The proposed budgets of the President show some really bad news that is really hard to ignore and really need to be addressed.

The first is the projected deficit in the coming year, nearly 11 percent of the country's entire economic output. That is not unprecedented: During the Civil War, World War I and World War II, the United States ran soaring deficits, but usually with the expectation that they would come back down once peace was restored and war spending abated.

But the second number, buried deeper in the budget's projections, is the one that really commands attention: By President Obama's own optimistic projections, American deficits will not return to what are widely considered sustainable levels over the next 10 years. In fact, in 2019 and 2020 - years after Mr. Obama has left the political scene, even if he serves two terms - they start rising again sharply, to more than 5 percent of gross domestic product. His budget draws a picture of a nation that like many American homeowners simply cannot get above water.

Essentially it will take an economic or political miracle to get back to a level that is considered sustainable, which even at the level still has quite a large yearly deficit.

I am not optimistic that this will happen, President Bush promised much of the same (actually he promised a balanced budget by the time he left office and that was not even close to happening) to no avail and I really doubt that their will be enough political fortitude to make the hard decisions. There really is only so much borrowing or spending that a country can do before it has serious negative effects on the rest of the economy.

Increased borrowing is sure to lead to much higher interest rates before too much longer (or high inflation if the debt is monetized) because there is only so much appetite out there for our country's debt especially when we pile on more and more.

I hope things get better but these projections show a murky picture ahead, we very well could be in store for another sluggish decade.

Obama wants to end wealthy farmers' crop subsidies

Here is a great example of why I don't think that there is a lot to be optimistic about in the future regarding the budget. Obama makes a rather modest request to limit farm subsidies for rich farmers and there is an up roar. Farm subsidies are pretty sickening form of corporate welfare and really hurt American consumers not to mention farmers in developing countries and I would really like to see all of them end but this is such a small cut and it is met like it is asking people to give up their first born child.

The administration plan would end crop subsidies to people with more than $250,000 adjusted gross income (AGI) from off-farm sources or more than $500,000 on-farm AGI. The caps now are $500,000 off-farm AGI and $750,000 on-farm AGI.

AGI is calculated by subtracting expenses from income.

But the cuts will be a tough sell for Congress with mid-term elections looming. Senate Agriculture Committee chairman Blanche Lincoln, Arkansas Democrat, said she will oppose "cuts that will harm farmers, ranchers and rural communities."

"It is Congress's job to write the annual budget, and based on my conversations with House Leadership, no one is interested in making cuts to the Farm Bill after the battle we just fought to pass it a year and a half ago," said House Agriculture Committee chairman Collin Peterson, Minnesota Democrat.

This would affect just a small portion of the people who receive government money. So even a minor cut is met with a huge fight but this is just how things are done and why it is so rare for any subsidy to ever end in Washington. There is not a chance that without a gun to these people's head any hard cuts will ever be made.

Now to some depressing housing news.

Cloudy Future for Fannie and Freddie

The Great Bailout is mostly over for the banks. But for those troubled behemoths of the nation's housing bust, Fannie Mae and Freddie Mac, the lifeline from Washington just keeps getting longer.

Just let that sink in for a minute.

This is going to be a never ending bailout, the president can talk all he wants about that next time there won't be a bailout but I think that to anyone who sees the course of action will know different. There is no will to let failing entities to go bankrupt and go away. We will keep throwing money down the pit until we run out or go bankrupt too. Sometimes you have to cut your losses and forget about the sunk costs and let something that is dying just die.

And, given the alarm in some quarters over the mounting budget deficit, these two giants and their vast obligations are likely to remain conveniently - and controversially - off the federal books. Fannie Mae and Freddie Mac have obligations of $3.9 trillion to investors who bought bundles of mortgages that the companies assembled.

Powerful and often competing interests are grappling over the companies' futures. Lawmakers on both sides of the aisle, eager to demonstrate their scorn for the companies, have called for their eradication. But few policy makers are willing to take aggressive steps that might weaken the housing market. On Christmas Eve, the White House quietly disclosed that it had, in effect, given the companies a blank check by making their federal credit line unlimited; the ceiling had been $400 billion.

So here is more of the same, politicians talk tough but there is not enough will to act so instead they just keep adding to the problem. A housing bubble was at the root of the last great boom and bust but instead of letting it wind it self down politicians want to try to inflate it back to the good old days.

I wouldn't hold your breath waiting for politicians to make tough choices that could be potentially unpopular as our next story will show.

Rising FHA default rate foreshadows a crush of foreclosures

For all of the talk in the above story about if they stop propping up Fannie and Freddy the housing market will tank it looks like it is trying its best to get there regardless of the actions of the politicians.

The share of borrowers who are falling seriously behind on loans backed by the Federal Housing Administration jumped by more than a third in the past year, foreshadowing a crush of foreclosures that could further buffet an agency vital to the housing market's recovery.

The way I see it is that the housing market is trying to get find its bottom and it will get there eventually. It could be quickly if we get out of the way and let things adjust or it could take a decade or longer like what has happened in Japan after there housing bubble burst and tried to prop it up. Personally I would rather let things adjust quickly with out wasting a lot of tax payer money trying to stop the inevitable and let resources move to things that are productive.

There is more and more bad news as you read the story. Here is another gloomy snippet.

Although the FHA's default rate has been climbing for months and eating into the agency's cash, the latest figures show that the FHA's woes are getting worse even as the housing market shows signs of improvement. The problems are rooted in FHA mortgages made in 2007 and 2008. Those loans are now maturing into their worst years because failures most often occur two to three years after a mortgage is made.

If the trend continues and the FHA's cash reserves are exhausted, the federal government would automatically use taxpayer money to cover the losses -- a first for the agency, which has always used the fees it charges borrowers to pay for its losses...

Adding to the trouble was a now-defunct FHA program that enabled sellers to cover the down payments of buyers. This meant many borrowers had no skin in the game and were more likely to walk away at early signs of trouble. The program resulted in excessive defaults before it was ended in late 2008, and it is projected to cost FHA an additional $10.5 billion in losses, Stevens said.

Things just keep looking better and better.