I find that the harder I work, the more luck I seem to have. - Thomas Jefferson

All-Time High

by West Virginia Rebel

It’s the mother of all deficits.

The Congressional Budget Office released its latest budget forecast yesterday, and we now really do have red ink as far as the eye can see. Thanks to a 6.6% decline in revenues due to recession, a spending increase of some $500 billion or 19%, and assorted federal bailouts, the U.S. deficit for fiscal 2009 (ending September 30) will nearly triple to $1.19 trillion. That’s 8.3% of GDP, which CBO says “will most likely shatter the previous post-World War II record high of 6.0 percent posted in 1983.” It certainly blows away any deficit this decade, not to mention the Reagan years when smaller deficits were the media cause celebre.

But there’s more. None of that includes the new fiscal “stimulus” that President-elect Obama has promised to introduce upon taking office in two weeks. The details aren’t known, but Mr. Obama and Democrats have been talking about at least $800 billion, and probably $1 trillion, in new spending or various tax credits and reductions over two years. Toss that in and add more expected bailout cash, and if the economy stays slow the deficit could reach $1.8 trillion, or a gargantuan 12.5% of GDP.

That’s bad enough, but why is this different from past deficits?

Federal expenditures are now rapidly outpacing the growth of the economy, which is expected to be negative this year. CBO estimates that even before the stimulus federal spending will climb to an all-time high 24.9% of GDP, up from the previous post-World War II high of 23.5% in 1985. Add the stimulus and bailout cash and we estimate the federal spending share of GDP will climb to 27.5%. All of this is fast pushing the U.S. to European spending levels, and that’s before Mr. Obama’s new health-care entitlements.

The problem with most of this spending is that it will be hard to stop once it becomes part of the annual CBO baseline. Congress never reduces spending year over year. While much of the $700 billion in Troubled Asset Relief Program money will probably be returned to the Treasury as banks redeem the government’s preferred shares, Congress will want to turn around and spend that cash on other things unless the Obama Administration says no.

By all accounts it appears Obama won’t, campaign promises to control spending to the contrary. And the money for this is going to have to come from somewhere. Either way, we’re going to get stuck yet again with another massive bill.

Comments

Posted by Miguelito on 01/08/09 at 05:47 PM from

By all accounts it appears Obama won’t, campaign promises to control spending to the contrary.

From his speech this morning, it’s clear he’s not going to.

What a crappy speech too.. he blatantly plagiarized JFK’s inaugural speech at least twice… and directly contradicted himself at least 3 times that I counted. 

2 contradictions I remember hearing were basically:
Admitting that loose credit rules had a big part in economic issues.. then following up shortly thereafter with saying we need to open up credit to get money into people’s (and businesses) hands to stimulate the economy.

He also said that gov’t isn’t the solution to everything (or something) then followed that one up with “only gov’t can help the economy short term” or something similar.

I haven’t heard anyone actually call him on how obviously contradictory much of what he said was though.

I also loved the pie in the sky stuff like we’ll massively improve green energy and lead the world in it… without any actual ideas on how we might go about doing that.  Pretty standard fare for politicians though.

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