The US Is About to Discover if Deficits Don’t Matter
Republicans have embraced former Vice President Dick Cheney’s 2002 dictum that deficits don’t matter.
US investors may be about to disagree.
If passed by the Senate, last week’s vast House budget bill would add between $3 trillion and $5 trillion to deficits over the next 10 years.
Cheney’s comment was provocative and meant to be: It drew attention and was argued over.
Not any longer. Nobody in Congress or the White House thinks it necessary to insist that deficits don’t matter. They’ve simply stopped caring.
Perhaps the public debt is now so big, and on such a fast-rising trajectory, that bringing it back under control seems impossibly difficult. A politician might therefore ask, why worry about it?
For a time after the crash of 2008, and again during the pandemic, the real interest rate was not just less than the growth rate but actually negative.
Under such conditions, budget deficits and a falling ratio of debt to GDP can go hand in hand.
Unfortunately, the real interest rate is now back above 2%, which outstrips most estimates of future growth.
Clive Crook Bloomberg 27 May 2025
US Budget deficit
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