[lookout123]

Who, I ask you, who will pay for the increase in the debt this administration has incurred?

Hope it works this time. click onThe Budget Deficit Shrinks in the upper right.

The accompanying chart of quarterly data shows how overplayed are the acute deficit fears that have frozen investors from time to time for several years now. The data graphed here show the federal deficit (or surplus) as a percentage of GDP for the past 35 years. This ratio is the best way to analyze the deficit. The dollar figures can mislead because everything becomes larger in dollar terms over time, including also the economy, federal revenues, federal outlays, and, frequently, deficits. But even more than this need to get away from the up trend in all dollar figures, the ratio of deficits to GDP has analytical value because it states the liability right next to the ultimate means by which the government can discharge it. Here, it is evident that deficits have become much less burdensome than last year or in 2003. In fact, deficits have retraced almost half the distance from the worst of the red ink to balance. What is more, the deficits currently differ little from much of this long past experience. Today's red ink looks bad, of course, compared with the impressive surpluses of 1998-2000, but otherwise, today's burden looks lighter than in much of the 1990s, 1980s, and even the 1970s, when taxes skyrocketed.

Though the fear-mongering that has accompanied deficits looks misplaced in this context, it still would be misleading to suggest that federal finances are in good shape. Today's deficits may look manageable, but even the least bit of red ink carries an ominous quality when looking farther out on the horizon to see the nation facing the retirement of the baby-boomers and the financial strains that phenomena will place on Social Security and Medicare. Indeed, the prospect of these great long-term strains makes an argument for the government to try amassing surpluses in the near term or, at least, to balance its budget. Today's deficits, no matter how moderate in an historical context, will only make that future financial burden more difficult to bear.

Still, however much these distant burdens loom, the government's finances at present clearly do not burden financial markets, as some have suggested. Longer-term budget strains give cause for concern, but the fact is, stocks and bonds will rise and fall several times before the nation has to confront its fundamental burdens of Social Security and Medicare. In the interim, federal financial demands clearly are manageable.

Just so we are being somewhat accurate about the sky is falling and all that jazz. the deficit is not a good thing, by a long shot - but it has been worse and we've made it through - so let's keep that in mind.