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Coffee and Markets

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Francis Cianfrocca joins Ben Domenech for the Wednesday, August 26th edition of Coffee & Markets, a series of brief morning podcasts on politics and the marketplace.

Today’s podcast focuses on the incredible nine trillion dollar deficit predictions of the OMB and the CBO released yesterday, and what they say about how the government has remade the American economy so significantly in the space of a year.

WSJ on the CBO and OMB Deficit Predictions

Mr. Obama’s White House and the Congressional Budget Office told us that current U.S. fiscal policy is “borrow and spend” on a hyperlink. The good news is the deficit for 2009 will be “only” $1.58 trillion, about $250 billion lower than expected thanks to less need for TARP funds. But the Obama fiscal plan envisions $9 trillion in new borrowing over the next decade, which is $2 trillion more debt than the White House predicted earlier this year. The 2010 deficit also rises by about as much as the 2009 deficit falls from January, so even the TARP windfall gets spent.

We’ve never fretted over budget deficits, at least if they finance tax cuts to promote growth or spending to win a war. But these deficit estimates are driven entirely by more domestic spending and already assume huge new tax increases. CBO predicts that debt held by the public as a share of GDP, which was 40.8% in 2008, will rise to 67.8% in 2019—and then keep climbing after that. CBO says this is “unsustainable,” but even this forecast may be optimistic.

Here’s why. Many of the current budget assumptions are laughably implausible. Both the White House and CBO predict that Congress will hold federal spending at the rate of inflation over the next decade. This is the same Democratic Congress that awarded a 47% increase in domestic discretionary spending in 2009 when counting stimulus funds. And the appropriations bills now speeding through Congress for 2010 serve up an 8% increase in domestic spending after inflation.