March 7, 2009
The Economic Crisis and the Fiscal Crisis: 2009 and Beyond
"With the economy mired in the deepest recession in decades a drop in economic activity that has been compounded by continuing mortgage defaults, a historic decline in housing prices, falling equity values, illiquid credit markets, declining consumer confidence, and enormous and rapid job losses attention has shifted away from problems of fiscal balance. However, the most recent Congressional Budget Office baseline projection (2009a) reports a fiscal year 2009 deficit of $1,186 billion, or 8.3 percent of GDP, under the assumption that no new tax or spending policies are implemented. Including the recently enacted $787 billion stimulus package raises the 2009 deficit by roughly $185 billion (CBO 2009b). Either the baseline projection or the baseline-plus-stimulus would represent the largest deficit in dollar terms and as a share of the economy since World War II, as well as a stunning shift from the budget surpluses of a decade ago.
This paper discusses the impact of recent tumultuous economic events and policy interventions on the Federal fiscal picture for the immediate future and for the longer run. Because these events and policies are still unfolding rapidly, the paper will be updated over the next few weeks and months." [RJ]
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