Deficit spending

As you may be aware, Greece recently caused a stir in the European Union because of its budget deficit. Just like people, if you have to  borrow money just to pay your monthly bills, at some point you get hit with a double whammy: You can't borrow any more, and you have to cut into existing funds to repay what you owe, leaving you much worse off than before. Greece had to implement an 'austerity' plan, which triggered riots.

Of course, how much is "too much" is an open question, but % of GDP (gross domestic product) is a useful way to compare countries.  So how bad was Greece's deficit? Here are some figures from The Telegraph:

	2009 d eficit as % of GDP
Greece	12.7%
Britain	12.6%
United States	11.2%

So it's probably no surprise, then, that the new UK government issued a new budget today intending to significantly cut the deficit.  The VAT (sales tax) was increased from 17.5% to 20%, welfare payments will be slashed by 25% over the next five years, and the retirement age in the UK has been raised to 66 (although most people expect it to be raised to 67 eventually). If they stay on track, they say that will bring the deficit down to 7.8% next year, and 1.1% in five years.

But note that's the deficit, not the debt. A deficit of 1.1% means you still have to borrow £16 billion every year just to pay your bills, and you're adding to your debt, not paying it down.  A responsible budget would plan for a budget surplus, not a chronic deficit.  Great Britain has a national debt of just over US $1 trillion (the US is just over $8 trillion), which is 68% of its GDP.  The European Union dictates all member countries should have a deficit below 3%, and debt less than 60% of GDP.

In addition, that 12.6% deficit this year was caused by the government bail out of the financial sector.  In 2005, before the mess, the deficit was 3.5%.  If we can assume the worst is behind us, then why is the deficit target 7.8%?

Again, I don't have the answers, but I think these are important questions, and no one's talking about it. Instead, all I hear are public service employees threatening strikes because of the budget cuts.  It could be Greece all over again.

P.S. Obama indicated the US debt will grow to $17 trillion over the next ten years.  However, if you think Obama is bad for the deficit, you should see what the Republicans have done.