Yesterday, President Obama released
his proposed 2011 budget, which forecasts the federal deficit will fall to $706
billion by 2014 or just 3.9 percent of GDP before rising again in 2015.
To accomplish this feat, he
proposes letting the Bush tax cuts expire and other spending cuts the Congress
has rejected in the past. More extraordinary, though, the document assumes that
real GDP grows at better than 4 percent a year over the four years from 2011 to
2014, and the economy does not encounter a serious recession.
If your staff economist tells you
that is realistic, fire him.
Rosie Scenario wrote this budget.
The United States is facing
deficits greater than one trillion dollars for the foreseeable future, and
investing in long-term U.S. government bonds is a very risky proposition. It is
not that Washington won�t pay, but longer term, an international run on the
dollar and inflation are real risks.
Investing in U.S. bonds now entails
considerable political risk. A populist government, similar to those that drove
Latin American republics into bankruptcy during the 1970s is in charge.
Obama�s strategy: low growth
policies and assume away the consequences.
Morici is a professor at the Smith School of Business, University of Maryland,
and former Chief Economist at the U.S. International Trade Commission.