Friday, January 9, 2009, 8:42 PM
In the magazine The Economist, they recently reported this interesting bit of news:
Federal Debt could go to 400% of GDP
On January 7th the Congressional Budget Office (CBO), a non-partisan outfit, released projections that show the financial crash and the resulting recession are already wreaking havoc with America’s finances. It reckons that the budget deficit will soar from $455 billion in fiscal 2008 (which ended last September 30th) to an astonishing $1.2 trillion in the current year. At 8.3% that would be the most as a share of gross domestic product since the second world war.
But the underlying picture is worse for several reasons. First, it does not include any estimate of the cost of Mr Obama’s planned fiscal stimulus, which he will seek from Congress soon after being inaugurated. Second, the CBO assumes all of George Bush’s tax cuts will expire as scheduled at the end of next year and that the Alternative Minimum Tax, a parallel levy aimed at the wealthy, is allowed to ensnare a growing share of the middle class each year.
One thing to understand about even the horrendous sounding “8.3% of GDP deficit” is that it is vastly understated. First, as they note in the article, not everything is being counted, such as the cost of the stimulus plan.
But second, even if such excluded costs were counted, it’s important to note that the way the government reports its fiscal condition would be illegal for any public company.