Why do some politicians/economists believe that 'deficits do not matter'?

Might be different versions of this and I'm not sure what Cheney believes, but it's probably based on the reality that an economy grows over time, and so will become richer. Just as a rich man can handle more debt than a poor man, if the economy grows over time, it can carry an increasing debt load in the future without ill effects.

Basic financial analysis looks at an government's debt:GDP ratio. Right now for the U.S., it's about .68 ... that is, the national debt equals 68% of the size of the current annual GDP.

Well, it's a fact that we can handle that current debt load. The U.S. government has no trouble making interest payments and can easily borrow more money as needed at very low interest rates. So let's say for the sake of argument that .68 is an acceptable debt ratio.

OK here's where the deficits come in. Each year the "nominal GDP" -- consisting of REAL economic growth plus inflation -- increases. This is analogous to a person getting a raise and making more money. If the nominal GDP were to grow by 6%, then that means the debt balance could also grow by 6%, and there's no change in the debt:GDP ratio, get it?

So, in that case, the government could run a deficit (therefore having to borrow more money and increase the debt balance) equal to 6% of existing debt, without increasing the ratio. The total debt increases, but not the ratio of debt:GDP, as both those numbers increased by 6%.

So there you go, debt can increase by the same proportion as nominal GDP, but the debt burden -- the manageability of the debt -- does not get any worse.

Dick Cheney is a moron.

Deficits do matter

http://www.talkleft.com/story/2006/12/22/125621/51