There is an interesting saying by Mr. Greenspan that deficits don't matter. He reference to WW II, Korean, and Vetinam war deficits. Problem with that interpretation is, at that time US had the lion's share in both global GDP and global stock market capitalization.

Now US has 25% share in global GDP and about 40% of global stock market capitalization. I think Nagorak is right that now deficits do matter.

There was interesting piece in WSJ about Mr. Bill Gross who has the advise for presidential candidate that increase the federal deficits.

Here is link. http://online.wsj.com/article/SB121488078239618673.html

Sen. Barack Obama has another famous pen pal.

Bond-fund king Bill Gross called on the Democratic presidential candidate to double the federal budget deficit to $1 trillion by fiscal 2011 if he becomes president.

"The economy will need an additional jolt of $500 billion or so of government spending real quick," wrote Mr. Gross, manager of the $128.8 billion-in-assets Pimco Total Return mutual fund, in a letter to "President" Obama posted on Pimco's Web site. "It must replace both reduced residential investment and consumption whose decline has placed the U.S. economy near, if not in a recession." Pimco is a unit of German financial giant Allianz SE.

Mr. Gross noted that this year's budget deficit should be about $500 billion. By doubling that to $1 trillion in three years, that would put the deficit at about 6% of gross domestic product, "a mere pittance by Japanese standards." Mr. Gross said Japan's deficit exceeded 10% at its peak a decade ago.