WASHINGTON (Reuters) – The U.S. national debt will nearly double over the next 10 years, government forecasts showed Tuesday, challenging President Barack Obama’s economic and healthcare overhaul agenda.

The White House mid session budget forecast and the non-partisan Congressional Budget Office both forecast that government revenues will be crimped by a slow recovery from the worst recession since the 1930s Great Depression, while spending on retirement and medical benefits soars.

The White House projected a cumulative $9 trillion deficit between 2010 and 2019, while the CBO took a more optimistic view, pegging the deficit at $7.1 trillion because it assumed higher revenues as tax cuts expire.

The spending blitz could push the national debt, now more than $11 trillion, to close to $20 trillion. The debt is the sum the government owes, while the deficit is the yearly gap between revenues and spending.

“The alarm bells on our nation’s fiscal condition have now become a siren,” said Senator Mitch McConnell, the Republican leader in the Senate.

“If anyone had any doubts that this burden on future generations is unsustainable, they’re gone,” McConnell said, adding that economic stimulus funds should be diverted to pay down U.S. debt.

However, both the White House and CBO estimates anticipate that the deficit, now at its highest level as a percent of economic output since World War Two, will decline relatively swiftly in the next three years as growth resumes and federal bailout programs shrink.

White House budget director Peter Orszag said the deficit was too high and cited this as a reason to pass Obama’s healthcare overhaul plan, which is in trouble with lawmakers while opinion polls show it losing popular support.

“I know that there will be some who say this report proves that we cannot afford health reform. I think that has it backward,” Orszag told reporters on a conference call.

“The size of the fiscal gap is precisely why we must enact well-designed and fiscally responsible health reform now.”

Obama’s healthcare plan, his policy priority, has run into opposition from critics who complain its $1 trillion price tag is too high and who worry it will limit consumer choice.

The debate is gaining steam as Republicans seek momentum for next year’s mid-term elections, where they hope to chip away the dominant position Obama’s Democrats enjoy in both the House of Representatives and the Senate.

NEAR-TERM FORECASTS SIMILAR

The White House forecasts a record $1.58 trillion deficit in fiscal 2009, matching the numbers of the CBO, while it shows the deficit at $1.5 trillion in 2010, a touch higher than the $1.48 trillion projected by CBO.

But both estimates show annual deficits staying above $500 billion every year until 2019, compared with a then-record $459 billion last year. The White House shows the gap averaging 5.1 percent through 2019, compared with 3.2 percent last year.

By 2019, it estimates that the ratio of national debt to gross domestic products will rise to 69 percent from 48 percent in 2009.

“The administration has always said that you have to get deficits under 3 percent of GDP to be safe. They now admit that they will not in the next 10 years,” said Douglas Holtz-Eakin, a CBO director under Bush and chief economic adviser to Republican Senator John McCain for his 2008 presidential bid.

The budget news was overshadowed by Obama’s surprise announcement Tuesday to renominate Ben Bernanke to a second four-year term as Federal Reserve chairman, a move seen as aiming for continuity at the central bank during a tentative stage of recovery.

“I’m stunned at how hard they have worked to bury this,” Holtz-Eakin said of the White House’s budget estimate timing.

DIFFERING ASSUMPTIONS

One reason CBO and OMB can end up with different numbers is technical. The CBO employs a baseline method which only takes into account policies that have already become law.

On the other hand, the administration’s forecasts can reflect the economic impact of policies it hopes to implement, even if they have not yet been approved by lawmakers.

For example, the CBO assumes the there would be no “patch” for the Alternative Minimum Tax, meaning millions more Americans would have to pay higher taxes, even though Congress has agreed to a temporary reprieve every year to prevent this happening. In addition, CBO assumes the tax cuts delivered by former President George W. Bush will expire at the end of 2010.

Orszag said that the White House numbers also assumed that some of the Bush tax cuts would be extended. Obama has pledged not to raise taxes on U.S. households earning less than $250,000 a year.

(Writing by David Lawder, Editing by Vicki Allen)

Posted at 2:55 pm on August 5, 2009 by Ed Morrissey

Remember when Congress erupted in outrage over the arrival in Washington DC of the CEOs of the three major American automakers in private jets? The bumbling public relations of the Big Three gave elected officials an opportunity to indulge in populist spleen-venting at rich fat cats and their greed. Public pressure pushed the automakers to dump their private fleets of corporate jets and focus belt-tightening in the executive suites as well as on the manufacturing floor.

Who knew that Congress merely wanted to undercut price on their own purchase of private jets?

Last year, lawmakers excoriated the CEOs of the Big Three automakers for traveling to Washington, D.C., by private jet to attend a hearing about a possible bailout of their companies.

But apparently Congress is not philosophically averse to private air travel: At the end of July, the House approved nearly $200 million for the Air Force to buy three elite Gulfstream jets for ferrying top government officials and Members of Congress.

The Air Force had asked for one Gulfstream 550 jet (price tag: about $65 million) as part of an ongoing upgrade of its passenger air service.

But the House Appropriations Committee, at its own initiative, added to the 2010 Defense appropriations bill another $132 million for two more airplanes and specified that they be assigned to the D.C.-area units that carry Members of Congress, military brass and top government officials.

Normally, that would be considered an earmark. However, since Appropriations merely expanded a line item instead of creating one, it didn’t require the member to identify him/herself. Instead, the jet-setter will remain anonymous — and Congress as a whole can take the blame for passing it.

How about it, America? Does this Congress need three more private jets, or even one? Should they not fly commercial like the rest of us? Considering the massive deficits this administration and the Democrats in Congress now run — much worse than anything remotely imagined at GM, Chrysler, or Ford — should they not hold themselves to the standard they dramatically demanded from the CEOs of the automakers last November?

Source: HotAir.com

By Rick Newman Rick Newman – Tue Jul 28, 11:02 am ET

When CIT Group, a medium-sized lender, faced the threat of bankruptcy recently, it raised an uncomfortable prospect for the officials in Washington managing the bailout of the financial system. CIT got $2.3 billion in bailout funds last year–yet it was still failing. And the government decided not to offer any more help. So if CIT declared bankruptcy, taxpayers would be out their $2.3 billion.

CIT averted bankruptcy, for now, but the brush with insolvency highlighted one of the biggest risks of the entire bailout scheme: that taxpayers won’t get their money back. That problem has been overshadowed recently by some good news from firms like Goldman Sachs and JPMorgan Chase, which have paid back loans they got under the government’s Troubled Assets Relief Program. So far, 34 companies have returned about $72 billion in TARP funds to the government, according to a bailout tracker maintained by journalism site ProPublica.

But nearly 700 firms have received bailout money, and many of them are still in rough shape. To gauge how much bailout money may be at risk, U.S. News asked the Ethisphere Institute, a private research group that studies corporate responsibility, to identify who the biggest TARP-jumpers are likely to be. Ethisphere publishes a TARP index, updated weekly, that measures the financial performance of all TARP recipients and calculates the “return” to taxpayers if the bailout funds are treated as an investment in the companies that got them.

By that measure, the government has been a poor investor, losing about $148 billion so far–$1,233 per U.S. household.

Ethisphere analyzed the same data, including results from the Federal Reserve’s recent stress tests, to identify firms most likely to write off their debts to the federal government, either partly or completely.

Bailout architects like Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke have argued that the government is likely to get most of the bailout money back, which would make it more like an interest-bearing loan than a giveaway. But since the bailouts began last fall, a number of developments have made it clear that the feds–and the taxpayers–can kiss some of that money goodbye. Ethisphere estimates that the following nine firms could end up costing the government the most when the final bailout accounts are tallied. Together, they account for nearly $220 billion in government bailouts, including TARP money and other funds.

AIG (total bailout received: $85 billion). It’s hard to imagine a more complicated bailout than this monstrous money hole. The $85 billion includes $40 billion in TARP infusions and about $45 billion in loans from a government credit line. The Federal Reserve has paid an additional $47 billion for troubled AIG securities, which it hopes to resell at some point in the future. And AIG can still tap another $30 billion in credit lines extended by the government.

All of that money has bought the feds 79.9 percent of the insurance giant–the most it can own without triggering accounting rules that would effectively nationalize the whole company. To pay back the government, AIG has developed a long-term plan to break itself up and sell off various insurance divisions and other assets. But the horrible economy makes it a fire-sale market, with many bids coming in at less than half the asking price. So it could be three to five years before all of AIG’s assets have been spun off. The government’s exposure should shrink later this year, when the $45 billion credit line drops to about $20 billion. But Ethisphere still predicts that the government will recoup far less than what it has plowed into the sinking firm.

Chrysler ($14.9 billion). The government gave Chrysler $7 billion to stay afloat prior to its bankruptcy filing in March. That money essentially disappeared when the company declared bankruptcy in April. Then the government provided Chrysler an additional $8 billion in financing to help it exit bankruptcy in exchange for an 8 percent ownership stake in the new Chrysler. The idea is that Chrysler will go public at some point, sell shares, and buy out the government’s position. But the return to the government will probably be well below face value, since the government holds a relatively small stake in a company that’s still endangered. “The government will get back materially less than its $8 billion principal,” says analyst Stefan Linssen of Ethisphere.

[See which cars have been hurt most by the recession.]

CIT Group Inc. ($2.3 billion). A string of strapped borrowers and a heavy debt load have nearly sunk CIT, a financial firm that lends money to small and medium-sized businesses. The firm escaped a bankruptcy filing in mid-July when bondholders provided fresh funds to keep the firm operating. But the interest rate is high, and many analysts think a bankruptcy filing is still likely. The Treasury Department, meanwhile, has hinted that it has already written off CIT’s $2.3 billion in TARP funds.

Citigroup ($45 billion). The huge bank posted a $4.3 billion profit in the second quarter, but that’s only because it spun off its valuable Smith Barney brokerage unit. Otherwise, it would have lost money, and by almost any measure, Citi is a deeply wounded bank. Its market value is just $16 billion–one third of the government’s cash investment in the company. For the foreseeable future, Citi is likely to wrestle with mounting losses on credit cards and other consumer loans. In addition to $45 billion in TARP funds, the government has guaranteed a humongous pool of dodgy Citigroup assets worth $301 billion. Citi paid $7 billion for the insurance and must absorb the first $39.5 billion in losses. But after that, the government would bear 90 percent of any write-offs. That gives taxpayers long-term exposure to Citi’s troubled balance sheet. Chief Executive Vikram Pandit has insisted his firm is on a path back toward sustained profitability, which will allow it to pay back the government. But Citi hasn’t announced any timeline for paybacks.

General Motors ($50.7 billion). That long-forgotten $13.4 billion bailout last December was just a down payment, it turns out. Through bankruptcy funding and other expenditures, the government has nearly quadrupled its investment in GM, in the process gaining 60.8 percent ownership of the new company. For the government to get all of its money back, Ethisphere calculates that GM would have to achieve a market value of $80 billion–which would be 43 percent higher than GM’s value in 2000 when the automaker was highly profitable and much larger. With half as many divisions now and falling market share, it’s hard to see how GM could ever reclaim its former glory (or profits).

Ethisphere estimates that taxpayers will be lucky if they get back $20 billion, a mere 40 percent of their investment in GM. GM argues that its implied market value, taking into account the prices its bonds are trading at and other factors, will allow a higher repayment, closer to $34 billion. And that could go up, GM insists, if the company does well.

GMAC ($12.5 billion). GM’s car-financing arm also writes mortgages, which got it into deep trouble, forcing the lender to take more bailout money than any bank except for Citi, Bank of America, and Wells Fargo. Part of GMAC’s funding came with the auto bailout, to help ensure that car buyers who want to buy GM or Chrysler vehicles can get loans. But Ethisphere believes that with GMAC’s vast exposure to two depressed industries–cars and homes–at least $5 billion of GMAC’s TARP funds are a complete write-off. GMAC says otherwise, insisting that it’s taking the necessary steps to strengthen its business. “We intend to repay the full TARP investment over time and have been making scheduled dividend payments on the investment,” says spokesperson Gina Proia.

Marshall & Ilsley Corp. ($1.7 billion). This bank holding company, parent of M&I Bank, is based in Wisconsin, but it made thousands of housing, construction, and commercial loans in Arizona, one of its target markets during the go-go years. With a huge housing bust in Arizona, many of those loans are now worth far less than their face value. That makes M&I one of the most vulnerable regional banks. Ethisphere believes the government could lose $1.3 billion, more than three quarters of its investment. M&I says it’s confident that the government will get all of its money back, plus dividend payments. The bank also argues that it has higher “capital ratios” than many other banks of its size and points out that it recently raised $552 million through an equity offering, “clearly indicative of the market’s belief that the [government's] capital will be repaid.”

Regions Financial Corp. ($3.5 billion). This Alabama-based bank has been losing a bundle from bad mortgages and other loans, mainly across the South. And its CEO said recently that losses are likely to get worse for the foreseeable future. Ethisphere believes taxpayers will be lucky if they get half their money back. A Regions spokesman says the bank plans to pay back its government loans in full, pointing out that Regions has $6.9 billion more in reserves than the required minimum, and recently raised $2.5 billion in the private markets.

Zions Bank Corp. ($1.4 billion). Utah has fared relatively well during the recession, but this Salt Lake City-based bank hasn’t. That’s because its core markets include California, Arizona, and Nevada–ground zero for the housing meltdown. Zions has lost nearly $900 million so far this year and remains exposed to housing woes. Ethisphere tallies Zions as another 50 percent writeoff, meaning taxpayers might get back just $700 million. Zions says it has plenty of earnings power and reserves to offset future losses, and points out that it recently raised $511 million in capital from the private markets. “Zions believes the company has the long-term capacity to repay TARP in full at the appropriate time,” says spokesman James Abbott.