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Federal budget update

Here's my belated update of the federal budget charts for February, with data that were released yesterday. (Skiing has been fabulous, and extracurricular activities have taken their toll on blogging. We've skiied Breckinridge, Copper Mountain, and Keystone, and Keystone gets our vote for one of the best places we've ever been to.)

The bad news is that the deficit for the 12 months ended February was $1.5 trillion, just over 10% of GDP. There's a study going around that says that deficits become a significant drag on growth once they reach 10% of GDP or so, and that makes sense to me. When the federal government borrows that much, it that effectively soaks up a lot of the economy's savings, which could otherwise have been put to more productive use.

The good news (tough to find, but I don't want to be a partisan hack) is that revenues in February were much higher than they were a year ago, high enough to make the 12-month rolling sum of revenues turn rise relative to the January number. Given the typical pattern following recession ends, we might have seen the low in federal revenues, or something very close to the low. That would help mitigate the size of the deficit, but it is still projected to be huge for many years unless there is a significant change in the direction of policymaking in Washington. If the level of spending relative to GDP starts to decline, that would be real cause for cheer.

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