Financial Markets Spooked by Government Deficits

Take a look at the updated graphs below (courtesy of the Chart Store).

The first graph shows U.S. government spending and receipts. Look how much the disparity between the two has widened in the past couple of years. (Compare that with the late 1990s when we were actually running annual surpluses!)

The second full graph below which puts the annual budget deficits (or surpluses) in context compared with the GDP. At 9.68 percent of annual GDP, the recent deficit is the largest it has been going all the way back to 1980.

The third full graph below shows the total U.S. debt outstanding in comparison to GDP. The U.S. debt outstanding now amounts to nearly 89 percent of annual GDP, the worst it has been since the late 1940s (more than 60 years ago).

These graphs are pretty grim looking as it is. If the government keeps spending as it has and the economy fails to pick up and bring in more revenue, the picture would worsen. I don't think that will happen and our economic history has proven that recessions are followed by rebounds. Just about every economic indicator worth following suggests that global economies are on the rebound.

Back in March, 2009, the month that global stock markets hit bottom, I wrote about various pundits predicting the bankruptcy of the U.S. Please review that piece for some historic context.