White House lowers deficit estimate as Buffett issues warning
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It could be just sheer coincidence, but Obama administration officials on Wednesday were busy leaking some relatively encouraging news about the federal budget deficit to wire service reporters -- on the same day that Warren E. Buffett warned of a dollar meltdown if the U.S. debt load keeps ballooning.
Bloomberg News, Reuters and the Associated Press all published stories quoting an unnamed government official saying that the deficit this fiscal year (ending Sept. 30) would be $1.58 trillion, down from the $1.84 trillion the administration projected in spring.
That’s a decline of $262 billion. Feeling better yet?
From Bloomberg:
The White House’s biannual budget review set for release next week will show the projected shortfall lessened primarily because the administration scrapped contingency plans to provide hundreds of billions of dollars in additional aid to the financial industry, said the official. The reduced deficit is also attributable to fewer bank failures than the administration anticipated, which meant spending by the Federal Deposit Insurance Corp. will be $78 billion less than forecast, said the official, who requested anonymity because the figures haven’t been publicly released.
Now, as for Buffett: In an op-ed piece in the New York Times, he first applauded the massive spending by the administration and the Federal Reserve on rescue programs for the economy and the financial system. But the billionaire warned that ‘once recovery is gained’ the government must show a commitment to slowing the debt buildup or risk the U.S. losing ‘its reputation for financial integrity.’
‘With government expenditures now running 185% of receipts, truly major changes in both taxes and outlays will be required,’ Buffett wrote. ‘A revived economy can’t come close to bridging that sort of gap.’
The administration and the Fed both have pledged to restrain their spending/lending as the economy improves.
But the other way out, Buffett noted, would be for the U.S. to allow a surge in inflation, which would automatically make heavy debts less onerous -- but also would most likely trash the dollar’s value.
Buffett quoted John Maynard Keynes: ‘By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. . . .The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.’
As usual, Buffett also dug up a folksy quote to better make his point: ‘It was a wise man who said, ‘All I want to know is where I’m going to die so I’ll never go there.’ We don’t want our country to evolve into the banana-republic economy described by Keynes.’
-- Tom Petruno