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Where the Debt & Deficit Came From

February 1st, 2010

This part of Obama’s response to Republican accusations bears repeating often:

Jeb, with all due respect, I’ve just got to take this last question as an example of how it’s very hard to have the kind of bipartisan work that we’re going to do, because the whole question was structured as a talking point for running a campaign.

Now, look, let’s talk about the budget once again, because I’ll go through it with you line by line. The fact of the matter is, is that when we came into office, the deficit was $1.3 trillion. — $1.3 [trillion.] So when you say that suddenly I’ve got a monthly budget that is higher than the — a monthly deficit that’s higher than the annual deficit left by the Republicans, that’s factually just not true, and you know it’s not true.

And what is true is that we came in already with a $1.3 trillion deficit before I had passed any law. What is true is we came in with $8 trillion worth of debt over the next decade — had nothing to do with anything that we had done. It had to do with the fact that in 2000 when there was a budget surplus of $200 billion, you had a Republican administration and a Republican Congress, and we had two tax cuts that weren’t paid for.

You had a prescription drug plan — the biggest entitlement plan, by the way, in several decades — that was passed without it being paid for. You had two wars that were done through supplementals. And then you had $3 trillion projected because of the lost revenue of this recession. That’s $8 trillion.

Now, we increased it by a trillion dollars because of the spending that we had to make on the stimulus. I am happy to have any independent fact-checker out there take a look at your presentation versus mine in terms of the accuracy of what I just said.

It shows up the stunning hypocrisy of the GOP: to take a budget surplus and a promise to start paying off the debt, and immediately turn that into massive deficits and $8 trillion in debt–but the moment Obama takes office, pretend that he created it all and was fully responsible for it being there. Garrison Keillor expressed the Republicans’ mendacity best:

The bums have tiptoed out the back door and circled around to the front and started yelling, “Throw the bums out!”

Let’s make it clear: this is not Obama acting like Bush and trying to blame his current failures on the previous administration. Obama owned up to what he added to the debt. But he also pointed out that you could not blame him for losses incurred before he had the chance to act, nor could you fault him for having to start working deep down in a hole created by someone else. Republicans may be desperate to do so, but Obama’s having none of it, and rightly so.

Remember, Clinton left office with a jobs report that had only 16,000 jobs lost in one month, after several months of sporadic gains and losses (the gains were greater), with only a possibility of downturn; it took Bush 16 months before he broke even with that level of job creation, and it took him two and a half years before he had regular job growth again.

Obama, on the other hand, was handed job losses which for 3 months straight had exceeded 680,000. In just one year he has almost brought us back to jobs being gained again, and by relative terms, is about 600,000 jobs per month in the black from what Bush left him. In fact, the news may be better than that: job numbers for November were revised up to show the first job gain in two years, and although December job numbers came back down to 85,000 losses, that number could also be revised upwards, if things go well.

Unemployment rates are high mostly because of the massive losses that Bush generated, and Obama had to make huge strides upward and go into positive job gains again before the number could come down–and Obama is nearly there after only one year.

Take a look at the differences; below are two charts, showing job gains and losses for one year before the transition, to 11 months after the transition (the latest numbers we have for Obama), keeping in mind that the December ’09 job numbers are preliminary:

Jobs gained/lost: Clinton to Bush
Screen Shot 2010-02-01 At 12.33.48 Pm

Jobs gained/lost: Bush to Obama (Dec. 09 may be revised)
Screen Shot 2010-02-01 At 12.36.58 Pm

See the difference?

Add to that the surprisingly high Q4 2009 GDP numbers, even after mitigating factors are removed, and you have very strong promise for the economy right now. Hopefully, the jobs report due out in a week will show the first growth since December 2007.

Make no mistake: Obama’s economic performance so far has been astonishingly good, extraordinarily better than Bush’s at this point–despite the fact that Bush had already committed the country to far more debt at that point with his tax cuts than Obama has at the same point with his stimulus.

The idea that Obama is not doing a good job with the economy is purely an illusion created by the deep pit Bush had dug for him, an illusion that the Republicans are attempting to reinforce and amplify. And Obama was 100% correct for swatting them down.

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  1. Troy
    February 1st, 2010 at 15:09 | #1

    most of that charting is just accidents of timing.

    The go-go 90s were beginning to run out of steam Spring 2000 and the over-investment in dumb tech businesses that couldn’t repay their borrowings led to a recessionary environment by 2001 when the actual productive sector began scaling back its tech investments, leaving companies like Cisco and Sun overextended.

    The massive tax cuts of 2003 and free money from the Fed pushed a lot of investment into real estate, which lead the “jobless recovery” of 2002-2004.

    The Bush Economy got into full swing 2004-2006, with the real estate bubble becoming the primary engine of job growth and investment.

    The wheels came off of this Bush Economy with the beginning of the Subprime Crisis, ca. March 2007. Home prices had been driven up to unsupportable heights by generationally-low interest rates and the total abandonment of loan underwriting (one marginally-employed young borrower named Casey Serin was able to borrow $2.1M from 8 or so lending outfits to buy a real estate empire spanning the Central Valley, Utah, and Texas in the early part of 2006. Such fraudulent borrowing was common, and the rising home valuations enabled middle class America to borrow (and then spend) HUNDREDS of billions per year, 2004-2007. Home equity became a second source of income for millions of families, but only very temporarily since this was simply borrowed money against the roof over their heads and not actual income from labor.

    Total mortgage debt rose from $5T at the end of 2000 to $11T in 2008, while wages were largely flat. Current mortgage debt is $10.8T, so we’re not out of the woods yet

    Having lived in Japan in the 90s, I know pretty well what happens to an economy that blows its collective balance sheet up.

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