U.S. Deficit at an All-Time High


At the beginning of a new year and new decade, there is always an analysis of the financial situation in a given country.  In 2009 in the United States, not only was a new president elected, but he inherited the largest dollar-for-dollar deficit in the country’s history.  At the end of the U.S. government’s fiscal year in September, the country’s deficit totaled an all-time-high of $1.8 trillion.

A budget deficit occurs when a group, organization, or government spends more money than it takes in.  To understand government deficit compared to the size of the economy at the time, deficit is often expressed as a percent of gross domestic product, or GDP.

America experienced deficit since the beginning of the formation of its government.  In 1778, the first Treasury Secretary, Alexander Hamilton stabilized the dollar and refunded debts incurred during the Revolutionary War.  At this time, the federal debt stood at thirty-five percent of GDP, this deficit had been paid just in the time for the Civil War, when federal debt increased back up to thirty three percent.  Even then, Civil War debt was paid off by the turn of the 20th century.

In the past, the United States national deficit only increased to pay for wars.  After WWI, the federal debt stood at thirty-five percent of GDP, but following the Great Depression had increased to forty five percent of GDP.  At the end of WWII in 1946, government deficit was at 121.2%.

The federal deficit of current times has been called “dangerous and unprecedented,” but in reality, a war is needed to get a really big deficit, and a war does not create an unmanageable deficit.  Although peak deficits occurred during WWI and WWII, the percentages maxed out at sixteen percent in 1919 and twenty four percent in 1945.

The monetary situation of the United States has deteriorated significantly since 2001, when the Congressional Budget Office, or CBO, forecasted average deficits of approximately $1.215 billion for the years 2009-2012.

The New York Times analyzed the current $2 trillion deficit and broke it down into percentages: thirty-seven percent is blamed on recessions or the business cycle, thirty three percent from policies enacted by President Bush, twenty percent from policies enacted by Bush and extended by Obama, and ten percent from new policies from Obama.

The $1.8 trillion deficit of 2009 amounted to thirteen percent of the GDP.  The United States Federal Budget for Fiscal Year 2010, titled “A New Era of Responsibility: Renewing America’s Promise,” is the spending request by President Barack Obama.  This budget would fund government operations from October 2009 to September 2010.

This new 2010 Budget proposed by President Barack Obama projects significant deficit increases: the projection estimates that the U.S. deficit will rise to $20 trillion by 2015.


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