From the Congressional Budget Office's just-released "Preliminary Analysis of the President’s Budget and an Update of CBO’s Budget and Economic Outlook":
source: CBO Analysis, page 11
The report explains (page ix) both the revised forecast and the predicted consequences of Obama's budget proposal:
Largely as a result of the enactment of recent legislation and the continuing turmoil in financial markets, CBO’s baseline projections of the deficit have risen by more than $400 billion in both 2009 and 2010 and by smaller amounts thereafter. Those projections assume that current laws and policies remain in place. Under that assumption, CBO now estimates that the deficit would total almost $1.7 trillion (11.9 percent of gross domestic product, or GDP) this year and $1.1 trillion (7.9 percent of GDP) next year—the largest deficits as a share of GDP since 1945. Deficits would shrink to about 2 percent of GDP by 2012 and remain in that vicinity through 2019. . .MORE:
As estimated by CBO and the Joint Committee on Taxation, the President’s proposals would add $4.8 trillion to the baseline deficits over the 2010–2019 period. CBO projects that if those proposals were enacted, the deficit would total $1.8 trillion (13.1 percent of GDP) in 2009 and $1.4 trillion (9.6 percent of GDP) in 2010. It would decline to about 4 percent of GDP by 2012 and remain between 4 percent and 6 percent of GDP through 2019.
The Corner's Jim Manzi reacts:
The CBO estimates that the public debt of the United States will balloon from about 40% of GDP to about 65% of GDP just within the next couple of years, and then rise to about 80% of GDP over the next decade. And there is no reason to imagine that the world will end in 2019. By these forecasts we will be running at a structural, and worsening, annual deficit of about 6% of GDP. That is, a normal year would have the same amount of deficit spending as the worst deficit year of the modern era. This is unsustainable, even on its own terms.And the WaPo covers the story, with its own chart.
But we will even be able to accomplish this? Will we really massively reduce spending and/or increase tax collections immediately after the current spending binge (which is what’s called for even under the president’s budget)? Nobody can say this for sure. As you live through a long-term economic crisis, you don’t know how or when it will end. You keep seeing signs of recovery that turn out to be false dawns. In the mid-1930s, many people thought we were emerging from the Great Depression, but then came 1937. In fact, many economists argue that we were emerging by 1935 or so, and had we not made policy mistakes, we would have continued to do so. But that’s not how it actually worked out.
Our gigantic stimulus could very plausibly create a mild recovery later this year, even if the fundamental economy remains very, very sick (kind of like a huge spike in credit-card debt can maintain your personal spending -- for a while). But suppose we relapse into another recession in 2011/2012, and unemployment is at 12% and rising in 2012 -- would we really manage to summon the political will to cut the deficit (as is assumed in this forecast)? Many of the same very smart economists who argue for deficit spending now will argue that this would be counter-productive in this case.
(via The Corner, Greg Mankiw)