But as bad as extend and pretend has been in the US, it has been even worse in the eurozone. And the policy errors only seem to be compounding.

Any serious effort in the U.S. to address the federal budget deficit will wait until after the November election, since a campaign platform built on higher taxes and reduced government services is a non-starter. Both parties will try to score a few political points by claiming to be more sincere about cutting the deficit than the other party, but both parties are not relishing actually doing anything. As discussed last month, it is not going to be easy for Congress to significantly cut our budget deficit, since roughly 88% of the federal budget is mandated by law. The breakdown for every $1.00 spent in the 2010 federal budget is: $.21 Health care (Medicare, Medicaid), $.20 Social Security, $.20 Defense, $.14 Aid (Food stamps, child care, housing, and heating assistance), $.06 Benefits (Veterans, retired government workers), + $06 Interest = $.88. Other than defense, in order to lower any portion of this expenditure of $.88 per dollar spent, Congress will have to do some heavy lifting that won’t be very popular back home in their districts. The government also spends $.03 Infrastructure (Highways, transportation), $.03 Education, $.02 Research and Developemnt, $.01 International Aid. This suggests that most of the deficit reduction will come from higher taxes.