Obama's 2009 Budget

Yesterday the federal gov’t released their latest set of numbers on this year’s budget. The budget deficit for 2009 now approaches $1.85 Trillion dollars. That’s many billions more than previously predicted because the gov’t thought the economy would be improving more than it actually is. So they had to adjust their numbers.

The deficit is $1.85 trillion. Obama and Congress has officially quadrupled 2008’s budget deficit. QUADRUPLED! The very people – especially Obama – who criticized Bush for fiscal irresponsibility, who blamed him for “record deficits”, have just quadrupled the deficit that he accumulated. $1.85 trillion.

Now for some perspective. Bush’s deficit in 2008 was just under 3% of GDP. Yes, the actual dollar amount was big. Yes his deficit was the highest in history, but it was still just under 3% of GDP. Economists will tell you that some deficit spending is okay and can actually be helpful for the economy, as long as the deficit is kept relatively low compared to GDP. Many will say that 2-3% of GDP is acceptable. The logic behind it is that borrowing can be stimulative. We borrow money in order to spend, spending stimulates the economy, jobs are created, etc. The key here is keeping the deficit spending relatively low compared to GDP. A little is good, a lot can be very, very bad. Again, ask an economist and they will say 2-3% of GDP is an acceptable level.

Personally, I tend to be more of a budget hawk. I say deficit spending is wrong and should not be done. If Congress needs to spend more money then they should find it through budget cuts. Perhaps that would be imprudent. But Congress has not shown itself to be a responsible entity when it comes to money, so I feel they should be kept on a tighter leash. But that’s just me.

Now let’s look at the ’09 budget. Deficit spending at 2-3% of GDP is considered acceptable. Obama’s 2009 budget will eclipse 12%. TWELVE PERCENT!!!!

That means that he will spend ALL the money the federal government takes in PLUS an amount equivalent to 12% of our GDP. This is unprecedented. In fact, to many of us it is unfathomable. Many people – including myself – believe that TOTAL federal spending should not be more than 10-12% of GDP. Obama OVERSPENDS by that much. I simply can’t describe it. Irresponsible. Incomprehensible. Somehow these words just don’t do it justice.

So why do economists say that 2-3% is acceptable, and four times that would be dangerous? Well, because at 2-3% you will get some economic stimulus. At 2-3%, the borrowed money is spent, the jobs are created, and the resulting inflation is kept to a minimum with little negative impact on the overall economy. At 12% it is a much different scenario. Yes, money is spent. Yes, jobs are likely created, but the ensuing monstrous inflation that follows will quickly consume any stimulative effects of the spending. In short, the bad eventually outweighs the good and the economy eventually suffers terribly. Guess where we are headed, folks? It’s simple math. It’s basic economics. We are staring at very high inflation. The question is no longer if, but when. Will it hit while we are still in our current recession or will it hit as we are in the midst of recovering, thereby triggering ANOTHER major recession in order to recover?

In Jimmy Carter’s final year, inflation was at 14%. That number is a very real possibility in the next 2-3 years. History continues to teach us lessons, and we are determined not to listen.

Buckle your seatbelts, folks. This recession may be bad, but there are still some bumpy times ahead. And when inflation surpasses 10%, just keep that in mind the next time you’re in the voting booth.