Trump "Boom" in One Picture

Deficits have only been at this level in or shortly after a recession. Unfortunately, this is the new normal.

Deficits Should Rise During Recessions, Not Booms

The Committee for a Responsible Federal Budget notes the Deficit Has Never Been This High When the Economy Was This Strong.

Rarely have deficits risen when the economy is booming. And never in modern U.S. history have deficits been so high outside of a war or recession (or their aftermath).

The federal budget deficit has only exceeded 4.6 percent eight times since 1950. Four of those years were during and immediately following the Great Recession of 2009, and the other four followed the 1981-82 recession (which was followed by large tax cuts and a defense buildup near the end of the Cold War). Most smaller spikes in the deficit also took place during or immediately after a war or recession.

Output Gap

Going Forward

Going forward, deficits are projected to rise even assuming the economy remains stable. Under current law, CBO projects deficits in 2028 will exceed 5 percent of GDP, and under a (perhaps more realistic) Alternative Fiscal Scenario that assumes Congress continues recently enacted policies, deficits will reach 7.1 percent of GDP in ten years.

The same pattern holds with employment rates – the deficit has typically moved in the same direction as the unemployment rate. Yet the current unemployment rate of 3.7 percent is the lowest since 1969, and the deficit is high and rising. All other recent periods of high deficits have been accompanied by high unemployment.

What's the Problem?

Apparently, there is none.

Trump brags about the stock market every chance he gets.

To support Trump's mind-blowing deficits, he needs lower interest rates.

Moreover, the Fed is willing to accommodate Trump.

Bubbles Be Goode

In case you missed my musical Fed tribute, please enjoy Bubbles B. Goode: Musical Tribute to the Fed.

Mike "Mish" Shedlock

Comments (45)
No. 1-14

200% tariffs can balance the budget. I like tariff taxes. If ever there were a tax legal to avoid the tariff is it. I don't buy imports and I don't pay the tax. Tariffs on German cars are coming. Tariffs on made in Viet Nam are coming. Chicago, Detroit, and East St. Louis have enough surplus labor to supply USA with textiles.


Not fair to Trump. He did not start deficits, he will not end them. Obama presided over a period of 0% federal funds rate. Bush II oversaw the greatest housing bubble in the human history. Trump took over at the tail end of a 'boom', Fed decided to hike, Trump had to do something, if it's not monetary intervention or consumer debt, then it must be tax cut/fiscal spending. The choices are limited. Not fair to him to expect him to lay over and wait till he gets kicked out of office because of an unfortunate coincidence of his presidency and an approaching bust in the business cycle.

In any event, why are we surprised by the federal deficit? In one of my previous posts I made the case that when the population can't earn money through work, because everything is made overseas and sold to them, then they must get money through debt or government spending/hand outs. It will take a bit of time, but neo-industrialization will take care of federal deficits.


What could possibly go wrong?!?! Everything is perfect! It is amazing gold isn’t soaring as the dollar gets continually debased.


A narrow output gap? Good lord, there's enormous numbers of Americans unemployed or underemployed, and large amounts of excess industrial capacity. Whomever came up with that statistical 'estimate' of the output gap being minimal is completely and utterly out to lunch. The real output gap is so wide that you could drive a bus or fly a 747 through it.


Mish, trump deserves shame for deficits but Congress deserves more. They have been happy for years to continue wasting money (both Republican and Democratic leadership). In general the entire Federal Government is to blame for the sorry state of our deficits and overall debt burden.