The Congressional Budget Office projects that the U.S. federal budget deficit will hit an unbelievable $1.2 trillion, or 8.3 percent of the GDP for the 2009 budget year. The report entitled Budget and Economic Outlook: Fiscal Years 2009-2019 also warns that these figures do not include any future legislation such as the enactment of President-elect Barack Obama’s proposed economic stimulus package.

This report comes out on the heels of President-elect Obama warning that the country faces “trillion dollar deficits for years to come”.

The CBO report states that the budget outlook for 2009 “will be dramatically worse than it was in 2008″. In the first three months of of the 2009 fiscal year, which began on October 1, the government spent $408 billion more than it took in. The blame goes to a drop in corporate and individual tax revenues, and increased federal spending. The spending increase is largely attributed to the TARP program and the recent federal takeover of Fannie Mae and Freddie Mac.

The CBO’s baseline projections serve as a “neutral benchmark” that legislators and policy makers can use to determine the potential effects of any change in policy. The projected deficit for 2010 is about $700 billion or 4.9% of the GDP. President-elect Obama mentioned the new CBO projection at his news conference on Wednesday. “We know that our recovery and reinvestment plan will necessarily add more,” he conceded.

On December 14, 60 Minutes featured a story on the 2nd wave of Mortgage defaults that are coming. The 1st wave of defaults were due to sub prime mortgages, or mortgages given to borrowers with a higher risk of defaults. The report by Scott Pelley says that the new wave of mortgage foreclosures will stem from the millions of Alt-A and Option ARM mortgages that were given out in 2006 and 2007 that will be readjusting to higher interest rates in the coming years. Pelley interviews investment manger Whitney Tilson, who working along with Amherst Securities in 2007, forecast the coming disaster before it happened.

The problem they saw was that not only was there a high rate of defaults for sub prime mortgages, they found that the Alt-A and option ARM mortgages, which enticed borrowers with very low initial rates, are beginning to reset. This in turn causes the mortgage payments to go up, and many of the home owners to default. If you project the current default rate data over the next few years, the housing market is in for a very tough time.

Every time there is a foreclosure, the housing prices drop, and the falling prices only add to the trouble. There was a Miami condo featured in the report that originally sold in October 2006 for $2.4 million, the asking price is now $939,000. The report also cited statistics from the National Association of Realtors that state the supply of housing units on the market has grown from 2.2 million units to 4.5 million units in three years. With that much supply, and fewer people eligible to get a mortgage, the prices will drop further. It will be some time before this sorts itself out.

We appear to be awash in bad news. The nation has been in a recession since December 2007. The number of people claiming unemployment benefits is the highest it has been in 26 years, and consumer spending, which is the fuel for the economy’s engine is drying up. Due to years of deficit spending, the national debt is closing in on $11 trillion.

So what do the leading economists in the nation think we should do? Increase the national debt to stimulate the economy. The thought behind it is that avoiding a deepening recession is more important than higher budget deficits. We have already committed $700 billion to bailout a financial industry that could not regulate itself. President-elect Obama has pledged to plow money into the largest infrastructure building plan since the Eisenhower Interstate highway program, and now we are going to pledge $14 billion to rescue the automobile industry, that is so oafish, it needs help to keep itself from stumbling into the abyss of bankruptcy.

We need a JFK challenge for the best and brightest Americans to come up with new solutions to our pressing issues. If we are going to invest tax dollars into bailing out companies that are too big to fail, shouldn’t we also have a say in how they use that money? If it comes down to borrowing money to stimulate the economy, shouldn’t we also invest in projects such as alternative energy to put people back to work and ease our dependency on foreign oil? In exchange for tax dollars, shouldn’t we demand that the foundering auto makers come up with a plan to focus on hybrid and 100% electric vehicles? Maybe then America can once again lead the world in something other than our carbon footprint.

The stakes are extremely high, but we have much to gain. Throughout our history, America has always risen to the occasion when things looked bleak. Tapping into the ingenuity of the American people has always been America’s salvation. Our deliverance from economic ruin depends on it.