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Obama administration discovers rosy scenario

By February 18, 2011

President Barack Obama’s proposed 2012 federal budget is being criticized, mainly by Republicans, for being too cautious, especially on spending cuts. But, absent any action on the big entitlements, like Social Security and Medicare, the budget does lay out ambitious goals, a $1.1 trillion reduction in the deficit over the decade and $1.6 trillion in new revenues.

HOWEVER, FOR THESE good things to come to pass depends on optimistic economic assumptions that may be overly cheery. If these assumptions are borne out, the country will indeed be in great shape come 2015.

Unemployment will drop from its current level of around 9 percent to 8.6 percent next year, 7.5 percent in 2013, 6.6 percent in 2014 and 5.9 percent, a level some economists consider close to full employment, in 2015.

On economic growth, the Obama administration is more optimistic than most private forecasters. The president’s budget calls for the gross domestic product to grow 5.2 percent in 2012 and a robust 6.1 percent in each of the next two years before easing back to a still-healthy 5.6 percent in 2015.

None of this growth will greatly affect inflation, according to the president’s projections. The Consumer Price Index, expected to end this year up 1.3 percent, will rise in gentle increments to 2 percent in 2014 and 2015.

Growth will make it worthwhile to save again. The administration predicts the interest rate on 91-day Treasury bills, currently flat-lining around two-tenths of a percent, will be at 4 percent in 2015 and the 10-year Treasury note at 5 percent.

OF COURSE, presidential budgets are quickly forgotten, and only the most obsessive numbers wonks will remember in 2015 what the administration assumed in 2011.

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