A Trillion Here, A Trillion There, Pretty Soon You’re Argentina

By August 25, 2009Economy

As expected, today the Office of Management and Budget announced that its 10-year estimate of the federal deficit had risen from a total of $7.2 trillion to $9 trillion. From OMB Director Peter Orszag, writing on the Mid-Session Review:

[With] regard to the out-year deficits, the changes are primarily driven by changes in our economic assumptions. In line with the current consensus among professional forecasters, the Administration’s economic projections show that we inherited a deeper recession than projected in February. These revisions are based on new data on the severity of the recession that weren’t available last winter.
As a result of a deeper-than-expected recession, certain spending programs (such as unemployment insurance and food stamps) are projected to automatically increase and revenues are projected to automatically decline, compared to our previous projection.  Although these effects help to ameliorate the economic downturn by stimulating demand, they also lead to higher medium-term deficits both directly and indirectly (through higher interest costs on a higher level of public debt). Over the next 10 years, the net impact is to add $2 trillion to the projected deficit, compared to our last projection made based on February’s economic assumptions. That brings the projected 10-year deficit for 2010-2019 to $9.05 trillion – in line with CBO’s June projection.

Yet the CBO today reduced its 10-year deficit forecast to $7 trillion. As Fox News summarizes:

In a reflection of how colossal Uncle Sam’s credit card balance has become, two top budget offices on Tuesday gave long-term deficit projections that were $2 trillion apart.

The discrepancy underscored how difficult it is to peg the path of the U.S. economy. But with a $2 trillion margin-of-error, it also showed how unwieldy the figures have become.

The Congressional Budget Office predicted deficits over the next decade will add up to $7.1 trillion. The White House Office of Management and Budget earlier increased its 10-year-budget projection to more than $9 trillion, an increase of about $2 trillion.

Here’s the CBO’s latest Budget and Economic Outlook. The opening paragraph is a startler:

The Congressional Budget Office (CBO) estimates that the federal budget deficit for 2009 will total $1.6 trillion, which, at 11.2 percent of gross domestic product (GDP), will be the highest since World War II.

Somebody better hurry up and determine which “moral equivalent of war” we happen to be fighting.

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