Obama's 'Newer Deal' Likely to Raise Deficit

/PRNewswire-USNewswire/ -- As President Barack Obama takes office, he is promising a bold stimulus plan for the declining economy. Some of his proposals mirror those of Franklin Roosevelt's New Deal. A new report from Casey Research, "Obama's Newer Deal," examines Obama's plan in comparison to Roosevelt's and concludes that it is even more risky.

The Obama plan relies on both spending and tax cuts to raise incomes and promote recovery. The Obama administration believes people need to have money to spend in order to get the economy moving.

Casey Research's analysis shows that what is needed is a "great deleveraging: using assets to pay down debts. Like a household with finite income and too many credit cards, there comes a time when the piper has to be paid. Getting more credit cards only temporarily makes the problem go away and surely makes it all worse."

There are other key differences between the New Deal and the Obama plan. In 1933, the federal debt was $360 billion in 2008 dollars and 40% of the GDP. In 2008, the federal debt was just under $11 trillion and 70% of the GDP.

The government is likely to add $3 trillion to the national debt in 2009 alone.

"The time will come and probably in 2009," concludes Casey Research, "that the only way the U.S. will be able to fund its deficits is to create money by printing it. The Treasury will have to sell bonds, and in the absence of foreign buyers, the Fed will have to print the money to buy them. The consequence will be runaway inflation, increasing interest rates, recession, and inevitable tax increases."

"The era of runaway U.S. consumerism is over. The economy's eventual turnaround will only occur after the debt that permeates the economy is substantially reduced. It's going to be a painful process," says Casey Research.

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