US debt to exceed GDP by 2010!

In Febuary, I predicted that US federal debt would exceed US GDP by 2015. It appears that I was too optimistic at that time.

The Obama Administration’s latest budget projections now show that the debt may exceed GDP as soon as 2010! This year’s deficit is expected to rise to $1.75 Trillion, raising the total debt from the current 11.2 trillion (4/9/09) to almost 13 trillion by year end. Next year’s deficit is projected to be in the trillion dollar range, driving the debt up to 14 trillion [1], which is roughly equivalent to 2008 GDP. Since GDP growth will be negative in 2009 and modest in 2010, it’s not unlikely that GDP and gross federal debt will be equal at the end of 2010 [2].

It looks like the budget situation may force decisions on big government programs like Medicare, Social Security, and Defense sooner than most expected – and likely sooner than the Administration would prefer. Here’s to the return (or beginning?)  of fiscal discipline!

[1] See Table S-9 in the White House Budget for FY 2010, showing gross debt of 14.078 Trillion for 2010.

[2] Table S-8 shows the White House’s economic growth assumptions, which are more optimistic than many mainstream economists’ assumptions. In fact, the table itself shows that both the CBO and private economists have lower growth projections than the White House (kudos for the honesty). The CBO estimates GDP at 14.6 Trillion for 2010, meaning that any further slippage in the budget cause the debt to surpass GDP.