President Obama's 2010 budget proposal has a theme song, "Lucy in the sky with diamonds". It's overly optimistic about the possibilities of the rest of his term as president and leaves out much of the cold, hard reality that is our present economic existance.
While acknowledging the drop in revenues for 2009, the 2010 budget is assuming a 9% increase in revenue for 2010, followed by yearly increases of 14% and 13.5% to reach his goal of cutting the budget deficit in half in four years. Based on Obama's numbers, that will cut the yearly deficit to between 581 and 658 billion dollars in 2012.
The budget also assumes a decline in federal spending after 2009, which is possible, provided all the bailouts are over, but still reflects a spending increase of 19% over 2008 levels.
Cutting the yearly deficit will do nothing to face the mounting federal deficit which is currently consuming 400 billion dollars a year just to make the interest payments. Nearly all the new debt that has been added to the federal deficit is under the category of "Public Debt". Since the fiscal 2008 year ended September 30th, 2008, the "Public Debt" has risen by 21% while intragovernmental holdings, or what the government owes itself from various departments, has increased only 2%.
By 2012, Obama expects the "Public Debt" portion to double from it's 2008 level to nearly 11 trillion dollars. Don't expect intragovermental holdings to rise anywhere near the same rate. As of May 29, 2009, the "Public Debt" portion was already at 7.019 trillion and rising. At the end of May 2009, 62% of the total "Federal Debt" is now under the "Public Debt" heading.
Obama says government receipts will increase from 2.186 trillion in 2009 to 3,081 trillion in 2012. At the same time, expenses will fall from 3.938 trillion in 2009 to just 3.662 trillion in 2012.
These expectations do not bode well for the nation as a whole. It paints an economic picture of a vibrant economy that begins growing at a 3% rate in 2010 and ramps up to a 5-6% annual rate for the next two years after that. It assumes a dramatic increase in revenues which can only come from new taxes, surcharges and expiring tax breaks. It assumes government spending will be virtually flat for three years starting in 2010. It assumes a rampant increase in the national debt will be ignored by the rest of the world because of the dominance of the US and that the US dollar will remain at it's elevated levels. It assumes no new world crisis that involves US troops or US subsidies.
Once you take off the rose colored glasses, you realize the chill you feel is not imaginary. The government is not playing in the same world as the rest of us.
Disclosures: Long GLD, SLV, physical holdings, stocks retirement account
