I'm not going to try and find what the CBO this time last year projected the 2009 US budget deficit to be, but I'm willing to bet a lot of bread crumbs that it was a lot less than the $1.4 trillion it turned out to be (three times the 2008 deficit). Today's CBO projection of a $1.35 trillion 2010 deficit inevitably needs to be seen in that pale shade of light.
If you can find any government projection number these days that turns out to be more positive after time, congrats: you're a rare species. With present policies in place, the known total deficit one year from now may well be sharply higher than $1.35 trillion. Even if interest rates don't rise. Which they will.
Obama will announce a "discretionary budget freeze" in the State of the Union, but that's really just for showcase purposes, and not the smartest ones either, by the looks of it. For one thing, 83% of the budget will not be affected at all by the freeze. For another, the 3-year freeze is expected to save $10-15 billion per year initially, and a total of $250 billion over 10 years. If the budget deficit averages $1 trillion for that next decade, the freeze will shave 2.5% off of the overall deficit. And to achieve that, the president will have to fight bitter battles with representatives who rely on that part of the budget to look good in their districts.
I’d say you’d need to save at least 10 times the $250 billion to have any effect (not that that would suffice), but while this can be put up for debate, I would suggest when the President gets to that part of his speech tomorrow night you might as well go get some cold ones. And then take a deep breath and let reality sink in.
Not only has Obama already committed himself to runaway deficits, he now urgently needs to come with a job creation plan that produces real results. And that will cost. A lot. Of money. That’s not there.
To get from today's U3 number of 15.3 million unemployed, a 10% rate, to a 5% rate and 7.65 million jobless by 2015, the US needs to add 1.53 million jobs each year, on top of the 150,000 per month or 1.8 million per year needed just to play even. That means needing 277,500 jobs every month for 60 months. And that's just if you use U3. Take the far more realistic U6 number, and you're looking at a demand of around 400,000 jobs every single month.
Really, do you believe it? Well, whether you do or not, you’ll hear a lot about job creation in the President's speech, and in the weeks and months that follow. Me, I’m wondering what all those people would do in their new jobs. How many burgers does one nation need flipped? And what would they be paid? Enough to pay for health care? To buy a home?
Speaking of homes. Mortgage rates are at a record low, the government buys and guarantees just about any and all loans in the market, gives $8000 premiums to buyers, and settles for a 3.5% downpayment. And in that environment, the November-December monthly drop in the number of existing homes sold was 16.7%, the biggest in over 40 years, in fact since records began. Now you ask yourself: how much more attractive can you make buying a home? And, alternatively, if and when the government withdraws and interest rates go up, what will happen to housing market prices? And if those go down, as they are bound to do, what happens with the taxpayer trillions put into Fannie and Freddie et al?
30% of Americans are hovering around the poverty line, and their numbers are growing rapidly. But poor as they may be, they still stand to lose a lot more money through their federal mortgage "possessions" when that housing market inevitably starts tanking for real. Oh, and Washington needs to bail out state and local governments. So when the poor have become the destitute, the government will start raising taxes. It will have no choice. And how do you think that will influence the pool of prospective home buyers?
I happens to me quite often these days that when I read through the numbers, I see these images of Katrina in my mind's eye, but this time the destruction's nationwide, and there's nowhere to go, even as the country's going nowhere.
And everybody keeps having the wrong conversations. It’s no longer about how to return to prosperity, it’s about how to stave off mayhem, misery, hunger, violence. But that’s not what the president will talk about. And why, then, would his people? It's much more attractive to deny it all a while longer. And be as unprepared as you can be.
I'm not going to try and find what the CBO this time last year projected the 2009 US budget deficit to be, but I'm willing to bet a lot of bread crumbs that it was a lot less than the $1.4 trillion it turned out to be (three times the 2008 deficit). Today's CBO projection of a $1.35 trillion 2010 deficit inevitably needs to be seen in that pale shade of light. 