President Barack Obama

As the United States national debt reaches parity with total annual GDP, President Barack Obama continues to preside over a record level of deficit spending by the federal government. He has just sent to Congress a proposed $3.73 trillion budget for FY 2012, while forecasting a record $1.65 trillion deficit for the current fiscal year. Earlier, the Congressional Budget Office projected that the current deficit would reach at least $1.5 trillion. These figures mean that America remains trapped with unsustainable structural mega-deficits,  and that more than 40 percent of everything the U.S. federal government spends is financed with borrowed money.

As I have commented on before, this level of government indebtedness just cannot be sustained, and will lead to catastrophic repercussions. While the politicians in Washington, particularly in the Obama administration, pay lip service to the need to “rein in” this profligate public spending, nobody believes that they are serious. The president’s claim that he “plans” to reduce the deficit cumulatively over ten years by just over a trillion dollars is an utter farce, since even by the most optimistic forecasts this would leave a combined deficit over the decade of more than ten trillion dollars.

The problem, however, is not uniquely one of the Obama administration and the Democratic Party. The Republicans, who left for Obama as an inaugural present in 2009 a first-ever annual deficit to exceed a trillion dollars, are as intellectually bankrupt as are their adversaries on the other side of the aisle. The GOP is equally bereft of ideas on how to control this raging fiscal train wreck, offering little more than worn-out cliches such as reducing taxes, as though that would not further exacerbate the federal government’s structural mega-deficit.

What we are witnessing is not only an economic and fiscal calamity in the making. It is as much a display of political dysfunctionality and moral cowardice as it is of inept fiscal policy. Which leads to the melancholy conclusion that it will not be the political echelon in Washington that ultimately  imposes budgetary discipline on public spending. Increasingly likely is a doomsday scenario, in which the bond vigilantes, well practiced already with their punishing assaults on the credit ratings of Greece, Ireland and now Portugal, unleash the full fury of the market place on Uncle Sam. When that fiscally apocalyptic moment arrives, not even the impressive weight of political inertia that resides in Washington DC will be able to impede a sovereign debt crisis in the United States that will not only cripple the nation’s economy with devastating effect; it will likely dispossess the next generation of Americans  of their future.

Ten years ago, the Clinton administration submitted to Congress a proposed federal government budget of $1.9 trillion. Now, the Obama administration has released  a proposed budget for the upcoming fiscal year. It is a whopper: more than $3.8 trillion. As inflation has been low over the past decade, if official U.S. government statistics are to be believed, the great majority of this doubling  in federal spending over the past decade has been actual increases in real terms.

More disturbing than this explosion in federal outlays has been the projected record deficit that is being projected, following on the heels of previous record deficits. The red ink being forecast for FY 2011 is an eye-popping  $1.56 trillion. Yet, President Barack Obama claims that this is a first step towards deficit reduction.
 
I beg to differ with the president. Far from being a move towards fiscal responsibility, this massive spending fest, with a projected deficit that is the equivalent of more than three quarters of total federal government spending a mere ten years ago, is the clearest indication yet that U.S. government spending is out of control, and has entered the fiscal twilight zone. As I project in my new book, “Global Economic Forecast 2010-2015: Recession Into Depression,” this dangerous path is unsustainable. The ultimate consequences will be frightful

With the U.S. economy sinking and unemployment rising, the already record projected budget deficit for the current fiscal was set to increase beyond the latest revised upward figure of over $1.8 trillion. With growing problems on Capital Hill with proposed healthcare reform owing to concerns about the growing Federal government deficit, something had to be done. And something was done. Here is the American government at work.

The Obama administration will remove $250 billion for additional emergency funding for the financial system, and $78 billion for additional funds for Federal Deposit Insurance Corporation from the budget. That takes the projected deficit down to just below $1.6 trillion. Add those figures back in and the deficit would have been forecast at over $1.9 trillion, higher than the previous updated projection.

Of course, this is simply a bookkeeping exercise. With the FDIC shutting down insolvent banks at warp speed, and the global credit markets still largely frozen with toxic assets, who does the Obama administration think it is kidding?