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Václav Klaus and the US deficit

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Václav Klaus has developed a tradition of sharing his impressions of his travels to the United States. His last visit, which just came to an end, was no exception. And so in his third dispatch, the president writes about the record-high deficit planned by President Obama:

“Some facts are indisputable – the planned budget for one single year (!) will double the existing US state debt (!!). In other words, we could say that the debt created by the Obama administration in one year will equal the debt created by all American presidents up until now, from George Washington to George W. Bush.”

Yes, budget deficits and the increasing debt of what still remains the most powerful country in the world are not pleasant. I estimated Bush’s deficit for 2009 (in the US, the fiscal year starts 1 October) to be “more than a trillion dollars”. Soon it became apparent that this estimate was far too optimistic. That’s part of the reason why Obama’s budget deficit is higher than Bush’s by USD 1.7 trillion. Compared to the Maastricht 3%, it is staggeringly high at 12% of the GDP. The budget deficit, moreover, makes up 80% of the predicted income.

But back to Václav Klaus’s text. As of 4 March, the total US debt reached USD 10,942,165,294,650.89. Evidently, then, it cannot be true as Klaus writes that Obama’s deficit of USD 1.7 trillion for a single year could “double the existing American state debt”. If only because 1.7 trillion is still significantly less than 11 trillion. Even though it’s 6.5 times less – not 10 times less – it’s a mistake one shouldn’t make in a serious debate.

It is necessary to sound the alarm and hope that terrible deficits will finally lead much-needed changes. But the basic facts should be verified.

So it’s not true that Obama succeeded in doubling the US federal debt in one year. But Ronald Reagan did manage to do it in eight years. He increased it from USD 2.1 trillion to USD 4.6 trillion. He created more debt for the United States than all the previous presidents combined over a span of two centuries.

Clinton, who took over the presidency from Bush senior with a debt of USD 6.1 trillion began, for the first time in 18 years – to start lowering and paying off the debt. He handed over a USD 5.7 trillion debt to Bush junior, who then nearly doubled by 20 January 2008. When he left the White House, the US debt was USD 10.7 billion.

The debt that Reagan inherited from his predecessor, the Democrat Jimmy Carter, was about 33% of the GDP. The Republicans Reagan and Bush senior increased it to 63% of the GDP. Clinton, a Democrat, reduced it to 55% of the GDP and the Republican Bush junior increased it again to 75% of the GDP. And it should be noted that thanks to Alan Greenspan’s unprecedented monetary and credit expansion the GDP growth from 2000 to 2007 was over-valued. So the existing debt is really more like 80% of the GDP if we counteract for the growth bubble.

These are the basic “indisputable facts”, as Mr President Klaus calls them in his latest dispatches from his trip to the United States.

The author is a translator and the founder of the American Czech & Slovak Association (now called American Friends of the Czech Republic).

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