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|White House Increases Deficit Forecast||| Print ||
|Written by Thomas R. Eddlem|
|Sunday, 25 July 2010 18:30|
President Obama has drastically increased his forecasts for budget deficits over the next two years, reported the Washington Post for July 23. “The latest forecast from the White House budget office shows the deficit rising to $1.47 trillion this year, forcing the government to borrow 41 cents of every dollar it spends. Contrary to official projections, the budget gap will not begin to narrow much in 2011, because of an unexpectedly big drop in tax receipts.” The predicted deficit for 2011 will be $1.42 trillion.
By comparison, Obama's first budget, back in February of 2009, promised much smaller deficits of $1.171 trillion this year and $912 billion in 2011. The new figures therefore represent an increase in the deficit of more than $800 billion over two years since Obama's first budget proposal that included a $787 billion “stimulus” bailout bill. Obama's first budget, released with the ironic title “A New Era of Responsibility,” included a message from the President promising that these were accurate estimates for upcoming deficits:
It looks ahead a full 10 years, making good-faith estimates about what costs we would incur; and it accounts for items that under the old rules could have been left out, making it appear that we had billions more to spend than we really do ... while our Budget will run deficits, we must begin the process of making the tough choices necessary to restore fiscal discipline, cut the deficit in half by the end of my first term in office, and put our Nation on sound fiscal footing.
Moreover, the first budget promised it would “protect consumers and our entire economy from the recklessness and irresponsibility that led to the worst recession of our lifetime,” even as the initial recession that was created by too much borrowing and spending appears today headed for a double-dip recession amidst even greater spending and borrowing.
Republican leaders were quick to pounce upon the upwardly revised deficit numbers released by the Obama administration. House Republican Conference Chairman Mike Pence blasted out in a press release: “The message of today’s report is unambiguous: Washington desperately needs real leadership. We cannot continue to postpone the hard choices and sacrifices that are necessary to stop this fiscal train wreck.”
But will the Republicans offer that “real leadership” that is needed? That's unlikely. The House Republican alternative budget proposal, not updated since April 2009, still calls for $500 billion-plus annual deficits into the indefinite future. If the Republican leadership had truly put a priority on bringing the budget into balance, their budget proposal would have been updated and included specific spending cut proposals. Neither has been done.
President Obama's “deficits-forever” policy not only enjoys bipartisan support from the Republican leadership, he's also getting strong support from Federal Reserve Chairman Ben Bernanke. “I don't think there is really much benefit to trying to reduce the 2010 deficit substantially. I think that is supporting the economy,” Bernanke said in congressional testimony July 21. "I think we ought to be shooting for a sustainable path — 3%, maybe even less of GDP as a deficit — starting two or three years from now and going out to the next decade." Deficits forever is also the policy of the Federal Reserve Bank.
Bernanke's financial report to Congress — the nominal reason for his Capitol Hill testimony — noted:
The deficit in the federal unified budget appears to be stabilizing — albeit at a very high level — after its sharp run-up in fiscal year 2009. Indeed, over the first nine months of fiscal 2010, the deficit was a little smaller than that recorded a year earlier, and the ongoing recovery in economic activity should help shore up revenues over the remainder of the fiscal year. Nonetheless, the deficit is still on track to exceed 9 percent of nominal GDP for fiscal 2010 as a whole, only a shade below the 10 percent figure for 2009 and substantially above the average value of 2 percent of GDP for fiscal years 2005 to 2007, prior to the onset of the recession and financial crisis.
And in terms of a percentage of GDP, federal debt is fast running up to the World War Two record level. “Federal debt held by the public is projected to reach more than 65 percent of nominal GDP by the end of this year, the highest ratio seen in more than 50 years.” Of course, total U.S. debt (including federally held debt as well as that held by the public) is now approaching the 100 percent of GDP marker, just as federally held debt in the Social Security and Medicare trust funds are expected to run deficits and need their “trust fund” Treasury bonds.
How bad is that U.S. debt level? It's so bad that the United States would be ineligible for membership in the European Union if it decided to apply for membership (and no one is suggesting this). By its 1992 Maastricht treaty, the EU bans members and candidates from maintaining annual deficits in excess of three percent of GDP and total debt in excess of 60 percent of GDP.
The annual U.S. deficit rate of more than 9-10 percent of GDP from 2009 to the indefinite future puts the United States into the same category of Greece, which suffered a financial collapse and an European Union bailout for running deficits in excess of 10 percent of GDP for several years. The difference, of course, is that if the United States goes bankrupt there is no government or organization big enough to bail it out.