"Remember when a trillion-dollar budget deficit seemed unfathomable? Well, that was only a few weeks ago. With the $800 billion economic de-stimulus, the second tranche of the TARP bailout, and the Obama mortgage rescue plan, this year's deficit is estimated by most private forecasters to approach $2 trillion.
"But it could get worse, much worse. The deficit could soon spiral to between $2.5 and $2.9 trillion in 2009. A compelling and frightening report by investment advisors at Casey Research notes that 'if the tax revenues fall, the deficit may even exceed the total U.S. budget of 2008: $2.9 trillion.' Yikes, this is banana republic-type borrowing.
"As the Casey Research report notes, these are much bigger levels of debt than during the New Deal, which topped out at 50% of GDP in the 1930s. Today's debt of 70% of GDP could quickly reach 100%, and perhaps as high as 120%. A new Heritage Foundation report points out that FDR's New Deal raised spending by 1.02% of GDP, whereas the Obama New New Deal raises spending by 2.45% of GDP.
"And the real deficit will only grow with Mr. Obama's massive new budget plans, unless you subscribe to his fantastically optimistic scenario for the return of growth. Kevin Hassett, an economist at the American Enterprise Institute, says that projected borrowing by Uncle Sam over the next ten years has already increased by a gargantuan $5 trillion just since the January 2008 Congressional Budget Office baseline was established.
"Why are the numbers spiraling out of control? Aside from all the new spending, tax revenues have dropped off a cliff, as the recession vaporizes corporate profits, corporate hiring and capital gains. We are likely to see a huge decline in revenues, perhaps by 20 to 25% this year.
"These numbers are so gargantuan that even Keynes would probably be cringing right now. What's needed is a dose of Friedmanism, says Chris Edwards, budget analyst at the Cato Institute. He reminds me that Milton Friedman concluded that New Deal programs only 'hampered recovery from the contraction, prolonged and expanded unemployment, and set the stage for a more intrusive and costly government.' Now what we have is the New Deal on steroids."
-- Stephen Moore, Wall Street Journal