Despite Deficit, U.S. Still Able To Borrow
DEBORAH AMOS, host:
Closing tax loopholes might seem especially urgent these days, when the budget deficit is at an astronomical number. Some people are advocating even bigger deficits to help spread the economy.
To catch us up with this debate, we turn to our friend David Wessel. He's economics editor of the Wall Street Journal. Good morning.
Mr. DAVID WESSEL (Economics Editor, Wall Street Journal): Good morning.
AMOS: So, David, let's start with the dimension of the deficit: how big, how bad is it now?
Mr. WESSEL: Well, it's definitely big. We haven't seen anything like this since World War II. Last year, the government deficit was $1.4 trillion, and for the first eight months of the current fiscal year, it's $935 billion, though actually that's a bit below last year, thanks to an economy, which isn't good, but it's better.
In the U.S., at least, the government doesn't have any trouble borrowing money to fund this deficit, though. The Chinese, with a huge reserves, keeps sending big gobs of money here. And global investors who are frightened by what they see elsewhere are putting their money in dollars.
But some countries - Greece, Spain, Portugal - are beginning to run into trouble borrowing enough money to close this gap.
AMOS: David, there are people who worry about the fragile state of the economy, and they say the government needs to keep pumping money in. Unfortunately, they're not in the president's party, but do they have a case?
Mr. WESSEL: They do have a case. President Obama over the weekend was pleading with Congress to make the deficit $50 billion to help state and local governments and avoid teacher layoffs at a time of great economic pain in the state and local sector. His economic advisors argue that with unemployment at 9.7 percent, likely to remain high for a couple of years, it's kind of Hoover-like folly to get cold feet now.
Tim Geithner, the Treasury secretary, has been making the same case to the Europeans. But, as you say, even some Democrats in Congress are getting a little reticent. Steny Hoyer, the majority leader, talked over the weekend of spending fatigue. And Republicans accused the president, really, of hypocrisy, of talking about fiscal discipline and then practicing something different. They think that if the president wants to take care of the unemployed or state and local governments, he should offset that with tax increases or spending kept somewhere else.
Of course, there's a strong case for putting in place a plan now, that would reduce the deficit in the future when the economy's stronger, but there's very little political consensus on how to do that and zero political mentum(ph) to actually doing it.
AMOS: And the deficit itself is becoming a big issue. Why at this moment, are people talking so much about it?
Mr. WESSEL: Well, you're right. Out in the campaign trail, during the primaries and stuff, you see a great deal of antipathy towards big government, skepticism that all this fiscal stimulus actually did any good, fear of future tax increases, and it's clearly becoming a more salient political issue. That's why Congress is reluctant to spend the money on unemployment benefits and state and local government aid.
One thing that's interesting though is if you take the EKG of the economy, you would look to see what's happening in the bond market. Are investors worried about the U.S. government deficit and are they then charging more for borrowing? And the answer is: in the U.S., not. The 10-year bond rate is 3.2 percent. It's gone up in Spain and Portugal; but in the U.S., the government is still able to borrow with no sign of constraint.
AMOS: And quickly, stay on the international front, which is, a lot of countries were doing this kind of spending. Everybody thought it was a good idea - has that consensus disappeared?
Mr. WESSEL: It seems to have dissipated. In April, the finance ministers from the Group of 20 were talking about maintaining government spending until the recovery arrives. When they met in June, it was just the opposite. They were saying countries need to accelerate deficit reduction.
AMOS: Thank you very much. David Wessel, economics editor of the Wall Street Journal.
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