Deficit Surges; Biden Poll Numbers Improve Slightly
Author: Greg Valliere
June 20, 2024
WHEN WE TALK WITH CLIENTS — especially retail clients — their biggest complaint about Washington is that the budget deficit is out of control, and has fueled inflation. Most economists see only a modest correlation between deficits and inflation, but the voters and our clients aren’t buying it — and neither are the credit rating agencies.
HORRIBLE NEW DEFICIT ESTIMATES this week from the Congressional Budget Office projected $1.9 trillion in red ink this year — a year of solid economic growth and no pandemic. One wonders what the number would look like if the economy weakened. Total U.S. debt is about to hit $35 trillion and will approach $50 trillion in a decade.
SOARING DEFICITS — AND THE INABILITY OF CONGRESS TO ACT — could prompt the credit rating agencies to downgrade U.S. debt once again, especially if there’s a paralyzing fight next spring over raising the federal debt ceiling.
NEITHER PARTY SEEMS ENTHUSIASTIC ABOUT REDUCING THE DEFICIT, because that would inflict some pain and threaten the politicians’ re-election campaigns. The Democrats have little interest in cutting spending (see the Wall Street Journal editorial this morning) and the Republicans will push hard next year for an extension and expansion of the Trump tax cuts — which could cost $5 trillion in the next decade.
IS THERE ANY CHANCE THAT THE DEFICIT SURGE could begin to ease? No. We tell worried clients that while the goal of lower deficits has support, the specific prescriptions do not. No Social Security cuts, no Medicare cuts, no tax revenue raisers, no defense cuts. Stronger economic growth would help, but we’re not going to grow ourselves out of this mess. What about domestic spending cuts? The issue will be simply slowing spending increases, not cutting them.
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STILL TO SOON TO CALL: The Las Vegas oddsmakers and other alleged experts have climbed on the Donald Trump bandwagon, but it’s still to early to make that call, in the wake of a new Fox News poll that shows Joe Biden with a 2% lead.
STATISTICALLY, that’s a tie, but it’s an improvement for Biden, who had not led in the Fox poll since October. Why the move? It could reflect uneasiness among independent voters after Trump’s conviction. Biden leads Trump by nine points among independents, an 11-point shift from May, when independents favored Trump by two points.
RESPONDENTS WERE ALSO MORE POSITIVE about the economy than in previous months. Nearly a third, 32% of respondents said, they have an excellent or good feeling about the economy, the highest mark of Biden’s presidency. Despite that, a 56% majority of respondents still had a negative outlook on the economy.
DESPITE THE SLIM BIDEN LEAD, we think Trump still enjoys a slight Electoral College advantage, boosted by support in Georgia, North Carolina, Arizona and Nevada, where he now leads. Can Biden win Pennsylvania, Michigan, Wisconsin and Virginia? He needs victories in at least three of those four states. More will be revealed in the presidential debate, just one week away.
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