As U.S. debt goes up, Obama’s concern goes down

January 26, 2011

In the space of less than 24 hours, the Congressional Budget Office managed to stomp all over President Barack Obama’s dovish debt speech. That Obama failed to use the State of the Union address to explicitly endorse any of his own debt panel’s major budget-cutting recommendations was, shall we say, a glaring omission. Now that failure appears absolutely blinding. Give us the bad news CBO bean counters:

For 2011, the Congressional Budget Office (CBO) projects that if current laws remain unchanged, the federal budget will show a deficit of close to $1.5 trillion, or 9.8 percent of GDP. The deficits in CBO’s baseline projections drop markedly over the next few years as a share of output and average 3.1 percent of GDP from 2014 to 2021.

The deficits that will accumulate under current law will push federal debt held by the public to significantly higher levels. Just two years ago, debt held by the public was less than $6 trillion, or about 40 percent of GDP; at the end of fiscal year 2010, such debt was roughly $9 trillion, or 62 percent of GDP, and by the end of 2021, it is projected to climb to $18 trillion, or 77 percent of GDP.

Those projections, however, are based on the assumption that tax and spending policies unfold as specified in current law. Consequently, they understate the budget deficits that would occur if many policies currently in place were continued, rather than allowed to expire as scheduled under current law.

If Medicare’s payment rates for physicians’ services were held constant as well, then deficits from 2012 through 2021 would average about 6 percent of GDP, compared with 3.6 percent in the baseline. By 2021, the budget deficit would be about double the baseline projection, and with cumulative deficits totaling nearly $12 trillion over the 2012–2021 period, debt held by the public would reach 97 percent of GDP, the highest level since 1946.

Well, at least Obama didn’t ignore the debt issue completely. Deficit reduction was included as one of his five economic “pillars,” along with innovation, education, infrastructure and government reform. And he did call for a temporary freeze on some spending categories. But his narrow formulation exempts sixth-sevenths of federal outlays for savings of less than $400 billion over ten years (only a quarter of the $1.6  trillion his commission called for) vs. perhaps $12  trillion in total new debt. Last week, a group of influential Republicans called for $2.5 trillion in cuts over a decade.

There had been hope Obama would at least suggest trimming Social Security, as his bipartisan debt commission suggested last December. But the idea was dropped after much howling from liberal interest groups. Yet, strangely, Obama said it was necessary to “find a bipartisan solution to strengthen Social Security for future generations.” He should check his in-box because it’s been sitting in there for more than a month.

The White House has clearly decided that a “pro-growth” message will serve Obama well in his 2012 reelection bid, with the space race reference meant to evoke the can-do 1960s.To hammer home the point, Obama emphasized the need to keep investing in the “Apollo projects” of today. In other words, let the GOP be the Party of Austerity and root-canal economics.

The speech isn’t necessarily Obama’s final take on the matter, of course. Progress can be made outside the media spotlight. In 1997, secret talks between the Clinton White House and congressional Republicans almost led a bold deal to fix Social Security.

Obama might want to try a similar tactic and quietly meet with the guy who gave the Republican TV response, Rep. Paul Ryan. The rising GOP star and debt panel member has created a plan with a former Clinton economist to sharply cut future health costs, the primary driver of America’s long-term debt woes. Otherwise, U.S. debt may just keep rocketing higher.

11 comments

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[...] This post was mentioned on Twitter by Linda Zumpano and Ulrike Singer-Bayrle, James Pethokoukis. James Pethokoukis said: As US debt goes up, Obama's concern is going down http://reut.rs/hgiPDg (from my Reuters blog) [...]

Obama cannot show concern for the debt Jim, because he will set himself up for the question: What are you going to do about? And he has no answer. But above all, the state of the union speeches are more anesthetics in bad times than practical plans on how to reverse the misfortunes and the misery of street level America.

This state of the union address should have been labeled “STATE OF THE UNION FOR DUMMIES!” The American people proved in the recent congressional elections that have had enough of Obama’s phony rhetoric. The Wall Street executives that have driven us into poverty and despair have gotten $ millions bonuses to steer our economy into the rocks, and $ millions of bonuses from the U.S. Treasury to re-float it. And, like John Dillinger, they know where the money is, “and how to take it out” – but legally! And even though almost nothing has changed since 2008, Obama sees progress and a promised land ahead – but he keeps the supposed big gains ahead as collateral for his 2012 re-election.

On the other side, the republicans are bound to tear his passed reforms, and scrap or stall any future plan that may help him re-elected. It is a tag-of-war, and the average Americans are the rope that is stretched to the limits of tolerance, a.ka. unemployment, foreclosures, a catatonic market economy, and promises made by Obama two years ago that they still don’t see in the horizon. And I am sure, as they watched more of the same promises by Obama last night, and all those standing ovations for his “empty rhetoric,” they all probably wondered: I have heard that before -quite a few times, Haven’t I?

Yes America, you have. And you will hear it again, and again. And you should expect your suffering to continue, while those politicos { I use the Greek word here} who are responsible for your misery will keep receiving “standing ovations!” And they will continue to do that because “State of the Union For Dummies” addresses have proved to be an effective hypnotic for the population that works for them, not for you! Nikos Retsos, retired professor

Posted by Nikos_Retsos | Report as abusive

I’m not Joe the Plumber. I’m Diana the nurse. I’m mad as hell and I can’t take it anymore!!!. I would give anything to have a politician sit down one on one with me and listen, truly listen. I have numerous valid, valuable common sense ideas which I would love to share if only someone would listen. I can’t fix the world and all its problems but I definetly have some obvious answers to the health care system.
How does the average american get their voice heard? Yes, I’ve written to congress and my representatives. Yes I have attended town hall meetings. Yes I vote religiously every election and have so for over 32 yrs.

Does anybody out there care? I’m thinking “no” they really don’t…………

Posted by ithanxu | Report as abusive

Wow more fantasizing about social security. While I am all for improving the system where it needs improving, at least educate yourself on the myths and facts about social security and how it works in our economy. Frankly while his concession from Gates about a minor military cut (the primary place we DO need it unless you think sinking 300 billion into questionable defense technology is money well spent) was nice, it needs to be scrutinized more closely.

http://www.seolawfirm.com/2010/09/social -security-and-the-deficit-commission-myt hs-and-realities/

Posted by pyradius | Report as abusive

If Paul Ryan and the Republicans really want to reduce the deficit, (as opposed to talking about it for political gain), why did they vote repeal the health care law, an action which the CBO says will increase the deficit by $230 billion over the next ten years?

And why did the Republicans hold extending the “Bush tax cuts” for the middle class (incomes below $250K for families) until they got an extension on the tax cuts for the wealthy (incomes above $250K), when again, the nonpartisan CBO says that this will increase the deficit by $700 billion over ten years? Call it spin or political expediency if you want. But please don’t claim that the Republicans have the moral high ground on deficit reduction. That’s just dishonest.

Posted by watchdog2 | Report as abusive

The Republicans and Democrats in office are all cut from the same cloth. Get in and stay in at all costs. That means you need money to get reelected so you do and say anythig that gets you the money. That’s why we are where we are. America wake up and don’t listen to the partisan wind bags. Vote out anyone that does not cut the size and spending of government. That does not want to follow the Constitution. The Constitution brought us to the dance and everyone wants to forget about it. Get rid of the Fed, which is a private bank owned by the rothchild family that owns 95% of the worlds wealth. When you can print money it’s easy to be rich.

Posted by Levendi | Report as abusive

Stop all foreign aid. Stop sending funds to regimes that turn around and stab you in the back. Bring back all military personnel that are not engaged in Afghanistan. We do not need troops stationed in Europe. Let the Europeans defend themselves. They’ve been sucking the milk out of us since the end of WWII. Like George Washington said, “No foreign entanglements.”

Posted by allenmet | Report as abusive

watchdog-you need to learn how the CBO generates numbers. Garbage in / garbage out. Google Douglas Holtz Eakin. The bottom line is Obamacare is a HUGE government program. It will cost money and increase debt. Repealing it saves money. It is more than spin-it is a lie to claim otherwise.

Posted by pduggan | Report as abusive

Can you imagine what 80 miilion boomers will do to projections when they spie ever unfunded entitlement imaginable for the next 2 decades?? Social security is in the red 6 years ahead of gov projections and bleeding to the tune of $40+ Billion/yr!

Check Out Larry Bs warnings years ago: In The Coming Economic Earthquake (Moody Press, Chicago, I11. • 1991), Burkett delineated growing federal deficits and the ever increasing use of debt by business and households out of control. Burkett points out those severe economic times will appear sometime shortly after the millennium unless current polices are changed. Burkett believed that Keynesian economic policies, with ideals for continuing federal deficits and the implicit preference for higher levels of consumption, reduced saving, and a larger role for government in the economy are a means to disaster. As Burkett states in the book that as interest on the debt consumes a larger and larger portion of the yearly federal budget, and more money is borrowed each year to pay the interest on what was borrowed in previous years, there will be a temptation to “monetize” the debt at an increasing rate leading to a calamity not seen since the Great Depression. Burkett questioned whether or not elected leaders would take action in time to prevent fiscal chaos, and believed they would not.

Posted by DrJJJJ | Report as abusive

I’m afraid that the express train call the United States is not going to stop until someone or something breaks. Either the engineer jumps off, the wheels fall off or the engine blows up. No one wants to pull the brake and no one can cut the fuel supply. Good luck to us all.

Posted by PhilGrimm | Report as abusive

Obama’s speech was eerily similar to Nero fiddling while Rome burned. High speed rail, uneconomic green technology, government directed and funded research? Sure, why not! Let’s keep spending like there’s no tomorrow. Considering it’s virtualy all borrowed money and the means to manage this exploding debt is highly suspect- we might as well dance all the way to the poorhouse in style. The horrific affects of this irresponsible largesse will be passed on to future administrations and generations to come.

Posted by richjacy | Report as abusive

What do you people not understand about the fact that the Social Security budget is handled separately and has a savings built up.

Even if you doubled the retirement age you are not allowed to touch the money social security has collected.

Further Social Security is more and more often the only income for the retired and disabled. Without it people die. Do you want to be held responsible for a large number of deaths and blatant theft for what people have themselves paid for? You see whats happening in the middle east?

Posted by toyotabedzrock | Report as abusive