In Obama's administration, former assistant secretary of the Treasury Nancy Killefer (r.) will work with the Office of Management and Budget to help agency heads better manage their people and money. (Jason Reed/Reuters)
Obama inherits $1.2 trillion deficit – even before new stimulus
President-elect strikes tone of fiscal prudence by appointing efficiency officer.
By Peter Grier | Staff writer/ January 7, 2009 edition
President-elect Obama and his team are about to inherit the biggest federal deficit since World War II – or the biggest ever, depending on how you measure it. Then, they’re going to propose adding almost a trillion dollars in new stimulus spending on top of that.
That’s why Mr. Obama is trying to convince voters that they can trust him with the US government’s checkbook.
So far this week, he’s warned of the dangers of federal red ink to come and named a “chief performance officer,” who will try to wring waste and inefficiency out of Washington’s budget.
Of course, for the incoming administration, attempting in advance to develop a reputation for fiscal prudence is probably a political necessity. For fiscal year 2009, which began this past Oct. 1, the federal government will run $1.2 trillion in the red, said the Congressional Budget Office (CBO) in a dire projection released Jan. 7. That’s without counting any Obama stimulus spending, since such a package has yet to be formally proposed, much less passed.
And that stimulus package could still face a difficult time in Congress if fiscal conservatives can successfully define its author as just a traditional big-spending Democrat in new clothes.
“In order to make these investments that we need, we will have to cut the spending that we don’t,” Obama said at a Jan. 7 news conference.
Nancy Killefer, director of a management-consulting firm and former assistant secretary of the Treasury, will serve as the chief performance officer. She will work with the Office of Management and Budget to streamline processes throughout the government and help agency heads better manage their people and money, according to transition officials.
“Government has the capacity to deliver services more efficiently and effectively,” said Ms. Killefer at the news conference. “I’ve seen it done.”
Announcement of her appointment followed a Jan. 6 warning from the incoming president about the state of the deficit. The US faces the prospect of trillion-dollar shortfalls for years to come, said Obama after meeting with his economic team.
But long-term fiscal discipline can help offset the short-term need for recovery spending, said Obama. He signaled that trimming the big US entitlement programs – Social Security, Medicare, and Medicaid – might be needed to help wrestle the federal budget into line.
By February, “we will have more to say about how we’re going to approach entitlements spending,” Obama said.
Obama’s professions of fiscal prudence might have been an attempt to draw some of the sting from the new CBO deficit predictions. In dollar terms, the $1.2 trillion deficit would be more than double last year’s and the biggest ever. Measured as a percentage of the US gross domestic product (which is how most economists do it, since it shows affordability) it is the largest deficit since World War II.
“The federal fiscal situation in 2009 will be dramatically worse,” concluded CBO.
About $180 billion of the $1.2 trillion deficit will be due to federal spending under the Treasury Department’s Troubled Asset Relief Program. Some $240 billion will be due to US efforts to bail out mortgage giants Fannie Mae and Freddie Mac.
Given the unknown way in which these efforts will proceed and further federal economic-recovery efforts as yet unpassed, the federal budget has entered unprecedented territory, noted CBO.
“The scale and novelty of federal intervention … and uncertainty about the degree to which those interventions will affect the economic outlook, make it particularly difficult for analysts to use historical patterns to forecast the near future,” said CBO.
Comments
2. bart | 01.07.09
Bring back the jobs from China etc., stop the importation by Walmarts and Dells etc. We don’t need infrastructure except investments in mass transit and electric rail. And start aiding Auto manufacturers who plan to manufacture & sell cars which use natural compressed gas and other energy technolodgies.
3. Will | 01.07.09
From the last election, I remember the phrase the republicans stuck to Senator Kerry. It was ‘Flip Flopper.’ Well, what was that ‘phrase’ all about? Anyone, really remember? Well, it was all about this deficit. You see, Kerry was for the Iraq war IF ONLY IRAQI OIL PAID FOR IT. Remember now? Everyone happy you voted for Bush and not the ‘Flip Flopper?’
5. Ritt Goldstein | 01.07.09
On September 27th 2000, CNN headlined “President Clinton announces another record budget surplus”. Given the Bush administration’s $1.2 trillion deficit legacy, it’s more than a little ironic that President Elect Obama must avoid being seen as a “traditional big-spending Democrat”. Worse still, we - as a society - are only now awakening to the realization of what those so very many deficit dollars have bought us.
While our country is fighting two wars, it would seem that only now a battle that will determine America’s future is beginning, a battle not to be fought in far-off lands, but in the workplaces of business and government, and the homes of virtually all. And while this fight too will be costly, it appears one we must assume and indeed win…’we, the people’, resurrecting ourselves and our nation in the process.
6. RC | 01.08.09
We just finished building the new U.S. Embassy in Baghdad which….is larger than Vatican City! Saddam’s Palace is just down the block from George’s Palace. Can we sell it to…the Chinese or Saudis? We can put that money into the Social Security/Medicare kitty.
I thought that this spending on infrastructure was going to be in the U.S.
7. Lawrence Rasie | 01.08.09
I watched the early bailouts with no strings attached and I felt edgy. And today, Jan. 7, 2009 when the budget deficit of $1.2 trillion was announced, I got angry as I saw those bailouts — as they now stand — will hamper Obama’s efforts to bring out country back to health. I can already imagine Sen. Mitch McConnell and other diehards screaming “socialized medicine!!” in the Senate and on the news programs. Since we are all in this together, I believe the new administration MUST put strings on those earlier bailouts.
8. Flora | 01.08.09
I totally agree with Bart (#2 comment above).
Printed in the above article: “And that stimulus package could still face a difficult time in Congress if fiscal conservatives can successfully define its author as just a traditional big-spending Democrat in new clothes.”
Now that’s what we have, a new face, one who has rhythm in his step, just a “horse of a different color.” Not anyone has questioned the cost of his wardrobe. Not anyone has questioned the outrageous cost of hotels so he and his family can start his offsprings in a new school and have a nice view.
9. JO | 01.09.09
“Not anyone has questioned the outrageous cost of hotels so he and his family can start his offsprings in a new school and have a nice view.”
A lot of us have questioned it. Blair house exists for just this reason, why is Bush refusing to allow the Obama family to use it? Because PM Howard will be in town for a night, that is the reason given.
I can see we are getting a jump on blaming Democrats, even for things that Republicans do.
The debt has ballooned to this percentage under one previous president in my lifetime. Ronald Reagan.
Clinton managed to create a budget surplus. Imagine that. Debt has always increased under Republicans, yet they love the “tax and spend Democrat” label.
The Republicans just spend, and whine about taxing to pay the bills so they can fool people into thinking that they really care how much tax burden the average Joe carries.
Bush is the first President to go to war, cut taxes and tell us all to go shopping. Come on. If you want a war, you need to figure out how to pay for it. Bush is a typical “rich kid”. Never had to give a thought to how the bill was going to be paid. He just put it on the credit card. That might have been ok for the Bush family, unfortunately, the credit card he ran up for the last eight years belonged to the American people.
Now all of a sudden, the Republicans are screaming about debt and want to put the brakes on.
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1. Chester Basin | 01.07.09
Who covers the deficits?