StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

July Deficit Lower

09 Aug 2012
Posted by Stan Collender

Whether you're inside or outside the beltway, you always have to be careful about saying that something is "only" $71 billion.

Nevertheless, the latest report from the Congressional Budget Office that the July federal deficit was $71 billion, $58 billion lower than the July 2011 deficit, is one time when the word "only" is appropriate.

Through the first 10 months of fiscal 2012, the overall deficit is $125 billion less than the $1.1 trillion in the same period last year. 

The real question is whether this is good or bad news.

Politically, the latest CBO numbers indicate that the 2012 deficit will be substantially lower than 2011 but will still exceed $1 trillion. That means that the red ink will still be a campaign issue.

Economically, the numbers are a problem because the federal government is the only component of GDP that is adding any boost to the economy at the moment. With growth low and no prospect of businesses, consumers, trade, or state and local governments boosting their spending any time soon, the federal deficit reduction helps explain why the prospects for growth will remain limited.

In other words, its the wrong fiscal policy and it's not great politics.

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