Barack's Budget Blues

Research Report

Barack's Budget Blues

December 17, 2008

Abstract

The new president will inherit a terrible economic and budget situation. It is uncertain exactly how much government debt will be issued in fiscal 2009, but it is certain that the amount relative to GDP will break the post World War II record by a large margin. The amount could exceed $1.4 trillion or 10 percent of GDP. The previous record was 5 percent of GDP in 1983. Financial markets will absorb this debt more easily if President Obama combines his short-run initiatives with a long-term plan to deal with the rapid growth of Social Security, Medicare, and Medicaid. It is more likely, however, that he will proceed cautiously, saying a few things about the long run, but focusing more intently on a short-run stimulus.

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