Here We Go Again—New Budget Gimmicks

Friday, April 1, 2011

Dear Friend,

 

The Obama Administration is again playing games with the numbers relating to our budget deficits and national debt. The non-partisan Congressional Budget Office has stated that if Obama’s February budget submission is enacted, it would produce an addition of $9.5 trillion to the national debt over 10 years (versus the $7.2 trillion estimated by the Obama Administration over the same period). What is even more disturbing is the White House’s strategy to sell a balanced budget without including interest payments on the nearly $15 trillion in debt now outstanding. The concept of a “primary budget balance,” as embraced by the Obama Administration, occurs when the deficit is about 3% of the nation’s Gross Domestic Product, not when the deficit is 0%. In adopting this strategy, Administration officials say that economists embrace this calculation of deficits as generally sustainable. So, here we go again! Washington D.C. is continuing to invent new concepts to disguise fiscal reality. Similar to what was done with the “unified budget” concept over 40 years ago, when the annual deficit was reduced by the annual Social Security surplus which should have been credited to the so called Social Security "trust fund." Rather than applying simple concepts like 2+2=4, a new “balanced budget” concept, that would assume that the ground floor is three stories up (to use a real estate metaphor) AND would also fail to count interest on the national debt, is now being sold to the American people. This is an illogical approach at a time when annual budget deficits are at an all-time high. Also, interest payments are at an all-time low, but many believe they are expected to increase dramatically in the next five to ten years. Why is the latter observation important? We are a debtor nation and interest is an important component of the cost to the way we do business—that is, spending money we don’t have and necessitating the borrowing of huge sums of money to stay afloat. Finally, in my opinion, these new, theoretical and unrealistic budget concepts will put our already vulnerable “triple A bond rating” at greater risk, and this could dramatically increase the federal government’s cost of borrowing, our annual budget deficits and the national debt.

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