Obama has promised to halve the the US deficit by 2013, but nobody seems to know how he'll manage itby Heather Connon / August 19, 2010 / Leave a comment
Published in August 2010 issue of Prospect Magazine
The finances of the world’s biggest economy are showing increasing signs of distress. At the end of June, US borrowings stood at a record $14 trillion: more than the total for the eurozone as a whole. Is America bust?
Its debt burden is still a smaller proportion of its economy than many European countries (just under two thirds of GDP, as opposed to 115 per cent of GDP in crisis-stricken Greece, and over 70 per cent in Germany and France). But the US deficit is nowhere near its peak: the IMF estimates that, on present policies, debt will reach 95 per cent of GDP by 2020 and, as its ageing population needs more spending on health and social security, it could hit 135 per cent by 2030 and continue to rise thereafter.
President Obama is promising to halve the budget deficit by 2013 and stabilise it at just over 70 per cent of GDP by 2015. But the first date is just three years away and no one knows quite how that will be achieved. While countries across Europe are announcing austerity packages—Spain is cutting €15bn, Germany €80bn—the US administration’s instinct is to spend its way out of recession. Obama failed to persuade the rest of the G20 about the benefits of increasing spending in the face of the global crisis, yet he is also having little success in persuading people at home of the need for austerity. A key test will come at the end of the year when the tax cuts of the Bush era expire. Obama wants to keep them for all but the rich; the doves think they should be continued for everyone and the hawks say they should not only be abandoned but accompanied by swingeing tax rises.