While no one really knows what the final cost of the US financial crisis will be as far as the economy is concerned, the cost to the exchequer is likely to be more than 5 per cent of GDP. According to the latest estimates of the Congressional Budget Office (CBO), the fiscal deficit in 2009 could be around 8.3 per cent of GDP — it was 3.2 per cent in 2008. This doesn’t take into account the stimulus proposed by President-elect Barack Obama — take that into account, NBER chief James Poterba said at a CII seminar, and it could be around 10 per cent of GDP. The highest it has ever gone so far has been 6 per cent in 1983. This also makes it the highest increase in any recession period, the highest in the past being 1.6 per cent of GDP. More frighteningly, the deficit doesn’t look as if it's going to peak either. Thanks to huge social security and medicare commitments, the CBO estimates the deficit could be 10 per cent in 2030 and rise to a mind-boggling 22.5 per cent in 2050 — at which point, social security spending will be around 6 per cent of GDP and medicare/medicaid around 12 per cent. Makes you wonder what votaries of fiscal restraint will say to this.
