Obama's Big Fat Nothing; Summit Promises to Cut Spending Weren't New
Byline: James A. Bacon, SPECIAL TO THE WASHINGTON TIMES
The financial media put a positive spin on a joint statement Sunday by the wealthiest members of the Group of 20 countries that they would halve their deficits by 2013 and stabilize their debt burdens by 2016.
In the words of the Wall Street Journal's lead story, the announcement was a signal to international markets and domestic political audiences that the G-20 countries are taking seriously the need to wean themselves from stimulus spending. Wrote the New York Times: The action .. signaled the determination of many of the wealthiest countries . to now emphasize debt reduction. And it underscored the conviction of European nations in particular that deficits represented the biggest threat to their economic stability.
What both newspapers neglected to mention is that the goals require virtually no change in U.S. fiscal policy in the near term and only modest changes by the second half of the decade - at least if you believe the 10-year budget forecast prepared by the Obama administration. For all practical purposes, President Obama could have announced, The Europeans can do whatever they want. We're not budging from the status quo.
In its 2011 budget summary, submitted Feb. 1, the Office of Management and Budget (OMB) estimated that the deficit this year (fiscal 2010) would amount to $1.556 trillion. The estimate for 2013 was $766 billion. Mr. Obama expected to cut the deficit in half through strong economic growth and by freezing discretionary non-security spending for three years, beginning 2011, an initiative he announced in his January State of the Union speech. If Mr. Obama's budgetary forecast pans out, he can meet the first of the G-20 goals without making any change in budgetary policy.
What about the promise to stabilize debt/GDP ratios by 2016? The ratio of the national debt to the size of the economy is widely regarded as a benchmark of a nation's ability to carry the debt. Once again, there is less to Mr. Obama's commitment than meets the eye.
Mr. Obama's 10-year forecast shows the ratio of public debt (which excludes debt owed by the Social Security and Medicare trust funds, the Federal Reserve Bank and other federal agencies) shooting up from 62.9 percent in 2010 to 70.7 percent in 2013 and then hitting a plateau and climbing gradually for the rest of the decade. …