Saturday, March 6, 2010

Mankiw Highlights the Growing Budget Deficit Projections

Of course, the deficits are likely to be even larger than these projections. Here's Harvard Prof. Greg Mankiw:

In my most recent Times column about the President's budget, I wrote,
Making matters worse, these bleak budget projections are based on relatively optimistic economic assumptions. The administration forecasts economic growth of 3.0 percent from the fourth quarter of 2009 to the fourth quarter of 2010, followed by 4.3 percent the next year. By contrast, the Congressional Budget Office predicts growth of 2.1 percent and 2.4 percent for these two years. Lower growth would mean less tax revenue, larger budget deficits and a more rapidly increasing debt-to-G.D.P. ratio.

The CBO has now reestimated the budget effects of the President's proposed policies, and indeed the CBO forecasts larger budget deficits. The CBO's total deficit projected over the decade-long budget window is $1.2 trillion larger than the administration's estimate

The administration projects that the federal government debt held by the public would rise to 77 percent of GDP by 2020 (from 53 percent in 2009). The CBO forecasts a debt-GDP ratio in 2020 of 90 percent
The big question remains, "How much money will Bernanke have to print to support this debt level?"

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