Policy debates in Washington are moving ever further from reality as a small elite is moving to strip benefits that the vast majority need and support. The battle over raising the debt ceiling is playing a central role in this effort.
The United States is currently running extraordinarily large budget deficits. The size of the annual deficit peaked at 10 per cent of GDP in 2009, but it is still running at close to nine per cent of GDP in 2011. The reason for the large deficits is almost entirely the result of the downturn caused by the collapse of the housing bubble. This can be easily seen by looking at the projections for these years from the beginning of 2008, before government agencies recognised the housing bubble and understood the impact that its collapse would have on the economy.
At the beginning of 2008 the Congressional Budget Office (CBO), the country's most respected official forecasting agency, projected that the budget deficit in 2009 would be just 1.4 per cent of GDP. The reason that the deficit exploded from 1.4 per cent of GDP to 10.0 per cent had nothing to do with wild new spending programmes or excessive tax cuts. This enormous increase in the size of the deficit was entirely the result of the fallout from the housing bubble.
Remarkably, both Republicans in Congress and President Obama have sought to conceal this simple reality. The Republicans like to tell a story of out-of-control government spending. This is supposed to be a long-standing problem (in spite of the fact that Republicans have mostly controlled the government for the last two decades) that requires a major overhaul of the budget and the budgetary process. They are now pushing, as they have in the past, for a constitutional amendment requiring a balanced budget.
http://english.aljazeera.net/indepth/opinion/2011/07/20117277177305221.html
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