Congressional Budget Office Forecasts U.S. Federal Deficit to Rise Beyond Previous Predictions

With economic conditions in the United States continuing on a downward spiral that have left President Obama's administration estimates well over $1.8 trillion higher than initial estimates had predicted means that administration "budget proposals, if carried out, would produce a staggering $9.3 trillion in total deficits over the next decade."

Huge scary numbers no matter from which political persuasion the deficit is viewed. This news means that during the decade from 2010 to 2019, there will be an excessive debt of $2.3 trillion generated according to the Congressional Budget Office; that translates to deficits of close to $1 trillion a year for the next ten years.

"... although Obama would come close to meeting his goal of cutting the deficit in half by the end of his first term, the CBO predicts that the nation's annual operating deficit would never drop below 4 percent of the overall economy over the next decade, a level administration officials have said is unsustainable because the national debt would grow too rapidly."

That translates to the CBO's opinion that national debt will increase by 82% "of the overall economy by 2019 under Obama's policies, compared with a pre-recession average of 40 percent."

The CBO estimates will have a considerable political as well as economic impact on Obama's relations with Congress.

Congressional Democrats will most likely be forced to make fiscal adjustments to Obama's budgetary plans. Senate Budget Committee Chairman Kent Conrad (D-N.D.) met with President Obama this past week and "said the president "understands the legislative process" and that "it's going to require everyone to make adjustments."

House Speaker Nancy Pelosi, commenting on the CBO numbers and the budgetary plans of the administration and house Democrats said: "This budget is a statement of our values and our investments in education, health care and the health of America. That includes prevention as well as care, and the energy initiatives as well as tax relief for 95 percent of the American people, as well as an approach that takes the deficit down. Those are the priorities of the budget."

Following up on Pelosi's comments; Peter Orszag, administration budget director echoed the Speaker's comments: "There are always some adjustments," Orszag said of the legislative budget process. "But those four pillars" -- health care, education, clean energy and deficit reduction -- "will be represented."

Obama Stimulus Plan Must End the Bush Doldrums

Soon to be president Barack Obama may be using strong words to describe the state of our nation's economy; but his stimulus plan is coming up short for what's needed to kick the country out of its Bush doldrums. “I don’t believe it’s too late to change course, but it will be if we don’t take dramatic action as soon as possible. If nothing is done, this recession could linger for years.” Paul Krugman agrees with Obama's explanation "why the nation needs an extremely aggressive government response to the economic downturn... He’s right. This is the most dangerous economic crisis since the Great Depression, and it could all too easily turn into a prolonged slump." On what he refers to as the Obama Gap, Krugman complains that: "... Mr. Obama’s prescription doesn’t live up to his diagnosis. The economic plan he’s offering isn’t as strong as his language about the economic threat. In fact, it falls well short of what’s needed." Krugman explains: "Bear in mind just how big the U.S. economy is. Given sufficient demand for its output, America would produce more than $30 trillion worth of goods and services over the next two years. But with both consumer spending and business investment plunging, a huge gap is opening up between what the American economy can produce and what it’s able to sell. And the Obama plan is nowhere near big enough to fill this “output gap.” Just this week, Krugman explains: "the Congressional Budget Office came out with its latest analysis of the budget and economic outlook. The budget office says that in the absence of a stimulus plan, the unemployment rate would rise above 9 percent by early 2010, and stay high for years to come. Grim as this projection is, by the way, it’s actually optimistic compared with some independent forecasts. Mr. Obama himself has been saying that without a stimulus plan, the unemployment rate could go into double digits." More precisely, Krugman details the crux of his problem with Obama's plan that: "Even the C.B.O. says, however, that “economic output over the next two years will average 6.8 percent below its potential.” This translates into $2.1 trillion of lost production. “Our economy could fall $1 trillion short of its full capacity,” declared Mr. Obama on Thursday. Well, he was actually understating things. To close a gap of more than $2 trillion — possibly a lot more, if the budget office projections turn out to be too optimistic — Mr. Obama offers a $775 billion plan. And that’s not enough." Of course, Krugman continues: "... fiscal stimulus can sometimes have a “multiplier” effect: In addition to the direct effects of, say, investment in infrastructure on demand, there can be a further indirect effect as higher incomes lead to higher consumer spending. Standard estimates suggest that a dollar of public spending raises G.D.P. by around $1.50. But only about 60 percent of the Obama plan consists of public spending. The rest consists of tax cuts — and many economists are skeptical about how much these tax cuts, especially the tax breaks for business, will actually do to boost spending... The bottom line is that the Obama plan is unlikely to close more than half of the looming output gap, and could easily end up doing less than a third of the job." Krugman wants to know: "Why isn’t Mr. Obama trying to do more?" Is the "fear of raising the debt causing Obama's hesitancy because dangers do exist "with large-scale government borrowing — and this week’s C.B.O. report projected a $1.2 trillion deficit for this year. But," Krugman complains; "it would be even more dangerous to fall short in rescuing the economy." Obama did say, Krugman reiterates: “I don’t believe it’s too late to change course, but it will be if we don’t take dramatic action as soon as possible. If nothing is done, this recession could linger for years.” And Krugman realizes: "there’s a real risk that we’ll slide into a prolonged, Japanese-style deflationary trap — but the consequences of failing to act adequately aren’t much better." Krugman is truly perplexed and is searching for answers: "Is the plan being limited by a lack of spending opportunities? There are only a limited number of “shovel-ready” public investment projects — that is, projects that can be started quickly enough to help the economy in the near term. But there are other forms of public spending, especially on health care, that could do good while aiding the economy in its hour of need. Or is the plan being limited by political caution? Press reports last month indicated that Obama aides were anxious to keep the final price tag on the plan below the politically sensitive trillion-dollar mark. There also have been suggestions that the plan’s inclusion of large business tax cuts, which add to its cost but will do little for the economy, is an attempt to win Republican votes in Congress." Krugman concludes without determining Obama's hesitancy to act boldly: "Whatever the explanation, the Obama plan just doesn’t look adequate to the economy’s need. To be sure, a third of a loaf is better than none. But right now we seem to be facing two major economic gaps: the gap between the economy’s potential and its likely performance, and the gap between Mr. Obama’s stern economic rhetoric and his somewhat disappointing economic plan." In addition, Obama seems to be content with just getting the employment rate to cover the 2.5 million jobs lost last year when he should be concentrating on magnifying job production beyond his break even point. Obama has three factions of his own party pushing him in three different directions: conservative Democrats are highly critical of the cost of the stimulus plan; moderate Democrats are paralyzed by the thought of adding to an already huge deficit; and liberal Democrats are seeking a larger stimulus package that pumps more money into the infrastructure work that is sorely needed, pushes us more rapidly toward green energy projects and increases spending for social programs. All the while Republicans are clamoring for tax breaks and incentives to spur on the private sector. Forget the thirty years plus of supply side, deregulatory solutions that "trickle-downed" us all the way into the economic abyss we find ourselves in today. Let the Keynesian approach lead the country to better times. Only the government can currently create the jobs we need to gain economic recovery. By your own admission, time is growing short. Obama is rapidly approaching the time when he must move from trying to listen and consider everyone's differing viewpoints and boldly act to energize the economy from the ground up as he so eloquently phrased during the campaign. He must craft a stimulus package that create jobs; lots of jobs that will raise the spirits of the people hurting the most at the bottom of the economic ladder. Jobs that will raise people's standard of living. Mr. Obama and the Democrats have the backing of the nation to turn the economy around, and they have control of the presidency and the Congress. The time to act is upon us as a nation. Mr. Obama must gather all the eloquence he can muster and give the American people the straight talk they're waiting to hear. Catering to wholly bipartisan initiatives will only slow down and cripple the stimulus. Obama needs to show Americans a grittier edge in his assessments of the economy. He must rise the nation beyond the "output gap" he is allowing to sabotage his stimulus package. Obama's got to get tougher with the politicians and interest groups that stand between him and his ability to give American's what they desperately need! Jobs! Jobs that will pay the people the money the nation needs to rise above the crippling fears caused by the Bush doldrums!

Obama Stakes Social Security and Medicare Overhaul to Stem Federal Spending

JEFF ZELENY and JOHN HARWOOD report for the New York Times that: "President-elect Barack Obama said Wednesday that overhauling Social Security and Medicare would be “a central part” of his administration’s efforts to contain federal spending, signaling for the first time that he would wade into the thorny politics of entitlement programs." Mr Obama made his remarks at a Washington news conference and "he provided no details of his approach to rein in Social Security and Medicare, which are projected to consume a growing share of government spending as the baby boom generation ages into retirement over the next two decades. But he said he would have more to say about the issue when he unveiled a budget next month." The Congressional Budget Office has "projected a record $1.2 trillion budget deficit for this year even before the costs of the nearly $800 billion economic stimulus package being taken up by the House and the Senate, Mr. Obama stepped up his effort to reassure lawmakers and the financial markets that he plans a vigorous effort to keep the government’s finances from deteriorating further." Making changes that would attempt to decrease the increasing expenditures for Social Security and Medicare would surely be a politically unappealing undertaking that would find few elected representatives willing to take on. The Times reporters suggest: "The programs have proved almost sacrosanct in political terms, even as they threaten to grow so large as to be unsustainable in the long run." From Obama's perspective, he has promised to “scour this budget, line by line, eliminating what we don’t need, or what doesn’t work, and improving the things that do.” And with that pledge in mind he has developed a special White House post, calling it the chief performance officer, and named Nancy Killefer to fill it with the intended purpose to engage in "a more intensive effort to weed inefficient and bloated programs out of the federal budget in the short run,.." Reflecting on his decision, Mr Obama remarked: "If we do nothing,.. then we will continue to see red ink as far as the eye can see.” The task of taking on Social Security and Medicare demonstrate Obama's willingness to consider that no federal program is sacrosanct. But at a time when Mr Obama is attempting to keep the nation's focus squarely on his economic recovery plan he has to be careful not to over reach and create battles that he neither needs nor is prepared to engage in. His presidency depends on a levelheaded and systematic approach to placing the nation on a sustainable glide path to recovery that holds the peoples' trust in his efforts. He must be very judicious and even-tempered in deciding how quickly he can spend the good will he now possesses; any deviations from that plan could prove disastrous to the achievement of his over all goal of repairing the economy. Social Security and Medicare reform; although both vitally necessary, might be tasks that come at a later time for the Obama Administration to have a greater chance at popular success.