Budget Deficits and How to Essay

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With a declining economic output, we can not financially export our way out of a government budget deficit situation. Since the oil crunch of the mid-1970s, energy costs have increasingly been a part of this equation. Trade deficits are linked to budget deficits in this way. This is best presented in a May 12, 2010 article, Donna Kardos Yesalovich documented that U.S. stock futures pared earlier gains after data showed that the U.S. trade deficit widened in March of 2010 to its highest level since December 2008 (Yesalavich).

To make matters even worse, the European economic downturn is complicating things just as the U.S. downturn has sent the world economy into an extended deep recession (or depression, before this word became unpopular). Mark Whitehouse in another Wall Street Journal article documented that markets tumbled despite upbeat reports about U.S. shoppers and factories due to the high debt portfolio of European countries and the upward pressure on interest rates specifically at a time when this borrowing capital was needed most (Whitehouse).

The high budget deficits in the United States and Europe will continue to eat into money that could potentially be available for investment. Bailouts for banks with bad investments continue to make this worse (Chan). What is necessary is to reinstitute consumer savings and help the banking system to recover. A lot of the problem is due to the toxic debt that was brought on by the dismantling of the regime that grew out of the Great Depression, namely the scuttling of the Glass-Steagall Act of 1933 that separated most speculative investing from normal banking and consumer lending.

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In a recent Bloomberg article, one of the primary architects of the laws 1999 repeal, former Merill- Lynch CEO Walter Komansky, says he now regrets the law's repeal (Erlichman and Mildenberg).

In conclusion, the answer to the problem of the high budget deficits is as close and as far as a U.S. History textbook. For the economy to recover, small time investor's need to have the twenty-first century equivalent of a fireside chat to revive faith in the nation's banks and to encourage the savings necessary to both invest in Wall Street and in U.S. government bonds.

It may be too little and too late. Barak Obama is certainly no Franklin Delano Roosevelt. He only started advocating reviving the old Glass-Steagall regime early this year (Treanor). However, this is certainly the best news the U.S. economy has had in a long time. Hopefully, the Obama administration will have the stamina to see the policy through. Only by reviving the act will the economy return to a regime of responsible savings and investment.

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