Obama's Budget and new $1,750bn deficit forecast

The Media has got suddenly animated that the US budget deficit is really going to be double that previously announced (see previous blog below). This is because, Barack Obama’s budget figures, released today, include a $250bn item for future bailout funds. This has correctly been calculated to imply the White House is planning to ask Congress for up to $1,000bn more in emergency funding for the banking sector, which seems wholly sensible to me, by the way.
A senior Oval Office source told the FT that a $250bn “placeholder” provision is part of the Aministration’s new approach to upfront budgeting, a provision in accounting terms for likely future net costs.
In line with budget accounting rules, last year’s authorisation of $700bn in emergency TARP funds was scored at $200bn net in the budget, implying a ratio of authorisation to budgetary cost of over three to one. What this means is that the $700bn of financial asset purchases would be written down by $200bn, and that writedown is then required to be taken on-budget, the balance being netted off-budget. On this way of thinking the £250bn placeholder provision implies up to $1,000bn in new funding capacity. But in his speech to the joint houses of Congress on Tuesday night, Mr Obama clearly indicated substantial new resources would be needed for the federal government to help restore the credit pipeline in the financial sector. In the UK similar measures, most recently the £500bn 'bad bank' APS, Asset Protection Scheme, are accounted somewhat differently. The writedown discount and haircut is translated into capitalisation money for taking banks' preference shares and thereby netted off-budget, with the writedown also reflected internally and variously in the banks' balance sheets. If this is not precisly clear to you, don't fuss, it is not yet precisely clear to me either?
Today’s 10-year budget will, the FT says, project a fiscal deficit this year of $1,750bn – a number that shatters all records and which is significantly higher than the near $1,200bn forecast by the Congressional Budget Office in January. The sharp jump largely reflects the cost of this year’s portion of the two-year $787bn emergency fiscal stimulus that was signed into law by Mr Obama last week.
The 10-year federal budget will be released at 11am east coast time, to include a roadmap for the creation of an economy-wide carbon emissions cap and trade system by 2012, from which the proceeds will fund the “make work pay” tax cut for middle class "working" families that Mr Obama included in last week’s short-term stimulus. The cap and trade permits are to be sold off in a 100% auction system. Additionally, the budget creates a $634bn healthcare reserve to pay for universal insurance (partly by raising taxes on the wealthiest Americans earning over $250,000). This follows Mr Obama’s speech to Congress on Tuesday night saying he would make a “substantial down payment” on the future expansion of healthcare. The analogy between affordable healthcare for the sub-prime population and financial health for the sub-prime, toxic, blood-poisoned banking sector cannot be lost on the general voter.