Wednesday, January 7, 2009

CBO Projects $1.2 Trillion Deficit for 2009

I think it's gotten to the point that people are getting immune to the large numbers thrown around. The Federal Reserve is backstopping or supporting $8.5 Trillion of markets. We hand the banks $700 Billion. We have another stimulus coming of $800 Billion. We gave out $160 Billion last spring as "stimulus".

At some points these numbers matter - this grand experiment of pumping up a debt laden society by.... more debt.... is frankly scary. The largest federal deficit we ever ran was $400 Billion-ish. The punditry has been saying this year we will hit $1 Trillion in fiscal 2009. Today the Congressional Budget Office said we are heading for $1.2 Trillion. One of my 2009 Outlier Predictions was the economy will be so weak, and the government so desperate that we will hit a $2 Trillion Deficit in fiscal 2009 (October 2008 to September 2009). So I am saying double what the punditry says, and 5x what our largest ever deficit has been in our history. Only $800 Billion more to go and with (a) far lower tax revenue in 2009 since this "2nd half recovery" is complete hogwash and "Main Street America" in free fall, and (b) what I believe our government will do to "save" the housing market as it does not respond as they "wish" in early 2009, I believe my prediction has a fair chance of happening.

*note: the "wars" are not even counted as part of our deficits since they are not "expenditures" in the government eyes - what a farce. Either is the AIG bailout or Citi or all those - so it's even worse than the CBO is showing you. Far worse. This is the problem in America right now - our government has been changing reports to hide things for the better part of 2 decades. How do you address the problem when you don't even admit there is one?

Folks, someone has to pay for this at some point - these are not just imaginery numbers on a spreadsheet somewhere. When global economies recover the long term interest rates on our debt (Treasuries) are going to race higher, making this debt ever more expensive. At some point our dollar will burn for this, and our living standards will follow. In return you get a stock market that temporarily is higher than it should be. Great trade off. Your grandchildren and children eagerly await this burden....
  • The federal budget deficit will hit an unprecedented $1.2 trillion for the 2009 budget year, according to grim new Congressional Budget Office figures. The eye-popping estimates reflect plummeting tax revenues because of the recession and about $400 billion to bail out the financial industry and take over Fannie Mae and Freddie Mac. Last year's deficit was $455 billion.
  • "The recession -- which began about a year ago -- will last well into 2009," the CBO report says. The agency said "the ongoing turmoil in the housing and financial markets has taken a major toll on the federal budget."
  • The dismal figures come a day after President-elect Barack Obama warned of "trillion-dollar deficits for years to come."
  • Exposure to the taxpayer stemming from the Federal Reserve Board's extensive interventions in the financial markets -- such as acquiring 80 percent control of insurance and financial giant American International Group Inc. -- are not reflected in the estimates.
  • The CBO report also said the federal takeover of Fannie Mae and Freddie Mac last year added $218 billion to this year's deficit. (it's going to be a lot more than that when all is said and done - remember Paulson promised us the total cost would be "at most up to $200 Billion")
  • The $1.19 trillion 2009 figure shatters the previous record of $455 billion, set only last year. It also represents more than 8 percent of the size of the economy, which is higher than the deficits of the 1980s.
Again this is ONE Year - we throw that amount on TOP of our already massive deficit and then look ahead to President Elect Midas' "trillion dollar deficits for years to come". Obama wants to create 600K new government jobs - and you know a government job once created, never leaves.

This is why, after we "recover" from this fiscal emergency, the United States of Borrowing is going to lurch from emergency to emergency for many years to come (Medicare funding emergency here we come! See ya in 2015)... interspersed with bubbles to make you all feel better about it for a few years at a time. I don't know when the sheeple of America get engaged and throw their own version of a Boston Tea Party - we're still too busy obsessed about Britney and Angelina/Pitt/Anniston. Ugh.

Our long term futures include much much much higher taxes for all of us. The irony in America in about 2015-2025 is that we will have as high taxes as the "socialist" Europeans we scoff openly at.... (USA! USA! USA!) but without half the safety nets or benefits. At least for their 55%+ taxes they have 6 weeks of vacation, paid preschool and nursery, university, healthcare, and the like. Here (if you include the costs of saving for retirement, university, daycare for kids, healthcare et al on top of nominal tax rates) the effective rate for many is already 50%+ (and headed much higher - watch what your states will do to taxes in the next 2 years) - and in return you get a broken Social Security, expensive universities, 40% uninsured. A country where you get sick you can lose 30 years of savings in 1 hospital stay and head to bankruptcy. Cramerica - for the corporation, by the corporation.

The dogma in the country has simply brainwashed people... sorry to say it. As if we cannot balance people's interests with capitalism. Our costs (when you really break it down) are as high as the "socialists" and in return we receive far less.... with far less security. It's going to be a fun decade or two ahead as we face reality. But for now, let's begin to prepare for the government induced bubble of 2011-2014 that will make us all forget any ills. Onward!

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