Stagnation

With unemployment continuing high, retail sales bopping up and down, and the housing market and foreclosure rates still dropping, it's hard to see where the President's claim that the economy is recovering comes from. The economic picture is far from clear, and multiple indicators show some stabilization, but those felt on the individual level (consumer confidence, under- and unemployment, the state of the housing market, etc.) are still deeply mired, that recovery is seen as, at best, very modest. Fears of a either a continued jobless recovery or a double-dip recession persist.

While the solution for some on the left is to increase stimulus spending to new heights, the failure to restrain spending, particularly spending which merely prolongs failed systems and bolsters government employment, will accelerate the growth in both annual deficit and the national debt. These will in turn hamper economic growth in both the near and long-term. The Federal Reserve, CBO, and the OMB have all expressed concern recently about the dramatic rise in both indicators over the past two years, and the lack of any real plan to control them. Indeed, the OMB's Mid-Session Review revealed the government's concern that deficits will continue to accelerate while unemployment remains high. Unusually, the report was released late Friday the 29th (a news-burying tactic), and came on the heels of Peter Orzsag's announced resignation following strong disagreements with the White House over deficit-reduction.

The real dangers of rapid, long-term increases in the debt, and dramatic increases in deficit-spending, compounded with a shift from a market-driven to a government-driven economy, have been clearly seen in Greece this summer. The CBO has warned repeatedly of the growing possibility of a debt crisis, a la Greece, here in the US. These trends were of course begun under the previous administration, and have been greatly accelerated under the current one. If we fail to come to grips with our spending and borrowing habits, belt-tightening will be the first style to last for decades.

Oh, is that all? - a $1.84 trillion deficit

The White House prediction for the deficit is growth to $1.84 trillion. The LA Times reports:
'The projected deficit for 2012 stands at $557 billion in the new report, which still will represent a larger dollar figure than any deficit the former administration projected in setting its own records during the eight years of George W. Bush's presidency. The new record deficit this year -- driven by the federal government's efforts at bailing out financial institutions and automakers, the $787-billion economic stimulus act that Congress approved one month into Obama's term and slumping federal tax revenue -- will amount to 12.9% of the nation's Gross Domestic Product.'

Of course these numbers are significantly higher than originally predicted by the Obama Administration, and much higher than any other administration including the final Bush term. For crying out loud, a deficit equivalent to 12.9% GDP, and they think they'll fix it by the end of the term? What fantasy land are they living in? And of course, these are the rosy predictions by the WH-OMB. Other, somewhat more sober, analyses place the deficit much higher.

The Congressional Budget Office predicts that the economy will not recover at the pace that the OMB predicts, and that the massive growth in spending will consume any recovery that does occur for quite some time. In fact, the CBO's predictions look downright gloomy next to those of the OMB. The CBO Director's blog does a nice job of summarizing their outlook, and is worth reading in full, but the this morning's report ('Budget and Economic Outlook: Fiscal Years 2009 to 2019') gives the full details. A small snapshot encapsulating surplus vs/vs deficit is at right (click to enlarge). Not a pretty picture.