The coming federal deficits are already huge, and they’re based on rosy expectations. Yesterday we wondered whether there would be enough rich to support the $1 trillion in new taxes that Obama hopes to raise by taxing them. The budget also leans heavily on PE and hedge fund types, which obviously aren’t making anywhere near the money they used to be. And as WSJ notes, the budget calls for 3.2% GDP growth next year.
Seriously? What in the world is going to push us towards that kind of growth? Government spending will help a bit, but unless the country was one more gigantic bubble in it (we doubt it, we think we’re bubbled out for now) we just have a hard time seeing it. For what it’s worth, “professional forecasters” see 2.1% growth next year, which also doesn’t seem all that likely.
The Obama budget puts the deficit at less than $600 billion starting in 2012 from $1.75 trillion this year. Getting to that point requires GDP to rise more than 4% a year by then — meaning the U.S. would quickly return to growth rates similar to the boom years of the 1990s — after the worst financial shock since the Great Depression.