Out at the peak

Friday, February 10, 2006

Bush policy asking for trouble

From today's Daily Pfennig:
"When Bush talks about cutting the deficit in half, he's not talking about dollar amounts. Instead, the plan calls for a reduction in the deficit to half of the current percentage of the nation's GDP."

"That means the deficit doesn't actually have to decline for the president to declare he met his goal of cutting it in half. "To hit their target," says Wiggin, "the economy just has to grow by 3.3% a year for the next 4 years."

"Instead of truly solving the budget deficit, Washington is trying to mask it. They will focus on keeping the GDP up with tax cuts and other incentives instead of trying to control debt by keeping government spending under control."

This thinking is going to get us into big trouble depending how bad the housing market downturn is. A modest downturn (less volume, some reductions) could decrease the GDP by 5%. Then the deficit will look really, really bad. This could be a trigger for USD decline.


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