The Congressional Budget Office (CBO) has released its latest budget estimate in which it sharply revised downward its earlier estimate of the cost of the Troubled Asset Relief Program (TARP) from $350 billion to $66 billion. As the price of the program falls, controversy surrounding it appears to fade, according to a Reuters report. However, lawmakers who voted for the program may still face challenges as the election nears.
TARP was enacted at the height of the credit crisis in 2008. It provided the Treasury Department with authority to use $700 billion to prevent an outright collapse of the financial industry. The Treasury Department used it to pump capital into banks, returning confidence to credit markets that banks could repay their obligations, which, in turn, unfroze the credit markets. The Obama administration later shifted TARP funds to save the auto industry and, in particular, General Motors. As banks continue to repay the bailout funds and auto makers pay back their loans, the CBOs cost estimate may fall further.
The Treasury Department has retained its $105 billion estimate for TARP.
Build America Bonds
The 10-year cost of the Build America Bonds program was increased to $36 billion from the January estimate of $26 billion by the CBO. The CBO’s projection relates to the cost of the existing program, which is poised to expire at year-end, and does not account for any extension at a lower subsidy rate.
National Debt
The CBO estimates that the federal budget deficit for 2010 will exceed $1.3 trillion—$71 billion below last year’s total and $27 billion lower than the amount that CBO projected in March 2010, when it issued its previous estimate. Relative to the size of the economy, this year’s deficit is expected to be the second largest shortfall in the past 65 years: At 9.1 percent of gross domestic product (GDP), it is exceeded only by last year’s deficit of 9.9 percent of GDP. As was the case last year, this year’s deficit is attributable in large part to a combination of weak revenues and elevated spending associated with the economic downturn and the policies implemented in response to it.
But here is the worrisome part: “in CBO’s current-law projections, once the economy has recovered, the federal budget deficit amounts to between 2.5 percent and 3.0 percent of GDP from 2014 to 2020. Projected deficits total $6.2 trillion for the 10 years starting in 2011, raising federal debt held by the public to more than 69 percent of GDP by 2020, almost double the 36 percent of GDP observed at the end of 2007.” (Emphasis added).
So, assuming a full recovery, the national debt will hit 69 percent of GDP by 2020. What if we don’t get a recovery?
Click to view the full CBO report: CBO Budget Update 8-2010.
Gregg D. Killoren
victoria1014
