The Most Important Budget Numbers of All

With all the discussion on the 2012 Budget, there hasn’t been much, if any, discussion on the most important numbers of all. As of the time this was written they’re 223.467 and 3.49. What are they and why are they important? The numbers that I hear people talking about are $7.2 trillion, $100 billion, $61 billion and $38 billion. Those are all pretty meaningless despite all the talk. Why? Because they assume the WH OMB budget projections are a reasonable starting point. That’s where 223.467 and 3.49 come into play.

223.467 is the Consumer Price Index (CPI) value for March 2011. Knowing that number and knowing the value for September, 2010 (218.439) allows us to calculate the level of inflation we’ve experienced during the first 6 months of the Federal Government’s 2011 fiscal year. That number is 2.3%! But that’s just for 6 months. So why is that an issue? The WH OMB projected inflation at 1.3% for the entire year (2011) and projected that inflation would average 2.0% over the next twelve years. They projected a maximum rate of 2.1%. Yet we’ve surpassed the average and maximum rates in just 6 months of this year?

3.49% is the 10 Year Treasury rate for 4/13/2011. It’s been over 3.0% since December 7th, 2010 when it reached 3.15%. Why is that important? The WH OMB projected the 10 Yr Treasury rate would average 3.0% for 2011 and only 3.6% for 2012. It appears that the WH OMB also understated the level of interest rates we would face. And interest rates determine how much Net Interest Expense we’ll incur on our National Debt. Remember, 1.0% times $20 trillion equals $200 billion. So understating interest rates seriously understates Net Interest Expense and the size of deficits.

The WH OMB came up with a budget which added $7.2 trillion in accumulated deficits over the next ten (10) years. But if the inflation rate and interest rates are seriously understated, doesn’t that mean the $7.2 trillion is also seriously understated? Yes it does.

But it doesn’t help answer the question on how world recognized economists like the WH’s Austan Goolsbee didn’t see that the projections were way under stated. I caught it, don’t you think they/he should have?

Or could it possibly have been done on purpose?