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JEREMY HOBSON: Now let’s get to the budget debate that’s going on in Washington. The official unveiling of the President’s 2012 budget plan is just about a half an hour away. But the details are already leaking out. They include tax increases and spending cuts that add up to more than a trillion dollars over the next ten years. But Washington still ends up spending far more than it takes in. And republicans say this is too little in terms of cuts.
Let’s get analysis now from Julia Coronado, she’s chief economist at the investment bank BNP Paribas. She’s with us live. Good morning.
JULIA CORONADO: Good morning.
HOBSON: Well, first of all Julia, let’s just get your reaction to this budget proposal from the White House.
CORONADO: Well, there’s a lot of talk about deficit reduction, but there’s not a lot of meat on those bones. I mean to put it in perspective, the proposed budget is $3.7 trillion. And that’s up from $2.7 trillion as recently as 2006. So, you know it’s not clear that the government really needs to still be spending as much as it is at this stage of our recovery. And I think another very good indication the deficit reduction isn’t a top priority is that there’s no discussion of entitlement reform and really the growth in spending and social security and medicare is going to be the dominant driver over the next few years.
HOBSON: Given that there’s no discussion of entitlement reform — how are the bond markets reacting? That seems to be a good non-partisan way of gauging how serious this budget proposal is.
CORONADO: Right, and I think what they’re telling us is, again, there’s not a lot here. Keep in mind that interest rates have risen quite a lot over the last few months, partly that’s because of a stronger economy which means stronger growth and inflation and higher rates. But part of it is also an increasing skepticism about how quickly the government will bring down the deficit and so investors want a higher premium to lend money to the Federal government. And right now we’re not seeing any reaction so really, they’re not seeing any change in the expected outcome as a result of the proposed budget.
HOBSON: Alright. Julia Coronado, chief economist with the investment bank BNP Paribas, thanks so much as always.
CORONADO: My pleasure.
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