Doubling Down; and Down, again!

I guess I get little tired of hearing about the trillion dollar deficit that Obama says he inherited from the Bush Administration. I believe that a Democratically-controlled Congress also helped to double that deficit through legislation that approved the bailout monies for Fannie & Freddie, the banks, AIG insurance, and the auto companies. Granted it was at Bush's urging; but, I think the majority of Congress was on board with the various bailout proposals. I also seem to remember a junior Senator from Illinois who took time out from campaigning and who sat at the table with President Bush and others, and then agreed with him and voted for the bailouts.

Now, for Mr. Obama, as our President. He complains about the deficit he inherited. Yet, this morning, he has decided to nearly double it with a 2010 budget of his own (See Full Story). At the end of Obama's second year, by his own projections, the deficit will balloon to 1.75 trillion dollars. There's an ad running on TV that says you could spend a million dollars a day since Jesus was born and you still couldn't spend what was approved in the near $800 billion Stimulus Package. Obviously, that TV ad is out of date. It should be TWO MILLION a day with the current package plus all the new spending in Obama's budget.

But, I have another surprise. Mr. Obama's projection of a $1.75 trillion deficit is probably way off the mark.

Corporate profits are totally in the tank. They are literal disasters. Many are carrying big losses. Those who are still reporting profits are reporting drops in profits of 50 percent or greater. And, if this is happening to our publicly traded corporations, the same has got to be true for small businesses.

Companies that don't have any earnings don't pay taxes, and the list of companies with losses is growing by the day. If earnings are down by more than 50 percent, then the Federal taxes on those earnings will be proportionately down. Also, people losing their jobs won't pay taxes. And, every time a CEO is forced to take a pay cut (like the $500,000 ceiling placed on them by the Obama Administration or the voluntary $1 salaries), that is additional tax money that the Federal Government won't be seeing. Cuts in the Iraq war expenses will also cause profits to fall for all those U.S. companies that were making the "things" for the war effort like Humvees, guns and rifles, spare parts, Meals-Ready-to-Eat, etc. Some of those companies will probably have to let people go as the Iraq War effort dwindles and as those out-of-jobbers also hurt the tax base. Further, this morning's earnings data clearly show that AIG and GM will be back with their tin cups for Federal handouts. In the last quarter GM burned almost $10 billion dollars and says it will be out of money in two months (See Full Story). There is no doubt that GM will need another $30 billions in order to survive until the end of this year. AIG insurance is also under water with another estimated loss of $60 billion dollars. They have already received $150 billion from the taxpayers and it now looks like they'll be wanting another $60 billion more (See Full Story) .

My guess is that our Treasury Department and the rest of the Obama Administration have totally underestimated the amount of tax revenues that will be lost to this economy. Further, I'm am quite sure they haven't accounted for all the new bailout monies that will have to be doled out. Lastly, they've probably underestimated most of the costs that they associated with new programs such as nationalized health care.

I will personally bet that you can add 50 percent to Obama's projected deficit numbers. It would not surprise me to see a first-year Obama budget deficit by the end of 2010 that is well above $2.5 trillion. One thing politicians can't ever do is to get the numbers right.

If you don't think I'm right; then rewind to November, when Team Obama was talking about having a $500 billion Stimulus Bill ready for the President's signature in January (See Full Story). As we all know now, that stimulus bill finally turned out to be nearer to $800 billion; almost 60 percent higher than a projection of just two months earlier. It makes you wonder. If Team Obama can't forecast two months in advance, how can they submit an accurate budget for 2010; almost ten months from now!