Thursday, February 26, 2009

The Balooning Deficit

Obama has released his budget request. Its a humdinger:
The administration estimates that the deficit for fiscal year 2009 will reach $1.75 trillion, or 12.3% of U.S. gross domestic product. That's a record in dollar terms and is the highest as a share of GDP since World War II.
This is actually worse than I had thought. This is only the budget request. Generally budgets get larger. I also suspect revenue will be far less than the administration estimates. The growth estimates which follow are completely absurd:
All estimates in the budget request are based on a set of economic assumptions made by Christina Romer, who heads the White House Council of Economic Advisers. She assumed real GDP would fall 1.2% this year -- with a significant drop in the first quarter. But she expects GDP growth of 3.2%, 4.0% and 4.6% over the next three years.
Not going to happen. The important thing to take away from this, though, is the debt that is being run up. A $1.7 trillion budget deficit will increase the present debt load by about 17%. As I pointed out before, it will only take a few years of these kinds of deficits, and a slight increase of interest rates before the government simply will not be able to pay its bills and will be forced to begin inflating to save its life. Or at least its balance sheet. Oh wait, the inflation has already begun. Whoever said the government doesn't have foresight? ----Update!---- Just had to include a link to this cartoon from The Economist. That says it all...

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