Why We Need More Realistic Budget Predictions



The Federal Budget allocates resources to pay forurrent programs and its projections are used as a baseline for future plans, both economic and fiscal.  Unfortunately, had you relied on the Federal Budget deficit projections in 2008, you would have relied on numbers that were $5.6 trillion off.  That is the total of the Budget Deficits that they miscalculated from 2009 through 2013. 

The 2009 Budget Deficit was supposed to be about $400 billion.  Instead it came in a $1.4 trillion.  This was not some far-off-in-the-future projection; it was for the following year, yet they were off by a trillion dollars.   

2012 was supposed to have a small surplus.  Instead, now it is expected to have a deficit of over $1 trillion. 

The Pollyannas may say that the 2008 Federal Budget projections were made before Washington knew about the Real Estate/Banking Crisis and the Fiscal Crisis.  Not quite right.  The Real Estate/Banking Crisis began in 2007.  To many analysts, the impact of the real estate collapse leading to the potential for bank failures was well known.  Just not to the Federal Reserve who continued to deny there was a real estate problem in 2007 and well into 2008. 

The errors in the projections show just how badly the Government missed the Real Estate/Banking Collapse.  The question investors should be asking themselves is this: If the Government could miss something that was so obvious in 2007, what are they missing today, and what will it mean to my investments?


Even looking at the 2010 Federal Budget projections we see overly optimistic deficit projections.  The fiscal crisis was well known by this point and the cost of the bailouts was growing.  

Yet they were still way too optimistic in their budget deficit projections.  In 2010, the 2011 deficit was supposed to come in at under $1 trillion.  Today’s estimate is over $1.6 trillion.  The 2012 deficit was expected to be less than $600 billion, now it is projected to be over $1 trillion.  

This totals to about $1.7 trillion in higher deficits projected in the current Federal Budget compared to the 2010 Federal Budget.  

What’s more, the CBO finds that the White House’s estimates for the next 10 years, in its 2012 Budget, are low by about $2.3 trillion.  

“The estimate from the nonpartisan Congressional Budget Office  (CBO) says that if Obama’s February budget submission is enacted into law it would produce deficits totaling $9.5 trillion over 10 years – an average of almost $1 trillion a year. “- CBO: Obama understates deficits by $2.3 trillion, AP, 03/18/2011

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