I am delighted that President Obama, Secretary Gates, and the heroic U.S. Navy Seals have had a great success today. But that's not where my own thoughts are. I'm thinking more about our increasingly ominous economic situation. I don't wish to deny that the Administration has taken swift action on a number of fronts. However, the new numbers on the deficit are simply terrifying to me. One of the reasons I left the Republican Party 18 years ago was the yawning gulf between phony Republican "fiscal responsibility" rhetoric and the actual performance of the Republicans when in office. I firmly believe the President is committed to our long term economic health. But my question is this:
How are we going to dig out of the biggest debt in proportion to GDP since the Second World War?
Quite frankly, what I'm reading here is scaring the hell out of me.
The US federal government posted a budget deficit of $192.27 billion in March. For the first six months of fiscal 2009, which started on October 1, 2008, the deficit was $956.80 billion. In the first half of the previous year, fiscal 2008, the deficit was $312.75 billion. In all of fiscal 2008, the shortfall was $454.80 billion, and that was already a record high. The Congressional Budget Office estimated on March 20 that the deficit will grow to $1.85 trillion this fiscal year, after projecting a $1.2 trillion deficit just two months prior. Over 50% extra in 2 months. In January 2008, the CBO still predicted a paltry $250 billion deficit for the year. See? That's what is known in the business as "growth potential".
If we go out on a limb just a little bit, we can pretty safely assume the CBO is off by 40% or more once again. After all, they always are. We get to that number by taking the March deficit and multiplying it by 12. That would add up to about $2.4 trillion. It's speculative, true, but it's also simply following a trendline. Don't be surprised if the deficit ends up between $2.5 and $3 trillion.The exact numbers are less important than the message. And what's more, don't forget that the CBO is habitually chided by the government for being too negative in the numbers it reports, which means "official" White House numbers will as usual be off be even wider margins.Of course, that’s nothing new, nor is it surprising in the least, but seeing how far off the CBO predictions are, it's difficult not to see US government numbers as meaningless, ridiculous, purely faith based and, in the end, intentionally false.
Nor are all these deficit numbers solely the result of out-of-control spending. There's also much less revenue coming in. Corporate tax receipts totaled $56.2 billion through March, vs $129.5 billion in the first half of fiscal 2008. And the trend is not promising. March corporate taxes totaled $3.39 billion, down from $32.57 billion in March 2008, down almost 90%. Individual income tax revenues are down 15% so far this fiscal year to $429.7 billion. A year ago, they stood at $503.5 billion. Next storm: all the people who will fall into lower tax brackets, bringing revenues down ever more and more.
And there's an additional problem waiting in the wings, one that might do cause more trouble than anyone is prepared for: The U.S. government needs to roll over more than $2.5 trillion of outstanding sovereign debt coming due in 2009, even before it can issue any new debt, even though it will desperately need to do so in order to finance these ballooning deficits. The total number, if we add up old debt that needs to be rolled over, and new debt that's needed to finance new deficits, could well exceed $5 trillion.
To summarize: the deficit for the first half of fiscal 2009 is $956.80 billion, more than three times the $312.75 billion deficit for the first 6 months of fiscal 2008. The total shortfall for fiscal 2008 was $454.80 billion, while the CBO projection for fiscal 2009 is $1.85 trillion, or four times as much. Tax receipts, meanwhile, are down anywhere between 50% and 90%, depending on where you care to look.
I realize that The Automatic Earth is relentlessly pessimistic, but their evidence here is very disquieting. In effect, we need $5,000,000,000,000 this year. My questions for my fellow Kossacks are these:
- Will the Administration's stimulus plan work well enough to reverse the slump in tax revenue?
- Will the lapsing of the tax breaks for the upper 5% bring in sufficient revenue to bring down the monster deficits we're running? (BTW, the Republicans, the party of "deficits don't matter", have zero credibility on these matters.)
- Will we have to issue so much new currency that it will ignite inflationary pressures, similar to the horrendous 13-14% inflation of the late 70s-early 80s?
- Can China, increasingly hard-pressed itself, support our debt needs much longer?
- Will the Zombie Banks continue to be allowed to suck in tax dollars indefinitely?
I'm genuinely scared, folks. The Bush Administration left this country hanging by its fingernails. Unneeded tax cuts for the rich, a vast expansion of personal debt (brought about by wage stagnation and the housing bubble), and big state and federal debt, combined with an utterly irresponsible, unregulated financial sector, have put us in a situation as grave, if not more so, than that which we faced in 1933. How in God's name are we going to finance all this debt? Are you of the opinion that Ilargi from AE is off base, or is he on to something?
I know the President has said this will take time. I realize that after the Civil War and World War II we faced a huge national debt in relation to GDP as well. But this time, in a world more economically interconnected than ever, it's really, really looking bad.
I need hope.