The Associated Press is reporting this morning what everyone already knows: the Congressional Budget Office will project that the deficit will increase from fiscal 2007 to 2008. Including the not-yet-but-absolutely-certain-to-be-proposed-and enacted supplemental appropriations for Iraq and Afghanistan, the 2008 deficit will reach about $250 billion, a $90 billion or so increase from the $162 billion deficit in 2007.

Most of the increase is the result of the slowing economy so the deficit could deteriorate further.

The CBO number does not include the impact of a fiscal stimulus. If you assume that the $145 billion plan mentioned by President Bush last week is the upper limit of what the White House will allow (I'm not sure that's correct: it could be closer to $200 billion by the time the process is over.) and that all of those tax cuts and most of the spending will occur in 2008, the federal deficit will be close to $400 billion and, in nominal terms at least, will come close to the all-time record of $412 billion set in fiscal 2004.   If the economy slows more than is currently expected or actually falls into a recession, the deficit could well exceed $412 billion.

Let me make Dean Baker happy by putting this in context: A $400 billion deficit in fiscal 2008 will not be a record as a percent of the GDP and, therefore, from that perspective is not quite as alarming as it seems.  Moreover, much of the deficit is the result of factors like Iraq/Afghanistan and the economy that some could argue are temporary rather than permanent.  In addition, few will argue that an increase in the deficit at this time is not justified.

But the bigger problem is not the deficit anyway: it's the increase in the national debt. Even if the deficit is not a record, the additional borrowing is coming on top of the very large existing federal debt so this red ink is not equivalent to those that have come before and in some respects is far worse because of the long-term problems it will cause.

The situation points again to the extraordinary missed opportunity of the past seven years.  Instead of paying down the debt so that situations like this would not be as destructive, Washington is making matters worse by borrowing more.

That means that, even if it's not a record in nominal terms or as a percentage of GDP, this deficit in some ways will be worse than any of those that have come before it.