Fed Governor Gramlich just gave an interesting and informative speech on the Federal Budget Deficit. He points out the difficulty in forecasting it, the fact that it is based on cash basis accounting which brings its own problems (example future social security problems!), and even suggests ways to improve the budgeting process. My take is that budget deficits are not in and of themselves bad, but the resulting debt does raise interest rates and if not controlled can cause an economic slowdown. Moreover, governments are notoriously bad at picking positive NPV projects, so smaller is better! [FinanceProfessor.com Annotation]
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