Obama's budget blows up the deficit....

[fullautovalmet76]

This is nothing you haven't heard already. But attached is an article from an economist that I have grown to like over the past few years. I have found him to be very objective and reliable.....

“Rosy Scenario” Hides Irresponsible Spending
In 2007, the federal budget deficit was $162 billion (or,
1.2% of GDP). For 2009, the budget deficit is projected to be
eleven times larger: $1.752 trillion. This World War II-like
deficit (12.3% of GDP), is not all on President Obama. Much
of it is due to policies put in place by President Bush, Hank
Paulson, and last year’s Congress. President Obama’s
“stimulus” bill will certainly lift the deficit, but, to be fair, it is
not the predominate force behind this year’s large fiscal hole.
Nonetheless, contrary to the spin of big government-types,
these deficits are not just temporary. In fact, the Obama
Administration uses every trick in the book to convert an
understandable and potentially temporary budget lapse this year
into a structural lack of fiscal responsibility.
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.
To top it off, that $533 billion deficit in 2013 assumes we
have largely withdrawn our military from Iraq. In other words,
if we look at just domestic spending, the budget deficit is
growing even faster.
It is impossible to blame tax cuts for this situation. By
2013, the Bush tax cuts enacted in 2001 and 2003 would no
longer be in place. In the Obama budget, tax revenue is
expected to be 19% of GDP in 2013 – a higher share of GDP
than in 2007. It doesn’t take a rocket scientist at this point to
understand that every dime of the increase in the deficit
between 2007 and 2013 is due to higher spending, not
excessively low taxes on the rich.
And one thing to remember about all of these numbers is
that they are based on a very “rosy” economic scenario. If the
economy falls short of the optimistic assumptions, the deficit
will be substantially larger than projected.
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.
There is no period in US history where tax rates and the
size of government both increased, and yet real GDP growth
accelerated as sharply as the Obama team forecasts.
If real GDP grows 1% slower on an annual basis, federal
spending would be 23% of GDP in 2013, not 22%. The last
time government spending was anywhere near this level, was in
1982-83, in the wake of the worst recession in post-war history
with unemployment at 9.7%. But by 2013, according to the
Obama forecast, the US will be in the fourth year of recovery,
with an unemployment rate at 5.2%.
In other words, it is the Obama team’s shift to an expanded
government role in the economy and society that is boosting
spending, not just spending to stimulate the economy. Deficits
will remain extremely large because spending is so much above
any historical ability of the economy to pay for it. And, the
more taxes are lifted to pay for it, the slower the economy will
grow and the less likely any economic data even remotely
resembling the Obama Administration’s rosy scenario will
come to pass.


Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous
3-11 / 1:00 pm Treasury Budget - Jan -$205.4 Bil -$203.1 Bil -$83.8 Bil
3-12 / 7:30 am Retail Sales - Feb -0.5% -0.3% +1.0%
7:30 am "Core" Retail Sales - Feb -0.1% +0.3% +0.9%
7:30 am Business Inventories - Jan -1.1% -0.8% -1.3%
7:30 am Initial Claims - Mar 7 644K 635K N/A
3-13 / 7:30 am Int’l Trade Balance - Jan -$38 Bil -$43.9 Bil -$39.9 Bil
7:30 am Import Prices - Feb -0.8% -0.7% -1.1%
7:30 am Export Prices - Feb -0.1% -0.1% +0.5%
8:45 am U. Mich. Consumer Sentiment 55.0 55.0 56.3

[Teresa Heilevang]