending, and the economic woes in Europe and elsewhere mean that trade isn’t available to help.

That makes federal fiscal and monetary policy the only two drivers of economic growth. With interest rates already low and the Federal Reserve’s options limited, the budget deficit is an economic blessing rather than a curse.

Whichever side you are on in current debate about the federal deficit, Collender's column is worth a read. You may not agree, but it will give you something to ponder.

You can also watch Collender talk about the economy on CNBC below:


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