The majority of U.S. states continue to face financial pressure and deficit spending according to the Center for Budget and Policy Priorities. California alone has a projected budget deficit of $9.2 billion per Governor's Journal. The result of deficit spending like this reflects the U.S. economy is at a crossroads of sorts, and one where taxes and budget cuts are more real possibilities.
Forecasts of state budget deficits differ. EconMatters, a team of financial research analysts state at least 17 states face budget shortfalls in the 2012 fiscal year. The total 2012 state deficits is thought to reach $41 billion per EconMatters. The Federal government is facing even worse debt problems. The Department of the Treasury reported a 2011 deficit of $1.299 trillion and projects a 2012 deficit of $1.645 trillion per its 2012 budget.
The effect of government debt on the economy will be lack of, or lower stimulus which contributes and is included in gross domestic product calculations. This means corporations will have to generate growth. However, with a shrinking work force per the Department of Labor chart below, increasing entitlement burdens due to more retirees drawing from social security, possible contagion from the Eurozone debt crisis, and slowing growth in China and India, this growth will be challenged.
Department of Labor: Labor participation rate
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