The White House’s annual Mid-Session Budget Review, sent to Speaker of the House Nancy Pelosi, shows that unemployment will not fall below 9% until 2012.The Administration has finally given in to the reality that whatever recovery the US will experience in the next two years will indeed be a “jobless recovery.” The analysis also shows that the jobless rate will remain at extremely high levels, above 7%, until the start of 2014.The unemployment numbers are so high that they will make the Administration’s GDP growth goals hard to reach. Many economists believe that GDP will grow no better than 2.5% this quarter and will do little better than that in the fourth quarter. The mid-year review forecasts 3.9% GDP growth this year when measured in current dollars with a jump to nearly 5% next year and 5.8% in 2012.
The most troubling number in the Budget Review is that the National Debt will double between this year and 2020 when it’s forecast to hit more than $25 trillion. That will make it over 100% of GDP which is forecast to be $24.167 trillion.
The most significant contributors to the rise might be expected. Social Security will move up from $729 billion to $1.21 trillion in 2020, a 65% increase. Medicare is expected to rise from $489 billion to $815 billion, a 67% increase. It is hard to imagine that the government will not be forced to decide to raise Social Security taxes or cut benefits for tens of millions of Baby Boomers, most of whom will have reached the 70-year-old mark by 2020.
The most difficult hurdle to eventually balancing the budget is probably the interest rates that the Treasury will need to pay to raise money which is forecast to go from 3.3% this year to 5% in 2013. That will make debt service a huge part of the expenditures by 2020, over $900 billion.
The pieces of the Budget have begun to contradict one another. It will be nearly impossible to pay massive sums to cover the national debt, maintain entitlement programs, coupled with fairly modest GDP growth over the next decade. Something will have to give and that something is likely to be what the government pays to its retired citizens.
Douglas A. McIntyre