Smith Faculty Opinion Article

By Dr. Peter Morici, Professor of International Business E-MAIL WEB SITE

February 1, 2010

Obama's 2011 Budget

Today, 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.

Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.