Deficit and Debt Phobia: An Addendum
Further to my post of last week, I note that the Department of Finance Update of Economic and Fiscal Projections shows that the federal debt to GDP ratio will start falling after the next fiscal year … ie from 2011-12…. even though we will be running quite significant fiscal deficits — eg $27.4 Billion in 2011-12.
While many media pundits scared themselves silly by adding up the annual deficit numbers to conjure up a seemingly very big number, the reality is that modest growth and low interest rates will stabilize the debt at a level a bit higher than before the recession, even while we run deficits. In short, the projected deficits are NOT setting the stage for a return to the fiscal problems of the late 1980s and early 1990s by a long shot, and there is absolutely no good reason why we should rush to bring the federal budget back into balance.