Deficit Chickens Roosting in White House
Last Wednesday morning, an “unnamed official” of the Obama Administration aggressively leaked to the media – which crowed the news from every rooftop — that the Administration’s 2009-2010 fiscal year budget deficit estimate is being trimmed to $1.58 trillion from about $1.84 trillion.
Most of the supposed $262 billion in deficit reduction came from not spending a $250 billion “placeholder” that had been budgeted for possible bank bailouts. Additionally, there was $78 billion not spent by the FDIC due to fewer or smaller bank failures than had been planned on.
No major news outlets pointed out the obvious fact that the deficit is dropping by much less than the combined savings from these two banking contingency items, savings which are one-time and not representative of true ongoing government revenue and spending. The two items combine for a $328 billion “savings” versus a reduced deficit estimate of $262 billion. In other words, the net of actual government spending less tax revenue will be.a $65 billion greater “true” deficit than the prior estimate.
Reuters weaved some pro-Obama spin the news story: “The improved deficit forecast may help Obama politically as he tries to overcome opposition from fiscally conservative Democrats and others opposed to the $1 trillion price tag for his healthcare overhaul.”
Reuters did note that the deficit is now estimated at 11.2% of GDP, but neglected to mention that 11.2% is twice the next highest level of deficit/GDP since WWII, nearly 5 times the average deficit as a percentage of GDP over the last 40 years, and over 7 times the average for the last 60 years. During this one fiscal year, the Obama Administration will rack up nearly $5,500 in debt for every man, woman, and child in America and, more importantly, over $8,000 in debt for each taxpayer.
But on Friday, Reuters reported that “The Obama administration will raise its 10-year budget deficit projection to approximately $9 trillion from $7.08 trillion in a report next week.”
According to the Friday Reuters story, “Record-breaking deficits have raised concerns about America’s ability to finance its debt and whether the United States can maintain its top-tier AAA credit rating.”
There’s no simpler way to put it: Government spending is absolutely out of control. Pretty soon, all of America will be as broke as California.
How many of you recall the Democrats (and the few fiscal conservatives within the GOP) properly excoriating President Bush for his out-of-control spending? Do you remember hearing the comment that comparing Bush’s spending to a drunken sailor’s was an insult to the drunken sailor? Yet, the average deficit as a percentage of GDP during the Bush Administration was 2%. Even taking out Bush’s first two years and examining the 6 years during which Bush lost any semblance of fiscal conservatism, you still only reach 2.63%. Now we’re looking at a FY 2009-2010 deficit that is more than triple Bush’s worst year.
Yes, Obama did “inherit” some real problems. And yes, Bush as a lot to answer for, such as in ceding the moral high ground with his agreement to let GM have TARP money (which was obviously illegal) and particularly with his statement that he “abandoned free market principles to save the free market system,” echoing the Vietnam-era ‘We had to destroy the village in order to save it.”
But Obama has made our fiscal problems far worse than they would have been without the government buying GM, passing a non-stimulative pork-laden “stimulus” bill, and making it clear that his “no new taxes for people under $250,000″ was just the biggest and earliest of his many lies.
The one-year “deficit reduction” story was trumpeted widely, thanks to an unnamed “official” who made his calls to the media during a morning in the middle of the week.
Yet, when the Administration decided to leak that its 10-year budget deficit estimate is being increased by nearly $2 trillion, somehow no “official” was able to get that story out until Friday afternoon, the news graveyard for stories that politicians hope won’t get noticed. The new 10-year projection raises the cumulative deficit estimate from $7.1 trillion to $9 trillion, a jump of more than 25%.
The main driver of the huge deficit increase is the Administration’s reduction in estimates of economic growth, estimates which most economists said were ridiculous when first offered. For example, Brian Wesbury offered these insightful comments in March:
Despite the rosiest economic projections we have possibly ever seen, and one of the largest tax hikes in history, President Obama’s budget fails to achieve balance at anytime in the next decade. The smallest deficit (at least as far as the eye can see) will be $533 billion in 2013. This is amazing, especially when the economic growth forecast is considered. Team Obama suggests that real GDP will grow significantly faster in the years ahead than it has in the past…
The forecast is rosy from the get go. The budget forecasters assumed that the economy would grow at a 3% annual rate starting in April, and that real GDP would fall just 1.2% in 2009, from 2008. Then, from 2010 through 2013, the Administration assumes that real GDP will grow at a 4.0% annual rate. To put this in perspective, it is twice as fast as the economy’s 2.0% annual rate of growth between 2004 and 2008. This is not impossible, but the only other periods that came close to this 4% growth rate for such a prolonged period of time were in the late-1990s and mid-1980s. Forgive us for pointing this out, but both of these periods followed major shifts toward freer markets, and tax cuts, not bigger government and tax hikes.
To look at it another way, the projected deficit for the next decade is now forecast to roughly equal the entire US public debt as of the beginning of 2008. Obama’s estimates are likely still optimistic and it’s entirely possible that the next decade’s deficit will be greater than the total public debt accumulated by this country from the time of its founding until the presidency of Barack Obama.
And that’s without accounting for the possible passage of Cap-and-Trade or a “public option” as part of health care reform, either of which will make the deficit much higher (the former primarily by reducing GDP and therefore government revenue and the latter by causing government spending to balloon even further.)
The official budget estimates will be released today by the Congressional Budget Office. But, despite the Administration trying to soften the blow by leaking the news late on Friday, we heard it loud and clear. If Democrats don’t stop Obama now — if they don’t permanently kill the Waxman-Markey cap-and-tax bill and a health care “public option” — they will next November feel the wrath of the average American voter who cannot countenance an Administration bankrupting our children and grandchildren with spending that would make FDR (pre-war, at least) and LBJ blush.