Friday, March 20, 2009

O! M! G! : Exploding Head Edition

Obama Spending Will Cause $ 1,000,000,000,000 (trillion dollar) Annual Deficits for the Next 10 Years

The Congressional Budget Office figures, obtained by The Associated Press Friday, predict Obama's budget will produce $9.3 trillion worth of red ink over 2010-2019. That's $2.3 trillion worse than the White House predicted in its budget.

Worst of all, CBO says the deficit under Obama's policies would never go below 4 percent of the size of the economy, figures that economists agree are unsustainable. By the end of the decade, the deficit would exceed 5 percent of gross domestic product, a dangerously high level.

The latest figures, even worse than expected by top Democrats, throw a major monkey wrench into efforts to enact Obama's budget, which promises universal health care for all and higher spending for domestic programs like education and research into renewable energy.

The dismal deficit figures, if they prove to be accurate, inevitably raise the prospect that Obama and his allies controlling Congress would have to consider raising taxes after the recession ends or paring back his agenda.

Many Democrats were already uncomfortable with Obama's budget, which promises to cut the deficit to $533 billion in five years. The CBO says the red ink for that year will total $672 billion.

The 2009 deficit, fueled by the $700 billion Wall Street bailout and diving tax revenues stemming from the worsening recession, is four times the previous $459 billion record set just last year.

The CBO's estimate for 2010 is worse as well, with a deficit of almost $1.4 trillion expected under administration policies, about $200 billion more than predicted by Obama.

By the end of the decade, the deficit under Obama's blueprint would go back up to $1.2 trillion.

U.S. Federal Deficit Soars Past Previous Estimates

Deteriorating economic conditions will cause the federal deficit to soar past $1.8 trillion this year and leave the nation wallowing in a sea of red ink far deeper than the White House had previously estimated, congressional budget analysts said today.

In a new report that provides the first independent analysis of President Obama's budget request, the nonpartisan Congressional Budget Office predicted that the administration's agenda would generate deficits averaging nearly $1 trillion a year over the next decade -- $2.3 trillion more than the president predicted when he unveiled his spending plan just one month ago.

And although Obama would come close to meeting his goal of cutting the deficit in half by the end of his first term, the CBO predicts that the nation's annual operating deficit would never drop below 4 percent of the overall economy over the next decade, a level administration officials have said is unsustainable because the national debt would grow too rapidly.

By the CBO's estimate, for example, the nation's debt would grow to 82 percent of the overall economy by 2019 under Obama's policies, compared with a pre-recession average of 40 percent.

How is government debt (i.e. accumulated deficit spending) comprising 82% of a nation's economy not de facto socialism?


Anonymous said...

"The dismal deficit figures, if they prove to be accurate, inevitably raise the prospect that Obama and his allies controlling Congress would have to consider raising taxes after the recession ends or paring back his agenda."

Raising taxes is in Obama's plan in the last two years of his first term. Moreover, he has said that corrections may be required depending on the results two years out, such as paring back his agenda.

Let's look at Obama's plan for rescuing the faltering economy:
1. Inject capital into weak banks, except those who flunk the stress test.
2. Refinance mortgages by having the Federal Reserve print money to temporarily lower interest rates.
3. Lower taxes on 95% of the population, including grants in lieu of tax rebates for the poor.
4. Provide tax incentives and hiring/retaining rewards to small businesses.
5. Invest in technology associated with alternate and green energy.
6. Provide grants to states for shovel ready infrastructure projects including school renovation, teacher training and teacher salaries, and other state expenses like unemployment payments.
7. Invest in technology to streamline healthcare provision.

This is off the top of my head, so may require some revision, though I think I have the gist of it here.

The main focus is creating jobs: "Of the private sector jobs, 459,000 would come from investing in clean energy and modernizing buildings to be more energy efficient; 377,000 would come from spending on infrastructure; 250,000 in education; and 244,000 would come in health care. The rest would be scattered across various sectors of the economy by tax cuts and direct aid to states."

Fiscal conservatives are blanching at the temporary magnitude of the deficit that will be created, which could approach 90% of GDP, still short of FDR/Truman at 120% at the end of WWII.

Do we trust folks like Bernanke, Summers, Geithner, Buffett, Volker, and Obama?

It is much, much easier to say "No" like the critics do, than to say "Yes".

Yet given the severity of the economic crisis we are in, is "No" the correct answer, and if so, what in the Obama plan should be changed?

Perry Hood

Hube said...

What's YOUR solution, Perry? ;-)

Anonymous said...

At my level of understanding, Hube, I defer to the experts.

Frankly, considering the depth of the hole we are in, I don't think we have a choice.

Those who say that the market will correct itself have been proven wrong.

Massive and temporary government intervention, unfortunately, seems to be in order for now. Yes, it is a gamble!

Without it, I fear much more massive job losses, i.e., another great depression world wide!

Perry Hood

Anonymous said...

At my level of understanding, Hube, I defer to the experts.

I hope this means you do not vote

David said...

The problem is that according to the CBO with the permanent changes the administration is proposing, we are not talking about temporary deficit spending. We are talking about a structural deficit like America has never seen.

Anonymous said...

David, as I indicated, the experts in the Obama Administration have concluded that we have to take the gamble in spite of the CBO warnings. It will be interesting to hear their response to the CBO.

Regarding "permanent changes", I'm not sure what these are. I see the education, healthcare and alternate energy programs as investments which will have a pay back down the line. The TARP, the mortgage stimulus, the toxic asset purchases -- they are all temporary. What permanent changes are you referring to.

Perry Hood