U.S. Budget Deficit Could Suffer ‘Noticeable Deterioration’
Today, Congressional Budget Office Director Peter Orszag told the House Budget Committee that subprime mortgage woes and other factors have combined to create an “elevated risk of a recession,” according to MarketWatch. However, Orszag emphasized that the most likely scenario was “low economic growth,” pointing to the general consensus of analysts.
His testimony was notable in that he pointed out that a recession or extended stretch of sluggish growth could cause a “noticeable deterioration” in the U.S. budget deficit. A budget deficit occurs when the U.S. government spends more money than it takes in. Orszag pointed out that the U.S. deficit has increased by around 1% to 3% of gross domestic product during recessions since 1968, or $140 billion to $420 billion in today’s economy. For fiscal year 2007 (which ended September 30), the deficit stood at $162.8 billion, according to U.S. Treasury data.
Source: White House
On December 3, Bloomberg said a growing number of strategists are saying the stage is being set for a U.S. dollar rally in 2008. They have been pinning their hopes on the simultaneous narrowing of the U.S. budget and trade deficits for the first time since 1995. Stephen Jen, the London-based head of currency research at Morgan Stanley, told Bloomberg, “I am confident that the dollar will have a significant rally next year, especially against the euro and the pound… The deficits are shrinking fast.”
For how much longer?
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