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A friend sends along this analysis:

• The January 2009 CBO Outlook projects the economy to shrink 2.2% in GDP in 2009, a swing downward of 3 percentage points from earlier projections.  The economy is projected to grow by 1.5% in 2010, a downward shift of 2 percentage points.

• The unemployment rate will exceed 8% in 2009, a rise 2 percentage points higher than earlier projections. By 2010, unemployment should be 3 percentage points higher than earlier projections, hitting a rate of 9%.

• The federal deficit for 2009 will rise to $1.2 trillion or 8.3% of GDP, shattering the peacetime record of 6% in 1983, and the New Deal high of 5.9% in 1934.  The deficit declines to 4.9% in 2010, still among the ten highest levels since WWII.

• Those 2009-2010 deficit projections include neither the proposed $1 trillion stimulus nor any appropriations in excess of the continuing resolution level. Further, the CBO estimates do not include extension of any portions of the EGTRA / JGTRA tax cuts but those costs don’t show up until after 2010 ($2.4 trillion over 2010-19).

• Outlays jump by 19% in 2009 to a peace time high of 24.9% of GDP, the highest since the latter parts of WWII when defense outlays were around 37% of GDP.

• Mandatory spending jumps 36% in 2009, with TARP ($184 billion) and Fannie/Freddie ($240 billion) accounting for 3/4ths of that jump.

• Social Security, Medicare and Medicaid all grow by at least 8% due to inflation and other economic conditions, like rising unemployment.

• Revenues are projected to decline by $167 billion in 2009, to just 16.9% of GDP, the lowest since 1959. Individual income taxes are to be down $86 billion (-7.5%), corporate revenues are down $79 billion (-26.6%) but social insurance taxes are actually up $15 billion (+1.6%).  Taxes from realized capital gains are expected to drop by $55 billion, more than 40%.  (NOTE: These major swings in revenues illustrate the results of a highly progressive income tax that creates a small tax base.  JCT indicates that tax filers with AGI’s over $100,000 were 16.9% of taxpayers but paid 85.8% of all individual income taxes.  Note that wage based social insurance taxes are projected to rise by 1.6% even though the unemployment rate is projected to hit 8%.)

• The Federal Reserve’s asset purchases and other interventions show up on their balance books as an asset increase from $892 billion at the end of 2007 to $2.247 trillion at the end of 2008.  The Fed plans additional purchases totaling $600 billion from the GSE’s and in mortgage backed securities.

• Equity wealth in the U.S. fell $6 trillion in 2008. Housing prices will fall another 14% by 2010.


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