Recent projections of the federal budget deficit – $455 billion this year and $475 billion in fiscal year 2004 according to the Office of Management and Budget (OMB) – have rekindled concerns about U.S. fiscal policy. These concerns are justified because continued increases in the deficit could pose significant economic problems in the future, but they must be tempered with an understanding of how these deficits arose and how the U.S. can rebound from them. The rapid improvement in the U.S. fiscal position in the late 1990s demonstrates that a combination of strong economic growth and modest spending restraint can return the budget to balance. A similar prescription applies today. government’s ability to finance them. Both of these factors depend on the size of the economy.