My column from today's Roll Call explains why and how Wall Street is again...or, rather, still...demanding a higher rather than a lower federal deficit and that the bond market vigilantes that legend says are lurking in the economic woods actually don't exist today.
Bond Market Vigilantes Again Cheering Deficits
I first used the phrase “deficit cheerleaders” in a column more than two years ago to describe what Wall Street bond traders were really telling Washington, D.C., about the budget.
I deliberately wrote the headline above to make some CG&G readers (and you know who you are) angry.
Here's the news: The U.S. Treasury reported last Friday that the deficit for fiscal 2012 was $1.09 trillion. This was $200 billion or so less than the $1.3 trillion deficit recorded in 2011 and more than $300 billion less than the $1.42 trillion deficit in 2009.
Yes, I could have easily said that the federal deficit exceeded $1 trillion for the fourth consecutive year because that would have been true.
And, yes, I could also have said that the $200 billion deficit reduction from 2011 to 2012 was the largest in U.S. history because that also would have been true.
Finally, I could have also written that the reduced deficit from 2011 to 2012 was the wrong fiscal policy given the fragile state of the economy and because the other primary drivers of GDP -- corporate spending, consumer spending, trade, and state and local government spending -- are all still well below what we need them to be to create growth.
So was the $1.09 trillion deficit in fiscal 2012 a good or bad thing?
Jake Sherman had an excellent story in Politico on Saturday (ht Mike Allen) about House Speaker John Boehner's (R-OH) latest thinking on what's doable and not doable on the budget during the lame duck session of Congress.
The answer is...not much, and maybe nothing.
Boehner basically told Sherman what I've been telling my clients for months: lame duck sessions of Congress in general and this lame duck session in particular are terrible times to be making major policy decisions. Not only isn't there much actual time (3-4 weeks of legislative work at most this year), but needing soon-to-be-retired and just-defeated House and Senate members to vote on big changes in taxing and spending is a dangerous thing for the leadership to do. Why? Because you can't be sure they will vote, and if they show up you can't be certain how they'll vote.
Question: Is it really possible to look at this story by Jonathan Weisman from yesterday's The New York Times without shrieking?
Former Virginia Governor and Senator George Allen, the Republican who's running for his old Senate seat this year against Democrat Tim Kaine, another former governor, used to campaign as someone who would make the hard choices and cut spending, that is, as a fiscal conservative.
But as Weisman's story definitively shows, Allen this year is campaigning against the $55 billion in military spending reductions that will occur if the sequester occurs as scheduled on January 2, 2013.
Question 6 of this latest poll from Ipsos Public Affairs tells you all you need to know: No matter which political party the respondents identify with, there's no majority for cutting any of the major areas of federal spending among these registered voters. In fact, there wasn't even a majority for cutting the generic "other."
Q.6. As you may know, the US federal budget has a significant deficit. Here are the main view, which of the following areas can we afford to cut back on? (Select all that apply)