How bad is the U.S. budget deficit?
TEXT OF INTERVIEW
Steve Chiotakis: In the coming days we’re gonna hear a lot about the U.S. budget deficit now that fiscal ’09 has turned into fiscal 2010. But there’ll be a few figures being thrown around. And, oh how the politics behind the deficit have changed. Fortune Magazine’s Allan Sloan is with us this morning to talk about it. Good morning Allan.
Allan Sloan: Good morning Steve.
Chiotakis: So how do they come up with these numbers?
Sloan: Well, there are actually two sets of numbers.
Chiotakis: OK.
Sloan: The first set is the number almost everybody uses — $1.6 trillion, which will be the official deficit number. And then there’s the number I use and a few other agent cranks who care about things. And our number is roughly $2 trillion.
Chiotakis: All right, now that’s a big difference between those two numbers. That’s $400 billion difference.
Sloan: God you’re quick. Yes. And the difference is about $200 billion of the Social Security surplus, which consists of the government borrowing money from Social Security taxpayers reduces the deficit, but not to me. And then there’s about another $200 billion of interest the government pays that — for reasons I don’t want to go into — don’t really count in the deficit.
Chiotakis: I can remember a time, Allan, when we were talking about budget deficits we were talking $200, $300, $400 billion. I mean there was none of those $1-point-some-odd trillion dollars. I mean are were in uncharted territory and is this really bad?
Sloan: Well, I think it’s really bad. What you’re going to start hearing is two sets of things. One of which is going to be: well, as a percentage of the economy, this number is only about half the deficit we had during World War II, so they really don’t matter. That’s going to be one set. And the other set is going to say: The end of the world is at hand.
Chiotakis: We know what kind of problems go with deficits and high debt. What kind of issues are we likely to confront first with all this though?
Sloan: Well if this doesn’t stop — and I don’t think it will — we’re going to discover that the rest of the world is going to want higher interest rates to lend money to the United States than it now is demanding. And a lot of this money that we’re paying in interest basically leaves the country as opposed to, say, World War II — where the deficits as a percent of the economy were much bigger, but we financed them pretty much inside the country so the interest payments that the government was making stayed inside the country and the money was recycled. And now it’s going to leave. And that is not a good thing.
Chiotakis: Fortune Magazine’s Allan Sloan joining us this morning. Allan, thanks.
Sloan: You’re welcome Steve.
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