For once, US President Barack Obama could not hide the ugly reality behind his usual beguiling web of eloquent words.
The US President gamely tried to sound like a deficit hawk when he presented his administration’s budget for 2010, but the sheer size of the proposed deficit ensured that the spin could not carry the day. The US is expected to have a budget deficit of $1.56 trillion, a record. This deficit is to be funded through borrowings that will take the US’ public debt to 62% of its gross domestic product.
The immediate worries are several. The yawning gap in US public finances shows that all is not yet well with the world economy. The financial crisis may be over, but the risk has moved to government balance sheets. Private risk has morphed into sovereign risk. This will affect bond and currency values.
There are long-term worries as well. The US will either have to later raise taxes to bridge the deficit or erode its debt burden through inflation. Both will unsettle the world. Some say these are signs of an overstretched imperium.