Thursday, August 27, 2009

White House Budget Projection

One piece of news that came out this week was that the White House is projecting a budget deficit of $9.05 trillion over the next ten years. What does this mean? First of all, let's look at where we are, how we got here, and where we are headed.

Using the information from we know historical US federal budget deficits going back to early 1993. On the day that Bill Clinton was inaugurated - January 20, 1993 - federal debt stood at $4.19 trillion. Next let's fast forward eights years to the day when George W. Bush entered the White House - January 20, 2001. On this day, federal debt stood at $5.73 trillion. This was an increase of 36% over 8 years - or 3.96% per year compounded. Next, let's fast forward to Barack Obama's first day in office - January 20, 2009. On this day, the federal debt was $10.63 trillion. This was an increase of 85.51% over 8 years - or 8.03% per year.

The budget projection for this year is $1.58, which, if accurate, will bring the total debt to $12.28 trillion by the end of this year. Now, the White House projects that the budget deficit will increase by $9.05 trillion from 2010-2019. This is an average yearly budget deficit of $905 million, or an increase of $7.92 trillion over the potential eight year Obama tenure. If accurate, this will leave the federal debt at $18.55 trillion when Obama leaves office. This would equate to an increase of 74.46% over 8 years - or 7.2% per year.

Of course we know that these numbers are equal parts guessing and wishful thinking, to put it kindly. They do not take into account the future costs of social security, the new health care reforms and other such programs. These numbers also do not take into account the many obligations that the treasury has taken on over the last year to bail out various financial institutions and backstop public and private debts. Throw in another "unexpected" recession or two during this time and you get the idea.

Bringing it all together, the federal debt increased by $1.53 under Clinton, $4.9 billion under Bush II, and at best will increase by $7.92 trillion under Obama. As government spending increases, it is comforting that tax receipts are growing as well. The only problem is that they are growing in the other direction, as in shrinking:

These trends are clearly unsustainable. If what cannot continue must stop, we know where this is headed. My guess is we do not even make it to the end of these government projections before something "interrupts" the cycle. We have a few theories as to what form this "interruption" takes but we will save that for another day.
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