Interest Rate Roundup

Thursday, February 26, 2009

What's $1.75 trillion among friends, right?

The Obama administration has released its big-picture budget outlook for 2009 and beyond. The big headline: The U.S. government is on track to record a deficit of a whopping $1.75 TRILLION in fiscal 2009. That is by far the biggest deficit ever, and almost four times as large as the $459 billion figure for 2008. It's also a gigantic 12.3% of GDP, the most in the post-World War II era.

It includes all kinds of goodies, including another potential $250 billion in bank bailout money (on top of the $700 billion in TARP money previously allocated). The budget also assumes a 1.2% decline in 2009 and a 3.2% expansion in 2010, which is more optimistic than the 2% decline and 1.8% increase that private economists are generally looking for. It also projects unemployment rates of 8.1% and 7.9% for the coming two years, less than the 8.4% and 8.5% projections found in a Bloomberg survey.


  • The deficit numbers are very scary, but I believe they reflect new accounting methods, e.g. actually putting Iraq and Afghanistan costs into the budget, so I'm not sure how they compare with previous years. (I'm sure the deficit is much higher than in previous years... I'm not not sure how much higher.) Unfortunately, my view of the current economic situation is to make an analogy to a hospital emergency room: the patient needs an all-out effort, NOW. I do believe that Obama, who was well-liked at the conservative University of Chicago, will be more than open to a "grand bargain" to reduce the deficit in the future. But it seems that right now, consumers can't spend, and businesses can't spend, and I guess only the government can spend. So this is a very rare time that I'm not concerned about too much government spending. Let's get the patient some oxygen, THEN worry about his long-term cholesterol problem!

    By Anonymous Anonymous, at February 26, 2009 at 1:13 PM  

  • Mike
    This is not directed at you. YOur commentary is always of very high quality.

    There is just one point in this posting that I wish you had made. That a comparison of this deficit to last years is not an apples to apples comparison.

    I harp on this only because the Bush methodologies have been used for so long that it has become a defacto standard. It is mandatory that we all participate in dispelling those myths.

    What I would like to see is someone to calculate the budget numbers for the last 4 years via the same methodology used in the Obama budget. Then we can chart it and easily see what the real picture is.

    By Blogger Marxist, at February 26, 2009 at 1:47 PM  

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