2009's Federal Deficit Expected to Top $1.2 Trillion

Here is sobering look at the impact the various bailouts, err loans, rescue packages, etc., will have on the national budget in 2009:

Graphic courtesy of the WSJ

2009's deficit is expected to be 7% of GDP a level not seen since WWII. The disturbing thing is that during WWII the U.S. was raising money by selling bonds to its citizens (the world's greatest bond sale), and in the present times the U.S. will have to raise that money by selling bonds to foreigners.

When you consider that the government is typically ten steps behind the eight-ball, it goes without saying that the eventual deficit could very well be greater than what is projected, especially if the crisis (or its negative effects) extend beyond 2009. At some point the government is going to have to decide between trying to protect us from as much short-term pain as possible vs. shoring things up so we don't have to face excruciating long-term pains in the future.

The graphic comes from a WSJ article discussing the incoming administration's plans to combat rising unemployment, which you can read here, you can read additional coverage on 2009's deficit from the FT here.

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

Comments

[athena:]

Being born in 1960, tail end of the boomers, I own my house, it is furnished, I am saving for retirement and college costs and caring for my mother. Multiply me by the baby boom population and you will see why consumers wont be spending much until the echo boom gets employed.
Just like Japan. So let Krugman and Obama and Congress come up with a thousand ways to spend the last credit and borrowing power of the treasury, and call it something else, and push on a string.This is the demographic bubble of all time and it is what it is. WE ARE AND WILL BE SAVING AND RETIRING -NOT SPENDING- FOR YEARS TO COME.
Why do they have to load our children with these new debts??? To line their supporters pockets and rob what is left---yet again.

Jan 08 08:49 AM

[User 333511:]

How much of this money is borrowed at near 0% to lend at 5-9% or to buy distressed debt that yields 10%+ ?

Jan 08 10:18 AM

[flyingdp:]

Agreed. Nowhere, it seems, is anyone talking about the real, looming issue of the Baby-Boomer bubble moving in to retirement and beyond.

As these boomers retire the homes they own plus the many 2nd/holiday houses are going to be put on the market, further driving real estate prices down. The supply is going to totally outpace demand by the much smaller Gen-X population. Add to this the reduction in wealth generation and cash flow as these people retire and you have, I believe, a situation which can only get worse.

Jan 08 10:44 AM