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The article below is from yesterday's
Globe&Mail. It should also be noted that the US trade deficit stood at a record $726bn in 2005 5.8 per
cent of gross domestic product, with China having huge dollar holdings but
promising not to dump them - at least not for the time being. On top
of that, we have learned the the US VP is not a straight shooter, though
we should have known. Geez, how much trouble can a bloated elephant
get into?
Ed
The leaden weight of the U.S. deficitsIt was a little more than a decade ago that The Wall Street Journal published a famous editorial on Canada's troubled finances, suggesting we were on our way to becoming a Third World basket case. It may be time to return the favour. Back then, Ottawa was still racking up multi-billion-dollar deficits while Washington, under president Bill Clinton, was seeing its coffers fill with cash. Today the roles are reversed. Canada consistently posts big budget surpluses, the United States huge deficits. But Canadians should suppress any schadenfreude. Washington's budget troubles are bad news for Canada, and for the world. Combined with the growing U.S. current account deficit, the budget deficit could trigger global economic instability. Economists even warn of a crash in the U.S. dollar as debt holders lose faith in Washington's ability to finance its dual deficits. David Dodge, Governor of the Bank of Canada, is on a minor international crusade on the issue, warning that distortions in the global economy caused by (among other things) the U.S. deficits could sideswipe Canada. Unfortunately, U.S. President George W. Bush doesn't seem to be listening. Last week he unveiled a $2.77-trillion budget for 2007 and admitted that the deficit would rise $100-billion to a record $423-billion this year. Not quite a Third World basket case yet, but scary all the same, especially for those of us who share a bed with the bloated elephant next door. What's most worrying is that Mr. Bush and his team have no plausible plan for getting out of the mess. When The Wall Street Journal took its shot at wastrel Ottawa a decade ago, Canadian leaders had acknowledged the problem and were beginning to take it on. Paul Martin, then finance minister, was beginning his famous assault on the deficit. Washington, to its sorrow, has no Paul Martin. Instead, it has Mr. Bush, who seems to think he can raise spending, cut taxes and cut the deficit all at the same time. Spending has risen an average of 7 per cent a year since he took office in 2001, double the pace of the five previous years and almost three times the rate of inflation. Defence spending alone has risen 76 per cent since 2001, to $535.9-billion. Health care and Medicare spending has risen 57 per cent, and Social Security and other retirement and income-support spending 30 per cent. As a result, the U.S. federal debt has grown to $5-trillion from $3.3-trillion. Mr. Bush's defenders (and there are fewer and fewer) argue that it isn't his fault. Defence and homeland security spending had to rise after 9/11. Medicare, Social Security and other entitlements are mandatory programs, whose costs increase automatically as the population ages. True in both cases, but the rise in spending is not the real problem. The real problem is Mr. Bush's stubborn insistence on cutting taxes at the same time government costs rise. The inevitable result: deficits as far as the eye can see. Mr. Bush was right to cut taxes in the early part of his mandate. It made the U.S. recession much shorter and shallower than it might have been. But to insist on making those cuts permanent, as he calls on Congress to do in his budget, is fiscal madness. The authoritative Economist magazine calls Mr. Bush's insistence on further tax cuts "an obsession." That is putting it mildly. It will cost the U.S. Treasury an estimated $1.7-trillion over the next decade. With that kind of hole in the bucket, Mr. Bush's promise to halve the deficit by 2009 looks like fantasy. To cover up his budget folly, his budget makes a big show of cutting unnecessary spending. He would, for instance, take steps to reduce the growth in the cost of Medicare, the federal health-care program for seniors. In all, he would cut mandatory spending by $65-billion over five years, a noble attempt to control the entitlements monster. He would also cut so-called discretionary spending, taking an axe to 141 programs that will affect everything from urban renewal to community policing. Regrettably, it won't make much difference. That kind of spending amounts to just one-sixth of the federal budget. Mr. Bush's cuts won't come close to filling the hole he has dug for himself with his huge tax cuts. But there are no Wall Street Journal editorials about that. The Journal supports the tax cuts. |
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