Morning Note: Budget Cuts - A Pittance or Progress?
Do the budget cuts put the U.S. on the road to fiscal responsibility or are they a laughable drop in the bucket?
That was the debate shaping up between Fast Money contributors and economists Wednesday morning ahead of the President Obama’s scheduled afternoon speech on the budget.
The proposed budget, unveiled early Tuesday morning, includes nearly $40 billion in spending cuts. House Republicans were quick to applaud that total cuts to non-defense spending as nearly five times larger than any other cuts in history. Meanwhile, Democrats applauded their ability to preserve critical programs as well as shave spending.
In an April 13 note to clients, Fast Money contributor Dennis Gartman characterized the cuts as “comically insignificant” given the size of the deficits.
“Tens of billions do indeed sound enormous. They are not,” wrote Gartman, author of The Gartman Letter. “They are lost at the right of the decimal point in this stunningly large budget proposal.”
The U.S. budget deficit has grown significantly in the past year, causing growing alarm among investors and economists. The deficit hit $188.2 billion in March, up $65.4 billion from the prior year. U.S. Treasury Secretary Timothy Geithner has warned that the U.S. will reach its $14.29 trillion legal debt limit by May 16 and is urging lawmakers to raise the ceiling. This week, International Monetary Fund Chief Carlo Cottarelli said that Europe’s sovereign debt crisis was improving faster than the U.S. debt situation and urged the U.S. to slash its deficit.
However, Joe LaVorgna, Deutsche Bank’s Chief U.S. Economist and a guest on Fast Money’s 5PM show today, said the cuts had made him more optimistic that the congress would have a real debate about reigning in spending in the future.
“I don’t think $40 billion in cuts is insignificant,” said LaVorgna, adding that the $40 billion would turn into $400 billion over a ten-year period because the cuts are cumulative. “The fact is that it got through and this is a real serious debate about spending that we haven’t had since the early 90s, maybe since the mid-80s.”
LaVorgna added, “It makes me longer term optimistic.”
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CNBC.com with wires.