On the economic front, there is reasonably good news starting to trickle in. The U.S. budget deficit narrowed in August, which was rather unexpected in the current climate. The news is providing hope that the U.S. government might getting its spending under control. The fiscal year is about to end (October 1 marks the 2009-2010 fiscal year for the government), and there are hopes that things will start to even out a bit. The Bush Administration’s $700 billion bank bailout and the Obama Administration’s $787 billion economic stimulus bill both fell within the current fiscal year, boosting deficits, and will be finishing their moves through the system soon.
However, whether or not the U.S. budget deficit truly gets under control depends in large part on items that haven’t been factored into current estimates for the upcoming fiscal year. BloggingStocks looks at issues that might affect the deficit for the 2009 – 2010 fiscal year:
Also, Investors should also keep in mind that both the Obama
administration’s and CBO’s deficit forecasts for this and next year
assume zero budget impact from health care reform legislation.
President Obama has said he will not sign health care reform
legislation that increases the deficit, end of discussion.
Further, the deficit forecasts also assume no tax increases.
Institutional investors are probably discounting at least a minor
income tax increase next year, which is probably why the bond market
has remained calm despite a record amount of debt issuance.
The expiration of the Bush tax cuts (if they are allowed to expire) will provide additional revenue as the richest Americans see a tax increase. And, if Congress really can put together a health care reform package that leads to no deficit increase, things should look good — provided that unemployment does not breach 11%.
While the economy is not out of the woods yet, it certainly appears that it is stumbling in that direction.