In the world of finance, there are deficit for everyone

The Centre for American Progress is a think tank – close to the Obama government. Recently it published a spicy essay noting the differences between deficit hawks and those who are “deficit peacocks”. The latter are those who strut about pretending that the problems can be resolved with tricks like putting a short term freeze on some chosen items not related to defense.

Soon afterwards Obama suggested such a short term spending on discretionary spending. To validate this he talked in the language akin to the one used by the House minority leader John Boehner in 2009.

Boehner had said, “American families are tightening their belt, but they don’t see government tightening its belt. Families across the country are tightening their belts and making tough decisions. The federal government should do the same.”

This confuses the ordinary American. What is happening? The advisors surrounding Obama think that they can win brownie points in the political arena by demonstrating the strut of the deficit peacock. But in the long run more harm than good seems to have been done. It only indicates to what extent the country and its leaders are failing to grasp and come to grips with the economic and monetary problems.

It is not difficult to lay out the facts about the nature of the economic problems. America is wobbling following the most acute financial catastrophe in decades. The only factor that is preventing the country going back in reverse gear is deficit spending. Immediately more of this is required because millions of people are plagued by rising unemployment. The government simply has to do something to bring down the unemployment figures.

But from a long term view it is obvious that the government has to pay for what it is doing. The budget outlook was bleak even prior to the recent spike in deficits – largely because of the stiff increase in health care costs. The target ahead is to manage modest but not bigger deficits.

The problem is how to amalgam these short-term urgent requirements with long-term responsibilities? Theoretically the answer is not difficult. In needs two to tango – actions that will produce quick results should be partnering with actions that will leave a lasting impression and bring down deficits in the future.

The officials dealing with the economy in the Obama administration understand this. They know it would require a combination of fiscal stimulus as a crutch for the economy to get back on its feet now combined with health care reform for budgets of the future.

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