Commentary: Obama is distorting deficit number

Wednesday, February 3, 2010 at 12:45am

President Barack Obama is being disingenuous when he says that the budget deficit he faced "when I walked in the door" of the White House was $1.3 trillion. He went on to say that he only increased it to $1.4 trillion in 2009 and was raising it to $1.6 trillion in 2010.

Congressman Joe Wilson might have said "you lie," but we'll settle for "you distort." (As Mark Twain once said, there are three kinds of lies: "lies, damn lies, and statistics.") Here are the facts:

In 2008, Bush ran a deficit of $485 billion. By the time the fiscal year started on Oct. 1, 2008, it had gone up by another $100 billion due to increased recession-related spending and depressed revenues. o it was about $600 billion at the start of the fiscal crisis. That was the real Bush deficit.

But when the fiscal crisis hit, Bush had to pass TARP in the final months of his presidency that cost $700 billion. Under the federal budget rules, a loan and a grant are treated the same. So the $700 billion pushed the deficit — officially — up to $1.3 trillion. But not really. The $700 billion was a short-term loan and $500 billion of it has already been repaid.

So what was the real deficit Obama inherited? The $600 billion deficit Bush was running plus the $200 billion of TARP money that probably won't be repaid (mainly AIG and Fannie Mae and Freddie Mac). That totals $800 billion. That was the real deficit Obama inherited.

Then the President added $300 billion in his stimulus package, bringing the deficit to $1.1 trillion. This $300 billion was, of course, totally qualitatively different from the TARP money in that it was spending not lending. It would never be paid back. Once it was out the door, it was gone. Other spending and falling revenues due to the recession pushed the final numbers for Obama's 2009 deficit up to $1.4 trillion.

So, effectively, Obama came close to doubling the deficit.

President Obama seems not to understand that the deficit is the jobs problem. To add to the deficit in the hope of creating more jobs is an oxymoron. Additional deficit spending just crowds out small businesses trying to borrow money to create jobs and consumers seeking credit to buy cars and homes.

Soon, when the Fed stops printing money and we have to borrow real funds from real lenders, the high deficit will send interest rates soaring, further retarding growth and creating a cost-push inflation.

The interest rate we are now paying for the debt — about 3.5 percent — is totally artificial and based on the massive injection of money supply created by the purchase of mortgage backed securities by an obliging Federal Reserve. Once these injections of currency/heroin stop, the rate will more than double, sending our debt service spending into the stratosphere. Once we had to choose between guns and butter. Now we will have to choose between guns and butter on the one hand and paying our debt service on the other.

Obama's program of fiscal austerity in this new budget is a joke. He freezes very selected budget items while he shovels out new spending in his stimulus packages. If he wanted to lower the deficit, here's what he could do:

• Cancel the remaining $500 billion of stimulus spending and;

• Cancel the $300 billion of spending in stimulus II.

 Those are the real numbers. Or, as Al Gore would have it, "the inconvenient truth."

 

 

First published Feb. 2 at dickmorris.com

6 Comments on this post:

By: Kosh III on 2/3/10 at 6:56

What Morris fails to note is that Bush kept the war spending off the books so the deficit seemed lower than it really was.

By: DustyU on 2/3/10 at 8:44

K3 - exactly :)

By: govskeptic on 2/3/10 at 11:35

Defict, deficts as far as the eyes can see. Whose to blame: Both
Bush and O'Bama! President O"Bamas however, is much larger
and yes the war cost is hugh and the act of lowering taxes
during a costly war is and was very unwise. Continued wild and
wreckless spending is also even more unwise!

By: Blanketnazi2 on 2/3/10 at 4:08

i don't consider the spending to be wreckless - much of it is necessary. it's an investment.

By: Kosh III on 2/4/10 at 7:07

What's an investment? Propping up a corrupt and ineffective Afghan government? Spending a tillion or so to secure oil for private businesses? Unnecessary deaths of our soldiers, their soldiers, their civilians? The destruction of the ancient Christian communities of Iraq?
What?

By: Blanketnazi2 on 2/4/10 at 9:41

i'm not talking about military budget. i completely agree with you on that one! the stimulus packages were a necessary step. spending on safety nets for home foreclosures and job creation is necessary.