House Speaker Nancy Pelosi (l.) says it's important "to calibrate between creating jobs ... and not getting weighed down with too much burdensome debt." (Pablo Martinez Monsivais/AP)
Deficit projection ’stuns’ Congress
Red-ink forecast could make it a lot harder to craft an economic stimulus package.
By Gail Russell Chaddock | Staff writer/ January 8, 2009 edition
Reporter Gail Chaddock discusses how a recent Congressional Budget Office report on the deficit could affect Congress's debate of a proposed economic stimulus package.
Washington
Stunned at the prospect of a $1.2 trillion deficit this fiscal year, lawmakers in Congress are taking a harder look at how big a stimulus plan America can afford.
Until Wednesday’s release of the Congressional Budget Office (CBO) estimate, the main topic on Capitol Hill was how big the recovery package needs to be to reverse the economy’s slide.
Now, there’s a second theme: Is there a tipping point between the stimulus needed to revive the economy and a level of borrowing and debt that’s too much for future generations to bear?
“There’s a consensus among economists that we need to do something big,” says House Speaker Nancy Pelosi. “But we need to calibrate between creating jobs – green jobs, long-term jobs – and not getting weighed down with too much burdensome debt.”
But lawmakers – and economists advising them on Capitol Hill this week – also note that the economy is in uncharted territory and that “calibrating” will be tough.
“We’ve never been here before,” said Robert Reich, labor secretary in the Clinton administration, at a forum of top House Democratic committee chairs on Wednesday.
“We are going to have to approach this in the spirit of experimentation. We have to keep an eye on what works and get rid of what doesn’t work as fast as possible,” he added.
Democratic leaders had hoped to have an economic recovery plan ready for President-elect Barack Obama to sign immediately after his inauguration on Jan. 20.
But given the tough issues to be worked out – and intense interest from committee chairs to have a hand in shaping the outcome – Speaker Pelosi and Senate majority leader Harry Reid now say they expect to get the Economic Recovery Act to the president’s desk no later than mid-February.
The CBO budget estimates fueled new questions about the size and scope of the stimulus package. The report projects that the deficit for Fiscal Year 2009 will total $1.2 trillion, or 8.3 percent of gross domestic product – the largest since 1945. This estimate does not include the further cost of the wars in Iraq and Afghanistan or the economic recovery package on the agenda in Congress.
“We can fairly anticipate with an economic recovery package that the debt of this country will increase by $2 trillion in this year alone,” said Sen. Kent Conrad (D) of North Dakota, who chairs the Senate Budget Committee, at a briefing on Wednesday.
Without policy changes, ongoing deficits will add $1.1 trillion to the national debt every year, he adds. “This is simply a stunning increase in our deficits and debt.”
“While we have to do short-term things to lift the economy, we have to guard against things that will make our long-term situation worse,” he added, at a budget panel hearing on the CBO report on Thursday. Meeting with economists in a daylong session on Wednesday, Senate Republicans began to develop a strategy for assessing the value of new stimulus spending in the face of new deficit estimates.
“To justify any investment from the public sector, you need to demonstrate that the return on that investment will exceed the return if you left the money in the private sector,” said Sen. Jon Kyl (R) of Arizona, the Senate Republican whip, after the meeting.
Republicans want to make sure that the economic recovery plan not include policy elements that increase spending permanently or be loaded up with member pork projects, or earmarks, in the guise of stimulus.
“The spending should not create a political dynamic that makes it hard to stop,” said Harvard economist Martin Feldstein, who met separately with House Democrats and Senate Republicans on Wednesday.
As a fiscal conservative, Mr. Feldstein told the House Democratic forum that he disliked budget deficits and government spending, because they confer burdens on future generations and weaken the economy, but that “it is important to have that fiscal stimulus at this time and to design the tax cuts and the spending changes in the most cost-effective way.”
Overall, Republicans favor tax cuts over new spending as a strategy for economic recovery. They cite the new CBO deficit estimates as Exhibit A for limiting new government spending in the form of stimulus.
“The deficit estimate makes it clearer than ever that we cannot borrow and spend our way back to prosperity when we’re already running an annual deficit of more than 1 trillion dollars,” said House Republican leader John Boehner (R) of Ohio, in a statement
“The reality is that the decisions we make today will impact future generations, and burying our children and grandchildren under a mountain of debt to pay for more wasteful government spending would be the height of irresponsibility,” Representative Boehner said.
Comments
2. Cheryl Eilertsen | 01.08.09
The US has been taking from some groups and giving to others. This can only result in a swing in the opposite direction, i.e. those groups that were given to now have to give back to those from whom they have taken. It’s just cause and effect.
3. PacificGatePost | 01.08.09
DEMOCRATS GOT A FREE PASS ON THE CREATION OF THE ECONOMIC MESS
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http://pacificgatepost.blogspot.com/2009/01/democrat-responsibility-for-economic.html
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It was evident then, it is even more evident now. Yet no feet are being held to the fire. Can we assume Madoff arrived just in time to take the brunt of it, deflecting all attention from where it should be focussed?
4. herb | 01.08.09
If I were involved in stimulating the economy at a time like this I think that I would be looking at setting up new industries for creating wealth and Strengthening some of the more traditional ones with high-tech improvisations. For example There is presently no food crisis but the present crisis has a domino effect element in it that can easily lead to a food crisis. This is why the time is now right to look at the idea of bringing high-tecth farming into greater vouge. Those crops that can be grown economicaly in a hightech setting should become part of the recovery package if for no other reason than that in addition to providing jobs they can actually increase the export volume, which of course would be a move in the right direction in dealing with earning money to pay for imports. Those emerging economies in the east are already importing more and more foods and will continue to do so as long as their economy need it.
The sort of jobs that would come on stream in high tech farming are the ones that many who would not be interested in a traditional farming job would more readily accept.
Methods of growing crops by using LEDs (wnich are very energy efficient) has already been developed using tax payers money. Monochromatic light stimulating tecniques are also already known for enhancing plants growth and production activities that could make bumper crops a regular occurance.
There are also inventions that has been developed using audio stimulating methods to enhance growth and production and the abilities of plants to adapt to certain negative environmental conditions and to ward off various diseases.
This sort of high-tec farming can be done either indoor or outdoor. If indoor it would be pretty up the line of our modern method of factory work, where mamy people would be happy to work. Because it is hight-tect the labour input would be a lot less and output a lot greater. But the number of factories and verieties of produce can be large.
Thus this type of industry would be a welth creating industry having a very low potential for human exploitation.
I will expand im my yahoo blog page
5. herb | 01.08.09
If I were involved in stimulating the economy at a time like this I think that I would be looking at setting up new industries for creating wealth and Strengthening some of the more traditional ones with high-tech improvisations. For example There is presently no food crisis but the present crisis has a domino effect element in it that can easily lead to a food crisis. This is why the time is now right to look at the idea of bringing high-tecth farming into greater vouge. Those crops that can be grown economicaly in a hightech setting should become part of the recovery package if for no other reason than that in addition to providing jobs they can actually increase the export volume, which of course would be a move in the right direction in dealing with earning money to pay for imports. Those emerging economies in the east are already importing more and more foods and will continue to do so as long as their economy need it.
The sort of jobs that would come on stream in high tech farming are the ones that many who would not be interested in a traditional farming job would more readily accept.
Methods of growing crops by using LEDs (wnich are very energy efficient) has already been developed using tax payers money. Monochromatic light stimulating tecniques are also already known for enhancing plants growth and production activities that could make bumper crops a regular occurance.
There are also inventions that has been developed using audio stimulating methods to enhance growth and production and the abilities of plants to adapt to certain negative environmental conditions and to ward off various diseases.
This sort of high-tec farming can be done either indoor or outdoor. If indoor it would be pretty up the line of our modern method of factory work, where mamy people would be happy to work. Because it is hight-tect the labour input would be a lot less and output a lot greater. But the number of factories and verieties of produce can be large.
Thus this type of industry would be a wealth creating industry having a very low potential for human exploitation.
I will expand im my yahoo blog page
6. Kirk from Cary, NC | 01.08.09
I think you could take 535 people randomly off of any city street in America, make them all members of Congress, and you’d get better results on the important issues of the day than the elected officials we have in Washington, DC.
And in some cases, I think a lot of Americans would agree, it would be more effective for the Nation to gather a group of Sunday School kids together to vote on the issues than convening a session of Congress.
The Congress and their trillion dollar deficits will be remembered throughout American history; for demonstrating the largest lack of leadership the nation has ever witnessed.
7. Pogo | 01.09.09
There’s a swamp in Louisiana that could use a good Congressional fact finding trip about now. Please make the gators fat and lazy.
8. Lisa | 01.09.09
Even FDR Treasury Secretary Henry Morgenthau admitted the New Deal had failed. “We are spending more than we have ever spent before and it does not work,” he declared in 1939. “We have never made good on our promises…I say after eight years of this Administration we have just as much unemployment as when we started…And an enormous debt to boot!”
Hum and this has never happened before. Me thinks they need to study history. I voted for change third party. When you vote for the same old parties this is what you get. Voters have to quit thinking that by voting third party that they are throwing away their vote. Just a little food for thought.
9. Bobc | 01.09.09
They aren’t talking about cutting foreign aid, we send millions each yr. overseas. Foreign aid should only be for natural disasters. We spend millions each yr. on illegal aliens. Money for special interest groups, money for grants that study things like, “why a bee flies” and the money going to the U.N.!
Our Forefathers never once thought, citizens would be going to work, in order to have their money taken for the benefit of foreign countries and their people. Why aren’t our politicians telling foreign countries that bank is closed here, and they need to act like grown ups and reform their own countries?
Recently, we gave $40 Mil to a foreign country to protect their coral reef!!!
Citizens are being used and abused by our own government, we have become serfs to the world.
I want no bailout until I hear the above is stopped!
$1 Trillion equals 31 yrs.!!!
10. Rick | 01.09.09
This is exactly why my wife and I vote third party. These clowns have been running the country for over 200 years and they still can’t get it right. What will it take for people to stop voting for the “lesser of evils” or “the guy that wont waste my vote”? Start voting your conscience so that politicians will understand that they are not permanent fixtures and maybe they will do something that is good for the country rather than good for their reelection efforts. In his farewell address George Washington said;
“Let me … warn you in the most solemn manner against the baneful effects of the spirit of party, generally.
“The alternate domination of one faction over another, sharpened by the spirit of revenge, natural to party dissension, … leads at length to a more formal and permanent despotism. The disorders and miseries which result, gradually incline the minds of men to seek security and repose in the absolute power of an individual; and sooner or later, the chief of some prevailing faction, more able or more fortunate than his competitors, turns this disposition to the purposes of his own elevation, on the ruins of Public Liberty.”
11. Christopher Bieda | 01.09.09
Congress is shocked that spending more than you take in in taxes causes deficits, and that doing so with abandon causes even larger deficits?
Kinda explains everything we need to know about how we got into this state of affairs, doesn’t it?
Whenever I read the word “shocked” in a headline, I remember Claude Rains being shocked to find gambling going on in Rick’s Cafe Americain. The same laughter that follows that line in the theater ought to be our response in our homes and offices when we hear politicians using the word, and as we resolve to vote against the incumbent next time, despite our party affiliations, political bent, etc. Putting them all in real fear of THEIR jobs for a change should have a salutary effect on the quality of their work. If even five or ten percent of us would do this in a congressional election, it would in only a few cases result in actual turnover, but in many, many more result in a race close enough to concentrate the mind, as Dr. Johnson said of HIS recommended cure for indirection.
12. An American TIRED of the fools in CONGRESS | 01.09.09
Also the $845 billion Global Poverty Act Obama & Biden snuck in during the summer - well I think that $$ needs to be cut in 1/2 & kept in the US given the economic meltdown! Bush was the President who gave the most $$ to Africa. No need for Obama to compete with Bush at a time like this! He can do his schmoozing at a later date!
13. George Kadlec | 01.09.09
This economy is driven by consumer spending which represents 2/3 ’s of it. Since consumer’s drive the economy should not the majority of the stimulus go to TAXPAYERS. Increasing government debt will eventually result in a colapse of the dollar or interest rates will start to soar. There is no complicated reasoning with this. We are very possibly in the beginnings of a depression. We can take our choice - a deflationary depression or an inflationary depression. I personally prefer a deflationary depression.
14. Tom Kropewnicki | 01.09.09
If the stunned people in congress would pass the FairTax we would clear up this mess in a matter of months, and not run into it again. I guess that’s just too much to ask for a bunch of power hungry dolts.
15. John Perkins | 01.09.09
We already have 4 trillion in moeny “borrowed” from “trust” funds and no plans on how to pay it back. 57 trillion in unfunded obligations to Medicare and 14 trillion in unfunded obligations to Social Security. The last thing we need to do is add to that long term debt burden. Regardless of the size of the “stimulus” pkg it needs to be done incrementally, so that when the economy responds the additional deficit spending stops immediately. I beleive Congress and the President elect are being alarmist, the sky is not going to fall. Recessions happen and any effort to minimize them only prolongs the pain, so if we are not careful we will have a very long recession, followed by rampant inflation due to a weak dollar.
16. franco | 01.09.09
Friends of freedom, democracy and fainess:I have no doubt that the economy will worsen before it gets better. There is no doubt in my mind that the imbalance created by government subsidies to special interests, particularly ie…the military/industrial complex and attempts at controlling the world through pre-emptive American military might for the benefit of these interests, have backfired. We have been left holding the bag!!!
SOLUTION: We need to take our country back so that it benefits us and our children and our children’s children. Barack Obama is correct with respect to spending whatever money is necessary to create jobs for the creation of a better and more powerful infra-structure and the creation of alternative energy industries. He is incorrect with respect to throwing good money after bad at failed businesses. He is correct at attempting to hold Iraq responsible for itself and pull out of the Middle East as soon as possible. We can not afford to be the worlds policeman.
17. Term Limits | 01.09.09
What we need are term limits for all of Congress. Being a politician was never intended to be a career. Even George Washington knew that when he turned down what would have easily been a 3rd term for him.
18. Jim | 01.09.09
It’s blindness by choice on all parts in Washington. Maybe they should give up or forfiet their pay and all increases they’ve recieved from the time they created this mess, a few years ago. If they were really interested in helping the economy and reducing the deficit then let them redeem themselves by volenteering to do their job, personaly there are a lot of people out there that can do a much better job but these are the smart guys, right? But they have absolutly no common sinse! How many would be there if they didn’t make the big bucks? And as long as we allow it, this sort of thing will continue, it’s time the people take back the country that God gave us and stop all the non-sence by everything we set back and watched being done to us and said nothing, lets take America back from the Washington moorons and the other countries that want to tell us how to run our country.
There’s a reason why out forefathers founded this country in the fear of God and said things the way they did, I have an idea, WOW, give them all a boat with no orrs, a bullet but no gun since they want to take ours and send them on their way, we don’t need them here, I love my country and my God and I faught for it and am proud to have done it but I’m tired of letting the idiots that protested or idiots who went somewhere else, or the idiots who refused to fight for it or those who are not Free Born American citizens tell me what I can or can’t do in my own country. Washington, if you can’t speak english then you don’t need to be representing me. Common thinking country folks have more brains than all the “smart” idiots combined that are making thte mess they want us to pay for and of coarse get paid for doing it with all the benefits, wake up America, can’t you see what they’re doing to us?
19. tom | 01.10.09
Don’t tell me that Congress will have to think and act! That is too much to ask of a politician
20. JAL64 | 01.10.09
“The reality is that the decisions we make today will impact future generations, and burying our children and grandchildren under a mountain of debt to pay for more wasteful government spending would be the height of irresponsibility,” Representative Boehner said.
It’s very interesting how this outlook suddenly appears after 8 years of Bush and GOP controlled Congress
21. Kevin Crenshaw | 01.10.09
Are we becoming numb to numbers? The WORLD’S total available capital appears to be around $80 trillion currently. Compare that against “57 trillion in unfunded obligations to Medicare and 14 trillion in unfunded obligations to Social Security.” Compare it against a $1.2 trillion annual deficit. This bubble, too, will burst, if it inflates much more. We need to educate folks about the realities and risks. Looks like we need to educate Congress too. (Note: I can’t find an actual 2009 world capital figure, but it was only $140 trillion before the recent plunge in world markets.)
22. Bill Reynolds | 01.10.09
Mabe the disenfranchised US tax payers (the 40% that don’t pay taxes) could start kicking in. Hail the flat tax!!!
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1. VoteRonPaul | 01.08.09
“Incompetence of Congress ’stuns’ the American people.” That’s what the title should say.
Cut spending and cut taxes. It’s not that hard morons! But of course, then you can’t go ahead with your unconstitutional special agendas. We can’t have that, right? Get government out of our lives and stop taxing us into slavery!
Why do we need all this federal oversight and regulation? Poor regulation encouraging irresponsibility caused the recent crisis to happen, not lack of regulation. Research the history, ignore anything the big government clowns say.
How is this still a free country when there’s a federal law for everything imaginable? Why not just have one world government, to create laws and regulations for all nations? “Just in case” some nations don’t know what the “right” thing to do is. Who do all these people think they are?
And where in the Constitution does it say the feds can or should do any of this ’stimulus’ trash? This is all just incompetence, and illegal theft from the people under the Constitution!