Tuesday’s big, non-scandal-related story was the Congressional Budget Office’s latest estimate of the deficit (PDF). The news was good: The U.S. budget deficit is falling much faster than predicted. By the end of the 2013 fiscal year, it will be $642 billion, rather than the $845 billion that CBO forecast just three months ago. Better still, it will continue falling for years to come—through the end of Barack Obama’s presidency and perhaps longer.
Eventually, the CBO expects it to begin rising again, though not dramatically and not until later in the decade. Ten years from now, CBO predicts that the budget deficit will be just 3.5 percent of gross domestic product. For Democrats, this removes much of the urgency to take further, bigger steps to address the deficit, such as cutting future Social Security or Medicare benefits. It makes a “grand bargain”—which was already increasingly unlikely—even less likely to happen. Why cut benefits, Democrats will argue, when the deficit is already falling faster than anyone predicted?
While the trend toward smaller deficits probably diminishes the chance of congressional action, another trend may signal where Washington’s attention will turn instead. As this chart from a new Bloomberg Government analysis (subscription required) of too-big-to-fail banks reveals, the nation’s largest banks are growing larger:
The analysis by Bloomberg Government’s director of research, Robert Litan, finds that big banks are becoming less complex; that breaking them up could have dangerous unintended consequences; and that the provisions in the Dodd-Frank financial reforms of 2010 should be given more time to work. (Many of the regulations governing too-big-to-fail banks haven’t been finalized or implemented.)
My hunch, though, is that few members of Congress will choose to heed this advice. Lawmakers on the right and the left have become increasingly vocal about about wanting to do something to limit the size of banks. It seems much more likely that they’ll focus on the development revealed in this chart—maybe as soon as today. The House Financial Services Subcommittee is holding a hearing on whether Dodd-Frank actually ends Too Big to Fail.