Obama deficit this year will be bigger than 2011

Despite increased economic activity that will bring additional tax revenues to the government. Barack Obama's budget to be released on Monday shows an increase in the budget deficit from last year.

The Hill:

President Obama's 2013 budget due out Monday will estimate the deficit for 2012 to be $1.33 trillion, higher than the $1.29 trillion deficit in 2011, according to senior administration officials.

The increase happens largely because the budget assumes enactment of a $350 billion stimulus package, including extension of the payroll tax cut. That package is a scaled-down version of the $447 billion American Jobs Act that Obama proposed in the fall.The budget estimates that the deficit in 2013 will be $901 billion. This means that Obama will fail to cut the deficit in half after his first term, something he once vowed to do.

Last year's budget had a rosy prediction that the deficit would decline to $768 billion in 2013, about half the $1.4 trillion deficit of his first year.

To get to the $901 billion target, Obama's budget assumes that the Bush era tax rates for the wealthy will expire next year, something that is by no means certain.

If you believe that $901 billion deficit target for next year, I have a couple of bridges over the Chicago River I'd be glad to sell you.

Not only that, Obama is projecting massive deficits...well, forever:

Officials highlighted that by the end of 2022, the deficit would be $704 billion, 2.8 percent of the economy. They said that this would "stabilize" the growth of the national debt.

What will almost certainly throw all of these numbers in a cocked hat is the fact that interest rates won't stay at zero forever. Once they start rising, servicing the debt will become one of the major expenditures of the government and add to the massive deficits Obama will be running.

How much will increased debt servicing add to the deficit?

President Obama's budget projects annual net interest payments on the debt will rise to $560 billion in 2016 from $196 billion in 2010. As bad as this $364 billion increase in interest expenditures is, the actual results are likely to be much worse, or to quote Lehrman, "almost unthinkable."

What's "unthinkable?" Try $800 billion to $1 trillion a year. The Fed is going to have to raise interest rates to keep the inflation beast at bay when the economy starts to heat up. That increase means that borrowing becomes much more expensive, as does servicing the existing debt.

To say that spending more servicing the debt than on national defense, or Social Security and Medicare put together is unsustainable is an understatement. It would be a catastrophe. At the moment, no one seems very interested in heading it off, least of all Mr. Obama who can't even reduce the deficit in a time of a modestly growing economy.




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