THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Friday, October 28, 1994 TAG: 9410280035
SECTION: FRONT PAGE: A18 EDITION: FINAL
TYPE: Editorial
LENGTH: Medium: 59 lines
Just before President Clinton left for the Middle East, he told an audience in Cleveland that the federal budget deficit for the fiscal year just ended was $203 billion, the lowest, he said in five years. ``The bottom line is getting stronger every day,'' he said.
The deficit is indeed down, and it is interesting to note that the president's frame of reference is fiscal year 1989, the last budget prepared by then-Budget Director and former Virginia Senate candidate James Miller for the supposedly profligate Reagan administration. The reasons behind this dip in the deficit, however, and whether it is likely to continue, are worth exploring.
The whole rationale for the president's focus on the deficit in his first year in office was that it would bring down interest rates and spur the economy. But whatever the deficit numbers show, other sets of numbers - those coming from the financial markets - are not encouraging.
Interest rates have not come down since President Clinton took office; they have gone up, and sharply. And just as the president left for Israel, the yield on long-term Treasury bonds hit 8 percent. Gold is hovering around $390 an ounce. All these are clearly warning signs of inflation. The stock market has reacted accordingly, trending generally downward this week, in spite of the president's ``good news'' about the economy.
Part of the reason the deficit is down is that the federal government is now selling assets it was forced to acquire during the worst of the savings-and-loan bailout a few years ago. Another reason is that defense spending has been heavily slashed. (President Clinton moved up cuts that President Bush had proposed for future years.) Nor is the trend headed downward. According to the Office of Management and Budget, even with no changes in spending or tax revenues, the deficit is projected to head back upward in the next few years.
Another reason for the improved deficit picture is simple timing. President Clinton took office on the upswing, however anemic, of a business cycle. This increased economic activity has brought in more revenue than was projected. Lower-than-expected interest rates early in the president's term also lowered federal interest payments on the national debt. And the increases in income-tax rates (with the revenue increased because of making the new rates retroactive), gasoline taxes and federal user fees all make the deficit look smaller.
But that is not because of any real effort at spending restraint on the part of the administration. The budgetary caps on domestic spending were one of the few positive parts of the 1990 budget deal, not something the current administration can claim credit for. New Mexico Republican Sen. Pete Domenici - no friend of Reaganomics - said the other day that ``the vast majority of the deficit reduction that's taken place since 1992 has nothing to do with (the Clinton administration's) actions.'' Claims to the contrary, to coin a phrase, are just voodoo economics. by CNB