The Congressional Budget Office (CBO) has released their budget projections, based on the Executive Office of Management and Budget's (OMB) proposal. They project that the deficit will total nearly $1.7 trillion this year and $1.1 trillion next year. Pundits and media are already declaring such deficits unsustainable, which they are. The director of the CBO has also stated on his blog that
"Although the economy is likely to continue to deteriorate for some time, the enactment of the American Recovery and Reinvestment Act and very aggressive actions by the Federal Reserve and the Treasury are projected to help end the recession in the fall of 2009. In CBO's forecast, on a fourth-quarter-to-fourth-quarter basis, real (inflation-adjusted) GDP falls by 1.5 percent in 2009 before growing by 4.1 percent in both 2010 and 2011."
Good news or bad news? Actually, this is no news. Back in 2001, the CBO projected a $5.6 trillion budget surplus, and $3.1 trillion on-budget surpluses for the next 10 years. What happened? Then-President Bush used the figures to push aggressive tax cuts, and the projected surplus turned out to be a fantasy.
In January of 2002, the CBO projected a deficit of 21 billion-- a big swing from the surplus predicted a year before-- but the actual deficit was $158 billlion. At the time, President Bush announced in his State of the Union Address, that "our budget will run a deficit that will be small and short-term." Six years later, we the people are looking at ongoing budget deficits that are now the greatest the country has had in 50 years.
The CBO doesn't have a good track record for making such predictions, they have only been issuing these types of reports since 1981 and there simply isn't enough historical data to make accurate projections. In 2003 and 2004 the office fell short again in estimating projected deficits, repeating a pattern of over- and underestimating both deficits and surpluses demonstrated ever since the office was created, back in 1974.
Looking at more recent numbers, in January 2007 the CBO forecast GDP growth of 2.3, 3% in 2008, and 2.9% each year after that, until 2012. The CBO "assumed" that the housing decline would stop, that the economy would not be thrown into a recession, and that gas prices would remain low. Wrong on all counts.
Maybe Director Elmendorf should ask Nancy Reagan for the phone number of her astrologer.