Deficits In U.K. and U.S. Growing

Last Updated Sep 17, 2009 5:50 AM EDT

Both the United States Government of Barrack Obama and the English one of Gordon Brown have been forced to admit that the deficit projections they are dealing with are much higher then previously announced. At least in the U.S. the government was up front about it. In England it took the leak of a budget document to show that the deficits over the next several years will be higher then previously admitted.

The Office of Management and Budget (OMB) at the end of August said that the initial estimate for the next ten years based on Obama's budgets was about two trillion lower then it is now. Assuming the spending and economic growth built into the budget it will now be just over $9 trillion. That amount pushes it over the five percent of Gross Domestic Product (GDP); a figure considered unhealthy by many economists. In fact it might be higher as the Administration assumes fairly robust growth in the economy in the out years and that may not happen as the country and world recover slowly from the current recession.

In England the opposition Conservatives leaked a budget planning document that shows by 2014 one-third of the budget will be going to debt service and welfare spending. While there are some select cuts total spending and borrowing will increase. The more the borrowing increases the debt servicing will also increase eating up more of the budget. The budget also assumes a four percent cut in spending in general which will be hard to achieve as there will be great demand on the government. England also faces a choice on whether to actually spend more on their military as it becomes heavily involved in Afghanistan.

Both England and America have increased spending greatly in the short term. They have done this to deal with the economic downturn by spending more on social services and stimulus plans. They both now face long term debt increases to deal with this. The two nations cannot continue this path of expanded spending and borrowing because eventually there will be few customers to buy their bonds and notes. That means that spending must be reigned in, reduced and restructured.

In 2009 it is easy to say that in five years we will make cuts to spending. It is always hard to do so in practice. The U.S. has seen huge growth in spending over the last forty years and there have not been a major decline since the end of World War II when war borrowing and spending stopped. The percentage of GDP that the government budget will continue to increase. In England and the U.S. the debt service will also become a larger part of the budget and GDP.

Even if the all operations were to cease in Iraq and Afghanistan and the troops returned to their bases with defense spending minimized that would only save $160 - 200 billion a year. Over five years that would be a trillion dollars; or about ten percent of the projected debt. That would certainly aid the budget but would not be a panacea. Some harsh decisions will have to be made about what the government can buy and pay for. These are probably decisions that the executive and legislative branches are not willing to make.

  • Matthew Potter

    Matthew Potter is a resident of Huntsville, Ala., where he works supporting U.S. Army aviation programs. After serving in the U.S. Navy, he began work as a defense contractor in Washington D.C. specializing in program management and budget development and execution. In the last 15 years Matthew has worked for several companies, large and small, involved in all aspects of government contracting and procurement. He holds two degrees in history as well as studying at the Defense Acquisition University. He has written for Seeking Alpha and at his own website, DefenseProcurementNews.com.