Thursday, August 17, 2006

The State Of Our Financial Union

Historical cycles are funny things. They can help act as warnings as well as predict future events to a lesser degree. Lately, the 1920s and the late 1970s through the 80s have been coming to my mind a lot. The report today from the Congressional Budget Office gave me pause to reflect upon those two periods once again.

The CBO said it expects slower economic growth next year, with gross domestic product rising by a projected 3 percent in 2007, compared with 3.5 percent this year. This latest economic forecast was part of an updated budget outlook. The report shows CBO expects slightly slower growth next year than it had projected in March, when it saw the economy growing by 3.4 percent in 2007, taking out the effect of inflation.

The CBO also predicted that the U.S. budget deficit would rise to $286 billion in fiscal 2007, up from this year's $260 billion projected deficit. The CBO's fiscal 2007 deficit projection was higher than the $265 billion it projected in March. CBO's projections for inflation, minus volatile energy and food prices, are higher than its March report. The CBO said it expects core consumer prices to rise by 2.6 percent in 2006 and 2.5 percent in 2007.

Consumer prices including energy and food are projected to rise by 3.5 percent in 2006 and 2.5 percent in 2007. CBO also said the general fiscal outlook remained unchanged for the coming decade. This is not necessarily good news for Republicans this fall, especially with the president hoping for an opportunity to present his case on tax cut permanency, while other Republican candidates attempt to forgot their voting support for the president. This is also not really good news for Democrats who have yet to come up with solid opposition policies that are substantial in substance rather than Republican lite. The consumer prices will rise by 3.7 percent I predict if the price of crude oil rises and diplomacy fails with Iran. This is not wild speculation on my part, but real possibility. The other real possibility is that the amount of individual debt will increase by 2 percent. The American quality to spend money and our levels of personal debt are two large problems. Unfortunately world events and certain politicians have enlivened this quality. If we are not careful, history will repeat itself.

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