The Collapse of the U.S. Economy

Obama to Propose $3.8 Trillion Budget Boosting Education, Energy, NYT Says

January 31, 2010

Bloomberg - President Barack Obama will propose a $3.8 trillion spending plan to Congress tomorrow that increases funding for education, civilian research and provides $25 billion in aid to states, The New York Times reported.

The spending blueprint for fiscal 2011, which begins Oct. 1, will single out winners and losers in Obama’s already- announced three-year freeze in many domestic programs. The National Institutes of Health, the National Science Foundation and the Energy Department will see their budget increase, the newspaper said. Losers would include unspecified public works projects of the Army Corps of Engineers, two historic preservation programs and the NASA mission to return to the Moon, the Times said.

The three-year freeze on domestic programs would reduce the deficit by $10 billion to $15 billion in the coming fiscal year and by an estimated $250 billion over 10 years, the administration said Jan. 25. The budget will also propose to end 120 programs worth about $20 billion, White House communications director Dan Pfeiffer said yesterday.

“In the 2011 budget we will release on Monday, we terminated or reduced programs that weren’t working well or duplicated efforts, some in areas that are important to the president and to the administration,” Pfeiffer wrote in a White House blog.

U.S. Deficit to Hit All-Time High

February 1, 2010

Wall Street Journal - President Barack Obama will propose on Monday a $3.8 trillion budget for fiscal 2011 that projects the deficit will shoot up to a record $1.6 trillion this year, but would push the red ink down to about $700 billion, or 4% of the gross domestic product, by 2013, according to congressional aides.

The deficit for the current fiscal year, which ends on Sept. 30, would eclipse last year's $1.4 trillion deficit, in part due to new spending on a proposed jobs package. The president also wants $25 billion for cash-strapped state governments, mainly to offset their funding of the Medicaid health program for the poor ...

With unemployment still at 10%, the president is finding it difficult to meet his promise to halve the $1.3 trillion deficit he inherited by January 2013. Job creation has become his top priority, and he is showing no sign of skimping on tax cuts and spending measures in the short term ...

Meantime, the president will ask for large increases in spending on education and civilian scientific research, according to analysts who have been briefed on the budget plans ...

White House to Paint Grim Fiscal Picture: Source

The White House will predict a record budget deficit in the current fiscal year and more big shortfalls for the next decade in its upcoming budget proposal, a congressional source told Reuters on Sunday.

January 31, 2010

Reuters - In its budget proposal to be released on Monday, the White House predicts a record $1.6 trillion budget deficit for the fiscal year that ends September 30, the Capitol Hill source said.

According to the estimate, deficits will narrow to $700 billion by fiscal 2013 before gradually rising back to $1.0 trillion by the end of the decade, the source said.

President Barack Obama will seek to strike a balance between reducing the deficit over the long term and stimulating the economy in the short term to ease the pain of double-digit unemployment.

Criticized by Republicans as a big spender, Obama used his State of the Union address last week to tell Americans he would dig the country out of a "massive fiscal hole." That hole is even deeper than previously believed, according to the estimate by the White House's Office of Management and Budget.

The estimate for the current fiscal year is significantly higher than the $1.35 trillion figure forecast by the nonpartisan Congressional Budget Office last week.

Despite the difference, both estimates indicate that the deficit will continue to hover at a level not seen since World War Two, when measured as a percentage of the economy. Last year the government posted a $1.4 trillion deficit.

THREE-YEAR FREEZE WON'T BE ENOUGH

In his budget, Obama will propose a three-year freeze on some domestic programs to save $20 billion next year and $250 billion over the coming decade.

But that will not be enough to get deficits down permanently to the 3 percent of gross domestic product that most economists consider sustainable. Deficits are projected to fall as the economy recovers, but they will still average roughly 4.5 percent of GDP over the coming decade, according to the estimate. Deficits are expected to rise again toward the end of the decade due to the increasing cost of retirement and healthcare programs as the "baby boom" generation retires.

Obama has warned that the burgeoning U.S. debt could unnerve U.S. financial markets, driving up borrowing costs and putting future economic growth at risk.

China, the biggest foreign holder of U.S. Treasuries, has urged the United States to get its fiscal house in order.

The grim forecast could help build support for a bipartisan commission proposed by the White House that would recommend ways to address long-term budget problems.

Obama and his fellow Democrats face a growing voter backlash for the aggressive spending measures they have taken to stimulate the economy. But Democrats point out that most of the fiscal mess has been inherited from the previous administration of Republican George W. Bush, who cut taxes and created an expensive prescription drug-benefit while pursuing wars in Iraq and Afghanistan.

The recession, which began in December 2007 and ended last year, also worsened the fiscal picture by depressing government revenues while forcing up spending on unemployment benefits and other safety-net programs.