Yet Another Record Budget Deficit for 2011

02/01/10 Baltimore, Maryland – This morning Tim Geithner helped the White House unveil a $3.8 trillion government budget for the coming fiscal year. If approved, the fiscal year 2011, which starts in October, will ring in a record $1.6 trillion deficit.

Say again, $1.6 trillion. This is next year, mind you… Even the NBER will be convinced the recession is over by then. Whatever legitimate chance they had to spend under the guise of “emergency” or “the credit crisis” is long gone.

Part of the record deficit will come from an expected $100 billion “jobs bill.” Heck, since throwing money at the banks worked so well, why not? And those banks that we rescued? They’re getting hit with new punitive fees in hopes to make up for the votes lost in the past year of disappointing “change” in Washington.

But fear not, the increasing rate of spending will end NEXT fiscal year. The president’s budget office expects “just” a $1.3 trillion deficit for 2012. Really, it’s not so bad… the new projection is for $8.5 trillion in budget deficit over the next 10 years. That’s WAY better than the $9 trillion projected in August.

“Even if you assume both a rising US savings rate and generous foreign inflows to finance the federal deficit in 2010,” Dan Amoss writes, putting the federal budget into perspective for individual investors, “there remains a several hundred billion dollar shortfall in funding.

“The shortfall will be filled; it’s just a matter of price. Lower Treasury bond prices (higher yields) will attract more capital. This will raise the cost of debt for a global economy that depends on cheap financing. It’s also bearish for the stock market because rising Treasury yields will drive institutional fund managers to rebalance portfolios away from stocks and toward Treasuries.

“The move toward the relative safety of fixed income is already a strong long-term trend, and it could accelerate in 2010 if risk-free yields grow more tempting. Risk aversion has just started returning to most investors’ psyches; it has plenty of room to grow if it’s going to reflect the gloomy economic reality.”

Addison Wiggin

Addison Wiggin is the editorial director of The Daily Reckoning, and executive publisher of Agora Financial, an independent financial research firm based in Baltimore, Maryland. His second editions of international best-sellers Financial Reckoning Day Fallout and The New Empire of Debt, which he co-authored with Bill Bonner, were updated in 2009. His third book, The Demise of the Dollar… and Why it’s Even Better for Your Investments was updated in 2008, the same year he wrote I.O.U.S.A. Read more about Wiggin’s best-selling books here.   

Wiggin is the executive producer and co-writer of I.O.U.S.A. an acclaimed documentary nominated for the Grand Jury prize at the 2008 Sundance Film Festival and the 2009 Critics Choice Award and shortlisted for a 2009 Academy Award. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs.

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