The Real Risks of Deficits

Deficits are back--with a vengeance. America's government budget deficit now stands at $455 billion, 4.1% of GDP. Two years ago, the US predicted budget surpluses as far as the eye could see.

Although marginally less bloated than the US deficit, other rich countries are drowning in red ink. The European Commission predicts that the French government deficit will reach 3.7% of GDP this year, with Germany's widening to 3.4%--both figures well beyond the deficit cap (3% of GDP) set by the Euro-zone's Stability and Growth Pact.

By running a deficit, a country increases its national debt and imposes burdens on future generations. Politicians naturally prefer to hide how wealth is shifted between generations. Their priority is paying for immediate problems, and for today's promised benefits.

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