The US government is heading for a massive $10 trillion budget deficit over the next decade, analysts warned yesterday after the White House projected the deficit would be $2 trillion higher over the period than its February estimate.
This news came as President Obama announced his intention to reappoint Ben Bernanke as chairman of the US Federal Reserve central bank, saying he had ‘put the brakes on our economic freefall.’
Meanwhile, financial watchdog, the Congressional Budget Office (CBO), offered a more optimistic projection of $7.13 trillion, assuming all Bush administration-imposed tax cuts expires in two years.
The White House projected a huge $9.05 trillion deficit for the 2010-2019 period, but trimmed the 2009 fiscal budget deficit projection to $1.58 trillion from the previous estimate of $1.84 trillion.
The deficit, stemming mostly from propping up the US banks and the financial system, and fiscal stimulus to jolt the economy from recession, represents more than 11 per cent of gross domestic product (GDP), the largest as a share of the economy since World War II.
The CBO, a nonpartisan statutory watchdog, also warned that large deficits and resulting increases in federal debt over time would reduce economic growth.
The total US public debt outstanding is currently at $11.6 trillion.
US economists have been disturbed by assumptions by both the White House and the CBO that the US will consistently run up large deficits of around three to four per cent of GDP.
The Obama administration and the CBO also warned of continuing job layoffs even as recovery seems imminent, expecting the unemployment rate to peak above 10.0 per cent next year.
In its economic forecast, the White House projected that US GDP would shrink by 2.8 per cent this year, revising its previous forecast of a 1.2 per cent decline.
The White House acknowledged the alarming situation but blamed the Bush administration for the mounting deficit.
White House Office of Management and Budget director Peter Orszag said: ‘Overall, it underscores the dire fiscal situation that we inherited and the need for serious steps to put our nation back on a sustainable fiscal path.’
Republican critics responded by stepping up their calls for president Obama to abandon his key reform plans to remake US health care and combat climate change that some estimate could cost several trillions of dollars.
But the White House’s Orszag pointed out that seven months of the Obama administration policies had already seen the estimated deficit for the 2009 fiscal year, which ends September 30, trimmed by $262 billion.
He claimed: ‘We now expect that the policies put in place to repair the financial system are likely to cost taxpayers less than previously anticipated.’