Sunday, March 7, 2010

CBO and Current President's Budget

The CBO issued a report on the current President's Budget. We summarize the result here.

The CBO states:

CBO’s preliminary analysis indicates the following:

If the President’s proposals were enacted, the federal government would record deficits of $1.5 trillion in 2010 and $1.3 trillion in 2011. Those deficits would amount to 10.3 percent and 8.9 percent of gross domestic product (GDP), respectively. By comparison, the deficit in 2009 totaled 9.9 percent of GDP.

Measured relative to the size of the economy, the deficit under the President’s proposals would fall to about 4 percent of GDP by 2014 but would rise steadily thereafter. Compared with CBO’s baseline projections, deficits under the proposals would be about 2 percentage points of GDP higher in fiscal years 2011 and 2012, 1.3 percentage points greater in 2013, and above baseline levels by growing amounts thereafter. By 2020, the deficit would reach 5.6 percent of GDP, compared with 3.0 percent under CBO’s baseline projections.

Under the President’s budget, debt held by the public would grow from $7.5 trillion (53 percent of GDP) at the end of 2009 to $20.3 trillion (90 percent of GDP) at the end of 2020. As a result, net interest would more than quadruple between 2010 and 2020 in nominal dollars (without an adjustment for inflation); it would expand from 1.4 percent of GDP in 2010 to 4.1 percent in 2020.

First we show the CBO Baseline which had been the expected prior to the issuance of the Budget. The Revenue, Outlays and Deficits are shown below.

Then we show the percent of annual deficit and total debt as a percent of the GDP.

We then repeat this for the current President's Budget as presented. First the Revenue, Outlays and Deficits.

Now the percent of deficit and total debt as a percent of GDP,

Now we look at these in some detail.

First, under the original CBO numbers the total public debt was peaking in 2014 at about 62% of GDP. Now we see a larger peak but the total debt as a % of the GDP reaches 90% as compared to 67% That means we are facing a catastrophic economic collapse. The current Administration seems to have a total disregard for this train wreck.

Second under the original plan the deficits were hundreds of billions per year but not too bad. Yet under the current President's Budget they exceed a trillion again and again.

This is gross fiscal mismanagement. Why do we have the problem we have:

Under the former President we spent the deficit for the War in Iraq. That supposedly is ending. Thus we should recover $200-400 billion annually.

Under the current recession we lost $400 billion in tax revenue from the unemployment and the payments to the unemployed equaled $300 billion for a $700 billion swing. Unless we see a sustained unemployment situation, driven by the uncertainty in what is going on in Washington, we can assume that the $700 will go away.

Thus where are we spending all of this money? Well simply Congress and the current President are adding new programs as if there were no tomorrow. The debt load will destroy the country as we know it. Perhaps that is the goal!