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I am always amazed how each new US Government talks about financial conservatism and their aim and priority to reduce the Federal Deficit. In practise, they are not very good at it.

Over 36 years, the United States has only had 4 years where there was a surplus – 1998, 1999, 2000 & 2001. Bill Clinton lost the election to George W. Bush in December 2000, with the S&P 500 subsequently falling 42% over the next 3 years.

Having learnt their lesson (that surpluses are not good for economic growth), the US went back to robust deficits, spending about $2 trillion above the revenue raised between 2001 and the 2007 GFC.

In 2009 the deficit was about $1,400 billion. By 2016, the deficit had been reduced to an annual $255 Billion.

The new Presidency in 2016 talked about balancing the budget, but the deficit has blown out again to an estimated $800 billion at the end of this fiscal year, followed by a forecast $1.1 Trillion deficit in the next year. This represents 5.1% of the Gross Domestic Product.

National Economic Council Director Larry Kudlow said: “As the economy gears up, more people working, better jobs and careers, those revenues come rolling in, and the deficit is coming down, and it’s coming down rapidly. Growth solves a lot of problems.”

If rhetoric were dollars there would certainly be a surplus. If a so-called growth phase produces a Trillion-dollar deficit, then it is hard to imagine how the Government could respond to an economic downturn, should it occur. Would the market let the US run a $2 Trillion deficit – time may tell.