A New Record Annual Deficit

Fox Reported several days ago, "[n]ew estimates from the White House on Friday predict the budget deficit will reach a record $1.47 trillion this year. The government is borrowing 41 cents of every dollar it spends."

The reason Obama was ultimately elected was because our economy tanked and the left's false narrative, that the failure was caused by Republic policies, won out. That said, as Mr. Ramirez makes emphasis in his cartoon, it doesn't appear that Obama understands why he was hired. Fortunately, he is, in the grand scheme of things, only a temp.

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. . . But You Can't Fool All The People All Of The Time.

Honest Abe he ain't. And while he might have been able to fool most of the people back in November 2008, it would seem, from the latest Rasmussen poll, that Obama's ablities at deception are starting to wear thin.

. . . President Obama this week formally kicked off meetings of his bipartisan deficit reduction commission, but most Americans view the commission as cover for Congress to raise taxes.

. . . 78% think it’s at least somewhat likely that Congress will raise taxes if the commission proposes any tax hikes, including 53% who say the legislators are very likely to do so. Only 14% say Congress is not very or not at all likely to raise taxes if the commission recommends it.

Although 83% of Americans are concerned about the size of the federal budget deficit, just five percent (5%) think Congress and the president should consider only tax increases when dealing with it. Forty-three percent (43%) say only spending cuts should be considered, up eight points from February. Forty-four percent (44%) say a mix of spending cuts and tax increases should be on the table. . . .

Eighty-three percent (83%) of Americans say the size of the federal budget deficit is due more to the unwillingness of politicians to cut government spending than to the reluctance of taxpayers to pay more in taxes.

Democrats from the start have viewed health care reform as the most important of the budget priorities cited by the president in a speech to Congress last February. Republicans and unaffiliated voters consistently have said the president’s priority should be cutting the federal budget deficit in half by the end of his first term.

Most voters believe the new national health care plan will raise the deficit, which is one reason why 58% support its repeal.

Fifty-three percent (53%) of voters say cutting government spending is good for the economy, and 61% say the same of cutting taxes. Forty-one percent (41%) prefer a budget deficit with tax cuts over a balanced budget that requires higher taxes. Nearly as many (36%) would rather see a balanced budget with higher taxes.

Even if the president and Congress raise taxes to reduce the federal deficit, 58% of voters think they are more likely to spend the money on new government programs. . . .

It would seem that a majority of American have had their eyes opened. If the Republicans are smart, they will unveil a detailed plan to reduce the deficit by July - both to run on against the Democrats who are unable to float a plan of their own and to get well out in front of the Democrat's "budget deficit commission.

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A Man Of No Substance

During the run-up to the election, I stated repeatedly that Obama, with the help of a left wing media in lust and in love, presented a wholly false persona belied by the reality of his associations. His many pronouncements and promises had not the substance of the wind necessary to utter them. One of those promises - indeed, one of the central promises - was to refrain from taxing people making less than $250,000. Yet having added more than a trillion dollars to our debt and preparing to add much more, he has now decided that he is "agnostic" on the issue of raising taxes on the middle class.

This latest change in yet another core issue has led Victor Davis Hanson at the NRO to opine:

The problem with Obama’s new hedging on taxing those who make below $250,000, or his administration’s taking credit for victory in the Iraq war that they so once fervently tried to abort, or the flip-flop on renditions and tribunals, or the embarrassments over closing Guantanamo and trying KSM in New York or Mirandizing the Christmas Day bomber,or trashing/praising Wall Street grandees, is not that presidents cannot change their minds as circumstances warrant, or even that all politicians are at times hypocritical. No, the rub is that Obama is not merely flipping and triangulating on issues in a desperate attempt to shadow the polls, but he is doing so on matters that he once swore were absolutely central to his entire candidacy and his signature hope-and-change agenda, critical to the future of the U.S., and proof of his opponents’ either ignorance or disingenuousness. . . .

Many are comparing this to Bush I's "read my lips, no new taxes" pledge. Ed Driscoll asks if Obama has decided four years are enough? And are we about to witness the "revenge of Joe the Plumber?"

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Depressing (& Depression) News

The Great Depression began in June, 1929 and lasted until the early 1941. FDR didn't solve it with his "New Deal", WWII did. By 1933, unemployment had risen to 24.9%, average incomes contracted by 40%, global trade fell by half in volume, and millions lost their homes and farms. How do we compare to the Great Depression?

We are now running a budget deficit closing in on two trillion dollars. Unemployment is at 9.4% and seems headed only upward. Our bond rating is on the cusp of being downgraded - an occurrence that promises a whole host of problems. The fed is printing money as never before:



Even with no new deficit spending, new and heavy taxes seem inevitable to service this debt. Plus, with such an increase in the money supply, massive inflation and devaluation of the dollar seems inevitable.

But much more is waiting in the wings to hit, some sooner rather than later. Obama is doing nothing to rein in spending or to avoid taxation. Indeed, to the contrary, Obama has not even begun to tax and spend. In an Orwellian move, he is calling for institution of "pay as you go" legislation that will make future tax cuts next to impossible but will not apply to any of the massive new deficit spending he has planned in his pet projects.

Social Security - a massive ponzi scheme that the left utterly refused to attempt to reform during the Bush years, is now running in the red. Medicare isn't being fixed, its being subsumed in a plan that will only expand care to 1/3 of the uninsured, yet cost us trillions in extra dollars. Cap and Trade is another massive regressive tax.

We are on the cusp of an energy crisis that Obama is ignoring. The price of oil is set to skyrocket from a host of contributing causes. The green energy Obama has promised us is not even cost effective, nor can it possibly be scaled up as quickly as it would need to be to provide a realistic alternative to oil and coal.

Global trade, already under extreme stress, is set to experience far more stress. Some 80% of all goods traded internationally are shipped. David Smick, writing at the Washington Post, notes "[t]he U.N. agreement last October on sulfur-burning levels for ships . . . is expected to send shipping costs skyrocketing." Thus the price of the vast majority of goods traded internationally will be effected, all in the name of global warming.

Then to top it off, we have Obama, instead of fixing the issues that led to this global economic meltdown, proposing a massive new regulatory regime for our financial sector. This is precisely what the respected Harvard economist Niall Ferguson warned against a few weeks ago.

Could this news get any more dire? Well, . . . yes. We now have sufficient data to make a reasonable comparison of where we are as compared to the same time frame after the start of the Great Depression. And the news is depressing indeed. Even without this next round of price increases, massive spending and high taxation, we are at or below the same economic indicators in the same time frame as existed during the Great Depression. This from the Financial Times:

Green shoots are bursting out. Or so we are told. But before concluding that the recession will soon be over, we must ask what history tells us. It is one of the guides we have to our present predicament. Fortunately, we do have the data. Unfortunately, the story they tell is an unhappy one.

Two economic historians, Barry Eichengreen of the University of California at Berkeley . . . [document] that this recession fully matches the early part of the Great Depression. . . .

First, global industrial output tracks the decline in industrial output during the Great Depression horrifyingly closely. Within Europe, the decline in the industrial output of France and Italy has been worse than at this point in the 1930s, while that of the UK and Germany is much the same. The declines in the US and Canada are also close to those in the 1930s. But Japan’s industrial collapse has been far worse than in the 1930s, despite a very recent recovery.

Second, the collapse in the volume of world trade has been far worse than during the first year of the Great Depression. Indeed, the decline in world trade in the first year is equal to that in the first two years of the Great Depression. This is not because of protection, but because of collapsing demand for manufactures.

Third, despite the recent bounce, the decline in world stock markets is far bigger than in the corresponding period of the Great Depression.

The two authors sum up starkly: “Globally we are tracking or doing even worse than the Great Depression ... This is a Depression-sized event.” . . .

You can read the rest of the article here. The authors go on to discuss the fact that Obama is attempting to rely on both Keynes and Friedman to guide his acts. Keynes theorized that massive public spending could be used to stimulate an economy while Friedman concentrated on monetary supply. The authors conclude hopefully that this will stop the full spiral into depression.

What gives me great pause is that these authors give no consideration to all of the additional taxes and the rising costs that we are about to have imposed upon us, plus what looks like new draconian regulation of our financial sector. Fed Chairman Ben Bernanke warned a few weeks ago that we needed to taking steps now to rein in spending and borrowing or we face severe problems in the foreseeable future. Obama is doing anything but that. I have never been so pessimistic about America's future. This could easilly go from bad to castrophically bad.

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The NYT & Orwellian Newmath - Its All Bush's Deficit

There are two basic truths about the enormous deficits that the federal government will run in the coming years.

The first is that President Obama’s agenda, ambitious as it may be, is responsible for only a sliver of the deficits, despite what many of his Republican critics are saying. The second is that Mr. Obama does not have a realistic plan for eliminating the deficit, despite what his advisers have suggested.

The New York Times analyzed Congressional Budget Office reports going back almost a decade, with the aim of understanding how the federal government came to be far deeper in debt than it has been since the years just after World War II. . . .

. . . You can think of that roughly $2 trillion swing as coming from four broad categories: the business cycle, President George W. Bush’s policies, policies from the Bush years that are scheduled to expire but that Mr. Obama has chosen to extend, and new policies proposed by Mr. Obama. . . .

New York Times, America’s Sea of Red Ink Was Years in the Making, 10 June 2009

The nonpartisan Congressional Budget Office (CBO) says that President Obama’s budget and deficit projections are too low. The president’s budget will incur $9.3 trillion in federal deficits between 2010 and 2019 --$2.3 trillion higher than Obama had originally claimed. . . .

In fact, the budget office found that Obama’s projected deficits are more than double what they would be if the president had merely stuck with the current spending and taxation proposals left by the Bush administration.

. . . Obama’s record deficits mean a record national debt – one that totals $17 trillion, up from the current $6.7 trillion.

By 2019, the CBO said, a whopping 82 percent of the nation’s gross domestic product (GDP) will go to pay down the national debt. This means that in future years, the government could owe its creditors more than the goods and services that the entire economy can produce.

CNS News, Obama’s Deficit Projections Off by $2.3 Trillion, Congressional Budget Office Says, 24 March 2009

There is no way of getting around the fact that Bush was fiscally irresponsible. Indeed, as I was fond of saying on this blog, he and Republican Congress spent like drunken Democrats. But Obama and the Democratic left are in a class unto themselves, redefining the word "profligate."



So Bush leaves office with about a $500 billion defecit. Obama comes in, borrows and spends the deficit up by orders of magnitude, yet the NYT would have us believe the deficit Obama is running is mostly Bush's fault.

And indeed, It would seem impossible to reconcile the seperate conclusions quoted above of the non-partisan CBO, analyzing their own data, and the ulta-partisan NYT analysis of the exact same data. The NYT is asking us to take a leap out of the realm of rationality and into the world of fantasy, where Democrats bear no responsiblity for their actions and any ill effects are the work of evil Republicans. Ridiculous.

Although the NYT never shows their math, two things are obvious from the NYT individual conclusions. One, their analysis is static - by that, I mean the type of analysis where the NYT accounts for a 10% tax increase as equaling a 10% increase in actual revenues. I don't think they even teach that simplistic notion in Econ 101 anymore.

Two, the NYT's ignores the impact of Obama's policies on business and the economy. There is nothing that Obama has done that can be expected to stimulate growth in our economy. Instead, what we see are a bevy of policies that will, across the board, increase the costs of living and doing business in the U.S. For example, there is this gem from the NYT:

Some of [Obama's] proposals, like a plan to put a price on carbon emissions, don’t cost the government any money.

Wow. How many things are wrong with that statement. One, the NYT is doing an analysis that conflates our economy with the federal government. But our GDP does not come from government printing presses, it comes from private enterprise and private individuals creating the value which comprises the GDP. If the government money supply is in line with it, then we see a stable economy. Whether cap and trade is a direct expense of government is only a portion of the analysis. Whether cap and trade is a cost that detracts from GDP, thus indirectly effecting government revenues, is an equally necessary consideration.

Cap and trade will create a massive regressive tax on our economy. That will take money away from private enterprise and individuals, siphoning it to rent seekers such as Al Gore who produce nothing that adds value, and with a portion going back to the government. So all other things being equal, a tax of this magnitude will slow down if not smother growth, it will result in less avaialble capital across the board with which to invest and/or consume, and all of that means lower revenues flowing into government coffers.

Then there is this other gem from the NYT:

Mr. Obama’s main contribution to the deficit is his extension of several Bush policies, like the Iraq war and tax cuts for households making less than $250,000.

Correct me if I am wrong, but hasn't Obama been promising to pay for all of his socialist goodies by not paying for a surge in Iraq extending out for a decade. I have no idea what assumptions the NYT adopted here vis a vis Iraq - again, they don't show their math - but I do know that Obama has been blowing smoke up our nethers for months with his claims about funding and the Iraq war. How that factors into the 'newmath' of the NYT is anyone's guess, but I'd eat my hat if the assumptions they use are even remotely realistic.

And the last bit there from the NYT is that maintaining the Bush tax cuts means Bush is responsible for x dollars that would otherwise be collected to reduce the deficit under higher taxes. That seems to be the part that all on the left just can't get through their class warfare muddled brains.

Tax policy is dynamic, not static. History tells us that keeping taxes low expands the economy at a quicker pace. Yes, we get a smaller percentage of the pie - and our class warriors don't get that warm comfy feeling as they go to sleep knowing that our government just stole 50% or so of the wealth from all the rich evil capitalists in our country. But the evil capitalists invest their money and the pie grows for everyone. That increases revenues into the government. It did under JFK. It did under Reagan. It did under Bush. Indeed, if you take a look at 2002 through 2004, after the Bush tax cut, you see the fastest increase in tax receipts ever recorded.

Obviously if that is true, then the reverse must also true. The NYT is using static calculations to assess that the failure to go from, say, a 10% tax on a $1,000 to a 15% tax means that Bush is responsible $50 of the debt. The NYT authors are either wholly ignorant or being deliberately disingenuous. If increasing taxes retards growth - and it always does - instead of netting an extra $50, we might only net $40 in year one and something similar in succeeding years, whereas with the tax cuts, we will eventually surpass the $140 mark and leave it far behind while staying at a 10% tax.

The bottom line, the NYT just published a ludicrous news article of pure fiction. The last time I heard such disingenous utter bull from the left was when they were screaming in front of every microphone that the fall of Enron - a company whose accounting misdeeds took place under Clinton's watch over a period of years - was somehow the fault of the months old Bush regime. Spin is one thing. Outright lies are entirely another. And all of this falls into the latter category.

Oh, and by the way, those Clinton surpluses the NYT mentions - all smoke and mirrors. They came from turning Social Security into a ponzi scheme and accounting social security receipts as part of the Congress's general funds.

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And He's Just Figuring This Out Now?

This from the One:

President Barack Obama, calling current deficit spending “unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries.

“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”

No kidding. So did he come just now come to this epiphany . . . Right after wracking up a world record national debt on borrowed money and driving our federal bond ratings to the brink of downgrading? As Instapundit quite pithily asked, "If Obama were trying to wreck America as a superpower, what would he be doing differently?"

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Red Ink Rising

Is is time to hit the panic button yet?

The White House announced that they were adjusting upwards by $89 billion dollars the size of the debt. We are in truly uncharted territory with a bill due equal to the highest debt load our nation has ever previously carried times a factor of 4. On top of that, we have ridiculously optimistic economic predictions from the One, and a budget that, even under his predictions, is going to face huge upward pressure from social security and medicare in a decade.

This from McClatchy:

The White House on Monday projected 2009 and 2010 federal budget deficits far higher than it forecast just two and a half months ago, even as it continued to defy most experts and predict that the economy is headed for a strong comeback starting late this year.

Economists scoffed at the latest administration predictions.

"If they keep playing this game, they're going to have real credibility problems," predicted Brian Bethune, the chief U.S. financial economist at IHS Global Insight, an economic research firm.

The new administration budget said that the fiscal 2009 deficit would reach $1.84 trillion, or $89 billion more than forecast in February, while the 2010 figure now is estimated at $1.26 trillion, or $87 billion above the previous number. The fiscal 2008 deficit was $459 billion.

. . . Budget Director Peter Orszag, writing on his blog, explained that the latest changes, which are the final pieces of Obama's rollout of his $3.6 trillion fiscal 2010 budget, reflect "upward technical revisions" caused largely by lower-than-expected revenues and higher-than-anticipated costs for rescuing financial institutions.

As it has done since it took office in January, however, the administration tried to stay upbeat. Monday it offered new plans for cutting health care costs and in the new budget still maintained its February economic assumptions, which are rosier than nearly any other economists foresee.

The White House still is projecting that the nation's economy will shrink by 1.2 percent this year and increase by 3.2 percent next year. In addition, it projects that "by the end of this year," the economy will be growing at a 3.5 percent annual rate.

The nonpartisan Congressional Budget Office predicts a gross domestic product decline of 3 percent this year, but 2.9 percent growth next year, while the April consensus of 50 blue-chip private economists sees a 2.6 percent decline in 2009 and only 1.8 percent growth next year.

The administration's assumptions, Orszag said, will be revisited this summer, "the traditional point" when an administration makes such revisions.

The biggest discrepancy involves unemployment, which reached 8.9 percent last month. The White House sees the number declining to an average of 7.9 percent next year, well below the CBO's 9 percent estimate and the blue chip 9.5 percent.

"The (Obama) unemployment number is crazy," said Roberton Williams, senior fellow at the Urban Institute-Brookings Institution Tax Policy Center.

. . . Even with its more optimistic economic scenario, the administration projects record deficits for years to come. The annual deficit would drop to $512 billion by 2013, but then would begin to go up again, reaching $779 billion by 2019, as the costs of Social Security and government health care programs soar, the administration projects.

It's a grim picture, analysts said.

"Even using their . . . economic assumptions — which now appear to be out of date and overly optimistic — the administration never puts us on a stable path," said Marc Goldwein, the policy director of the nonpartisan Committee for a Responsible Federal Budget. . . .

Read the entire article. I just don't see how we can possibly overcome this without some severe constraints for many years into the future. All of this mass of spending was not on things that will create permanent jobs. It was money wasted at a time when we could ill afford to waste it. Its gone to pet projects and feeding states that have grossly mismanaged their spending for years. Add cap and trade and socialized medicine on the top of all of this and we will soon be a third world country - albeit one worthy of the third world dictator we seem to have elected.

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"Terrible" Treasury Auction Signals Rough Economic Waters Ahead

"What if we hold a treasury auction and no one shows up?" That was the question posed by Ed Morrisey at Hot Air after a Treasury Auction saw the Treasury having to offer higher than planned interest rates to induce buyers to purchase our government's bonds. The answer - it means trouble for the economy. As the Heritage Foundation puts it, "[t]his is just the first sign that the debt-based Obama economic stimulus plan is about to become a major drag on the recovery, just as expected."

According to the Heritage Foundation, signs are that the recession is bottoming out and the economic situation will stabilize this summer. That signals the start of the unplanned consequences of the massive spending by Obama. This from the Heritage Foundation:

There are two critical consequences to the economy stabilizing. The first is that the massive liquidity injected into credit markets by the Federal Reserve and central banks around the world transforms from economic medicine to inflationary heroin. Central banks are going to face a difficult task of extracting the excess liquidity before inflation soars and without causing another recession. Doubt about the fight against soaring inflation means higher inflation premiums in interest rates.

The second dangerous consequence is that President Obama is on course to double the national debt in just four years. After years of complaining about annual deficits of $300 billion or $400 billion and their effects on interest rates, liberal commentators are suddenly silent now that the deficit is heading toward $2 trillion under a liberal administration. But now the vaunted “crowding out” effect from government borrowing is almost a certainty, as are the resulting higher interest rates.

Healing financial markets and a stabilizing economy generally translate into higher interest rates for long-term, high-quality bonds like 30-year Treasuries. The effect of the projected massive government borrowing, however, is to drive interest rates as much as a full percentage point higher yet. This will mean higher interest rates for consumer loans, mortgage loans, business loans, etc. Instead of a 6.5 percent mortgage rate, home buyers will face a 7.5 percent rate. The debt-based Obama economic stimulus plan is about to become a major drag on the recovery, just as expected.

And as Ed Morrisey points out, the rise in Treasury interest rates that resulted from the most recent auction means that the huge defecits forecast by the Obama administration - and, for that matter, the even larger defecits forecast by the Congressional Budget Office - are already unrealistically low. Here is the chart of the estimates:



And to think that my bill of particulars against the Republicans was a lask of fiscal restraint. Those guys were penny-pinchers compared to the real far left deal. At any rate, as Ed Morrisey writes:

These projections had to consider interest payments on all of the debt Obama planned to buy while running these deficits, and any hike in interest rates means that those interest payments will have to go up. That also means that we will have to spend more money than Obama projected, creating even higher deficits and the need for even more bond sales — and more interest payments on those.

It’s basically a Ponzi scheme, and it’s accelerating.

One of two things will have to occur to resolve the situation. Either the federal government will have to massively cut its spending in order to service all that debt at the higher interest rates now demanded, or it will have to pass massive new taxes in order to generate enough revenue to accomplish it. Which do you think Obama is likely to try?

As I've written before, we may soon be pining for the good economic times of the Jimmy Carter economy.

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