suggests there are more tax cuts to come Spend, spend, spend Yet there is scant sign of any spending discipline to match the lower tax revenue. Despite his rhetoric to the contrary Mr Bush has proved himself to be no Scrooge with federal dollars. On his watch, federal spending has soared by more than 20%. Only part of that rise can be explained by higher spending on defence or homeland security Defence spending though, is heading ever higher according to estimates by steven Kosiak at the Centre for Strategic and Budgetary Assessments. He reckons that adding together Mr Bush's grand plans for military modernisation and existing commitments in Iraq and Afghanistan, the defence budget over the next decade will increase by nearly $700 billion more than assumed in Mr Bush's budget projections And there is more. Mr Bush's planned expansion of Medicare, America' s health-care programme for the elderly to include prescription drugs, will supposedly cost $400 billion over the next decade. But most health-care experts -and privately some economists within the Bush administration too-expect the real bill to be much higher. Far from reforming America's entitlement programmes as baby-boomers head for retirement, Mr Bush is expanding them The risks of these policies have not gone unnoticed in Washington. Democrats have been bemoaning the rise in deficits a decade before the ranks of pensioners are due to swell. Still, it has all seemed a long way off. And yet if this survey proves right America's budget deficit could cause big problems long before the baby-boomers start retiring American policymakers'main responsibility therefore, is to improve the medium-term fiscal outlook. The budget rules that forced discipline on spending and tax-cutting plans during the 1990s must be revived. The bush team must put forward detailed proposals for controlling Medicare costs. The spending frenzy must be controlled and the tax-cutting momentum slowed perhaps even reverse If America acknowledged both the danger posed by global imbalances and its own responsibility for reducing them, putting political pressure on others to play their part would become much easier. In continental Europe, the pressure should be least necessary For the policy recipe that is best for Europe is also best for the world economy: determined structural reforms coupled vith a sensible(read looser) macroeconomic policy In Asia there is a greater tension between the short-term domestic agenda and what the world economy needs. China, as this survey has argued must break the paralysis on its exchange ate and gradually move towards greater flexibility. To support that shift, the Bush team must beat back domestic China-bashers but keep up the pressure on the chinese government for gradual change. At the same time China and America together must push other emerging Asian economies to follow suit In Japan in the short term, the trade-off between domestic requirements and global responsibilities is even more difficult to judge. The global economy needs a stronger yen; the Japanese economy does not. But if the government were to begin serious financial-sector reform and simultaneously to reflate the economy the contradiction would soon disappear, and the yen would strengthen without undue risk to the domestic economysuggests there are more tax cuts to come. Spend, spend, spend Yet there is scant sign of any spending discipline to match the lower tax revenue. Despite his rhetoric to the contrary, Mr Bush has proved himself to be no Scrooge with federal dollars. On his watch, federal spending has soared by more than 20%. Only part of that rise can be explained by higher spending on defence or homeland security. Defence spending, though, is heading ever higher, according to estimates by Steven Kosiak at the Centre for Strategic and Budgetary Assessments. He reckons that adding together Mr Bush's grand plans for military modernisation and existing commitments in Iraq and Afghanistan, the defence budget over the next decade will increase by nearly $700 billion more than assumed in Mr Bush's budget projections. And there is more. Mr Bush's planned expansion of Medicare, America's health-care programme for the elderly, to include prescription drugs, will supposedly cost $400 billion over the next decade. But most health-care experts—and privately some economists within the Bush administration too—expect the real bill to be much higher. Far from reforming America's entitlement programmes as baby-boomers head for retirement, Mr Bush is expanding them. The risks of these policies have not gone unnoticed in Washington. Democrats have been bemoaning the rise in deficits a decade before the ranks of pensioners are due to swell. Still, it has all seemed a long way off. And yet if this survey proves right, America's budget deficit could cause big problems long before the baby-boomers start retiring. American policymakers' main responsibility, therefore, is to improve the medium-term fiscal outlook. The budget rules that forced discipline on spending and tax-cutting plans during the 1990s must be revived. The Bush team must put forward detailed proposals for controlling Medicare costs. The spending frenzy must be controlled and the tax-cutting momentum slowed, perhaps even reversed. If America acknowledged both the danger posed by global imbalances and its own responsibility for reducing them, putting political pressure on others to play their part would become much easier. In continental Europe, the pressure should be least necessary. For the policy recipe that is best for Europe is also best for the world economy: determined structural reforms coupled with a sensible (read looser) macroeconomic policy. In Asia there is a greater tension between the short-term domestic agenda and what the world economy needs. China, as this survey has argued, must break the paralysis on its exchange rate and gradually move towards greater flexibility. To support that shift, the Bush team must beat back domestic China-bashers but keep up the pressure on the Chinese government for gradual change. At the same time China and America together must push other emerging Asian economies to follow suit. In Japan, in the short term, the trade-off between domestic requirements and global responsibilities is even more difficult to judge. The global economy needs a stronger yen; the Japanese economy does not. But if the government were to begin serious financial-sector reform and simultaneously to reflate the economy, the contradiction would soon disappear, and the yen would strengthen without undue risk to the domestic economy