Do the Markets Care About the $2.4 Trillion U.S. Deficit?

Posted: 19 Apr 2007

See all articles by Jagadeesh Gokhale

Jagadeesh Gokhale

Cato Institute

Kent A. Smetters

University of Pennsylvania - Business & Public Policy Department; National Bureau of Economic Research (NBER)

Abstract

If the U.S. federal government properly accounted for its explicit and promised liabilities, it would record a national debt of $64 trillion and a national deficit of $2.4 trillion in 2006. Although capital markets seem to care about the officially reported budget deficit — a metric that is backward looking and quite misleading — the markets have done little more than yawn at the federal government's mammoth, and growing, forward-looking budget imbalance. Are investors uninformed? They should remember that the common belief that capital markets cannot fail is precisely the reason why they can.

Keywords: Economics, Macroeconomics, Relationship of Economic Activity to the Investment Process

Suggested Citation

Gokhale, Jagadeesh and Smetters, Kent, Do the Markets Care About the $2.4 Trillion U.S. Deficit?. Financial Analysts Journal, Vol. 63, No. 2, pp. 37-47, 2007, Available at SSRN: https://ssrn.com/abstract=980676

Jagadeesh Gokhale (Contact Author)

Cato Institute ( email )

1000 Massachusetts Avenue, N.W.
Washington, DC 20001-5403
United States

Kent Smetters

University of Pennsylvania - Business & Public Policy Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6372
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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