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Huge deficit seen. Does it matter now?

Marketplace Staff Jan 23, 2008
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Huge deficit seen. Does it matter now?

Marketplace Staff Jan 23, 2008
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KAI RYSSDAL: As I mentioned, there was a big afternoon rally on Wall Street. Credit the good offices of the New York state insurance commissioner. The quick and dirty backstory goes something like this. There’ve been worries the companies that insure the bond investments made by big Wall Street banks might themselves go belly up. No insurance means no way to make good on those investments if push comes to shove. Word out of New York today is that nobody’s going to let that happen. Down in Washington the Congressional Budget Office announced the deficit for fiscal 2008 is going to hit almost $220 billion. That doesn’t count war spending or an economic stimulus package.

Danielle Karson reports.


DANIELLE KARSON: The deficit seems like an afterthought in the face of the negotiations over a stimulus plan to pump at least $140 billion into consumer and business spending, but John Irons, with the Economic Policy Institute, says that’s okay.

JOHN IRONS: In order to get the stimulus to work effectively, it’s going to have to increase the deficit.

Irons says the current deficit isn’t going to break the bank.

IRONS: The most important thing is to try to goose the economy a little bit, so the stimulus proposal in the neighborhood of 1 percent of GDP, seems like a necessary addition to the deficit at this point.

In fact, Doug Elmendorf, with the Brookings Institution, says shrinking the shortfall now would be counterproductive.

DOUG ELMENDORF: Right now we should not worry about the long-run budget problems, to prevent us from taking the right sort of fiscal stimulus. After we get through this problem, then we should return to the long-run problem.

Analysts say the key is to make the stimulus measures temporary, because anything long-term would worsen the budget outlook.

In Washington, I’m Danielle Karson for Marketplace

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