Obama’s Budget Illusions

The U.S. President gave up launching a reorganization of American public finances. It aims to reduce the deficit to 3 percent of the GDP… in 2018. The financial markets’ first warnings have not yet been issued.

Think again. Unlike the reduction of $1.1 trillion announced on Monday, President Obama’s budget does not provide an initial response to the abysmal deficit (almost 11 percent of the gross domestic product) of the United States.

The cut is spread over 10 years, with an annual budget of almost 4 trillion. The optimistic forecasts indicate the return of the deficit below 3 percent of the GDP by 2018, before a further increase occurs.

Does Barack Obama delude himself while Europe puts together plans of austerity and “competitiveness” to stabilize a forced march of public finances, though less healthy?

The first warnings, however, had been issued. The interest rate of Treasury bonds increased and a large ratings agency started its process to remove the AAA rating, the symbol of total strength, from the United States. Doing nothing therefore presents an increasing risk. For the moment, the American president refuses to come to a decision. It is not certain if Congress, which has the real power in budgetary matters, will make this work unpopular. Many experts do not see any veritable reorganization without touching health expenses and the pension of the poorest.

Finally, the unfailing support of the Federal Reserve to become the first holder of “T-Bonds” is delaying the time to decide. How long will it be able to continue running its printing presses?

On its merits, the United States continues to count on growth in order to get itself out of the mess. In this case it is operating blindly. However, it does possess an asset not to be overlooked — demographics. In 2020, the average age there will be 37-38, 10 years younger than that of Europe and Japan.