Cincinnatus BLOG *** Political Commentary - Social Commentary

During the Bush years, the national outlays rose from $1.9 trillion in 2001 to $3.0 trillion in 2008, and the country went from enjoying a surplus of $128 million in 2001 to suffering a deficit of $459 million in 2008. We called Bush irresponsible. Perhaps the fiscal 2009 deficit of $1.75 billion should be viewed as an anomaly since it’s the direct result of the $700 billion Bush TARP plan and the $800 billion Obama Stimulus Plan, both implemented to ameliorate the effects of the financial crisis and recession. But how do we justify an average deficit of $700 billion annually from 2010 to 20019, which according to the Obama budget, will be boom times? GDP will be likely rise to an eye-popping $23 trillion in 2019 based on the Obama budget, but alas expenses will grow to nearly $5.2 trillion and “taxing the rich” will not pay for it.

Obama Administration Budget (In billions of dollars)

Is this “A New Era of Responsibility”? If we take the administration’s rosy recovery scenario at face value, fiscal 2010 GDP will grow by a very healthy 3.4% and federal outlays will be a breathtaking $3.6 trillion, or 24.1% of the projected $14.7 trillion GDP. Since federal receipts will be only $2.4 trillion, a deficit of $1.2 trillion will be incurred in fiscal 2010. This is only the beginning of a recurrent pattern; rosy growth projections for GDP, increased spending and unprecedented deficits as far as the eye can see. Deficits dip from 2012 to 2015 and then continue merrily higher for the rest of the decade without respite.

What impact will this have on the national debt? Debt held by the public as a share of current-dollar GDP ran at 40.8% in 2008. Yet, even based on the President’s rosy scenario, the outstanding debt is projected at 67.2% of current-dollar GDP by 2019.

Will China find us a credit-worthy borrower?  Approximately 50% of US debt is owed to foreigners, up from 31% in 2000, and it will undoubtedly continue to climb. If China and other foreign creditors lose their appetite for US debt, the result would be catastrophic for the dollar and the US economy.

If we follow the Obama budget plan, with its historical deficits, it is not inconceivable that we will see double-digit inflation beginning as early as 2011 or 2012. One can only guess at the potential loss of value of the dollar, but a 30 to 50% reduction would not be out of the question. Would foreign creditors buy our debt under those circumstances? No, not unless we were willing to pay interest of at least 12 to 15%, which of course would bankrupt the United States.

Since even with the Obama increase in taxes on the wealthy his deficit blossoms, there is only one other place to make up for the shortfall, namely the ordinary working men and women of America. The arithmetical solution to the conundrum of wealth is to tax everyone making over $25,000 per annum as though they were wealthy. Unfortunately, there is no other mathematical solution that will prevent economic havoc. If we spend at this unprecedented rate neither rosy economic growth nor an increase in tax receipts from the wealthy will be sufficient to cover expenses. We have no choice: if we continue to spend freely we will pay a steep price.