Langlui's Big Board and Options Plays

[langlui]

CHART OF THE DAY: Here's Why The Discretionary Spending Freeze Is A Joke
John Carney and Kamelia Angelova | Jan. 26, 2010, 3:45 PM

The White House revealed that President Barack Obama will propose a 3 year freeze in discretionary spending during the State of the Union tomorrow night.

Will the freeze make a material difference in the overall spending by the government or the budget deficit?

Not likely.

Discretionary spending was unlikely to grow by very much in the future, at least not as a percentage of the GDP. That's even more true if defense spending is exempt from the freeze, as it is in Obama's proposal. The real sources of spending growth are non-discretionary: the net interest expense on the national debt and entitlement spending.

The chart below shows the government's own projections of its spending as a percentage of GDP. Discretionary spending is shown in the beige section of the bar. As you can see, freezing discretionary spending will do very little to reduce overall spending.