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The Treasury Department just issued new data about the federal deficit. Do you want the good news first or the bad news?

It's Friday, so we'll start with the good news: The deficit for the 2012 budget year, which just ended, is $207 billion less than it was last year. According to Associated Press reporter Martin Crutsinger, government spending dropped 1.7 percent to $3.5 trillion because the war in Iraq is sucking away less of everyone's money. Not only that but government coffers were boosted by a slight improvement in economic growth: "Tax revenue rose 6.4 percent to more than $2.4 trillion." Isn't that great? Thanks for the good news, Martin Crutsinger.

Uh oh, but here's Bloomberg's Meera Louis and Ian Katz with a report on the same news with a decidedly miserable headline: "U.S. Posts Fourth-Largest Budget Deficit Since World War II." Ugh.  It's not the worst deficit of all time—that was the $1.42 trillion Uncle Sam racked up in 2009—but it's pretty darn unsustainable, and Moody's Investors Service is putting us on notice: In September, it said that it may join Standard & Poor's in bringing America's credit rating down a notch. That decision hinges heavily on whether Congress finds a way to reduce "the percentage of debt-to-gross- domestic-product during budget negotiations," reports Bloomberg. Unfortunately, that seems unlikely unless either Democrats or Republicans win big on Nov. 6. But who knows, maybe Moody's is bluffing. Regardless, financial shares dropped following the report: S&P fell 0.3 percent.

So there you have it. The economy is getting better, which is helping reduce our deficits. But we're still spending more than we take in every year, which is unsustainable. 

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