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Uncle Sam: $407 billion in the hole

user profile picture Chris Martenson Sep 10, 2008
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NEW YORK (CNNMoney.com) — The budget deficit will jump by $246 billion to $407 billion this year, the Congressional Budget Office estimates in a report released Tuesday.

"Over the long run, growing budget deficits and the resulting increases in federal debt would lead to slower economic growth," the agency said.

The budget deficit shot up 153% from last year’s shortfall of $161 billion. The government’s fiscal year ends Sept. 30. The agency attributes the jump to "a substantial increase in spending and a halt in the growth of tax revenues."

That drop in revenue is driven in part by an estimated 15% decline in corporate tax receipts.

The CBO said it expected the deficit to exceed $400 billion – or 3% of gross domestic product – for each of the next two years if current policies remain in place. It also forecast several more months of "very slow" economic growth.

The agency’s latest estimates do not reflect the Treasury announcement this weekend that the government would temporarily takeover Fannie Mae and Freddie Mac, the two government-sponsored enterprises that form the backbone of the mortgage market.

 

An $161 billion increase is pretty dramatic, but it’s nothing compared to next year.  At that time, I expect us to vault from $408 billion to close to $750 billion, due to a combination of continued war spending, as-yet unannounced stimulus programs (such as extension of unemployment benefits), the Fannie and Freddie mess, plus a couple of other bailouts (probably in the auto industry), and a larger-than-expected decline in tax receipts.

Which means that the CBO statement that next year’s deficit, "will exceed $400 billion," is kind of like saying "we expect high tide to come after low tide."  Um, sure.

I post this because I am fixating on the ability of the federal government to borrow all it wants next year.  I am beginning to have my doubts.  What if they can’t?  Life will change quite dramatically in a very short amount of time.