A look at the Congressional Budget Office figures for 2009 and 2010 is enough to drive most strong men to despair.

Right at the start the CBO says that the federal government will run a $1.2 trillion deficit in the next fiscal year, That does not include the cost of the new administration’s stimulus plan, which could push the total of the red ink to $2 trillion. The figures for bailing out Fannie Mae (FNM) and Freddie Mac (FRE) and the cost of the TARP at $750 are included in the numbers..

Based the CBO assumption GDP will fall 2.2% for calendar 2009

Expectations for recession is that it will last until the second half of 2009, making it the longest downturn since WWII.

The agency also forecasts unemployment moving to 9% by 2010.  Unemployment compensation is projected to nearly double from $43 billion to $79 billion to cover rising joblessness.

The news sets up a real fight in Congress over what the government can afford.

It would be hard to find anyone who expected the deficit for this year to be as large as the CBO is forecasting, which means the debate on the stimulus package is almost certain to turn fairly violent. Any fiscal conservative in Congress would be able to offer a compelling argument that the US economy, even with a $14.2 trillion annual GDP, can’t drag a debt anchor of this size around.

The news also raises the issue of what kind of debt auctions the Treasury will have to run to procure funding. Economists are already concerned that the appetite for US debt is waning. In places like China, which has been a huge net buyer of Treasuries, its own economic slowdown may cut its appetite. And, the larger the amount of money the US asks for, the more it will be perceived that the debt is not "bullet proof" from the standpoint of defaulting

The numbers almost certainly mean that getting a stimulus package passed quickly just got harder.

Douglas A. McIntyre

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