This year's $1.4 trillion deficit sounded an alarm for both the White House and its opponents that next year will be a war over debt. So the administration is getting creative. Freeze current spending? The OMB is demanding it. New taxes? There's already a bipartisan commission. How about setting aside money originally intended to rescue failing banks through the Troubled Asset Relief Program? There's an idea.


As the WSJ explains here, the Obama team lowered the projected losses of the TARP program to $200 billion from $341 billion and plans on using a chunk of the balance to reduce the deficit. How much it will actually reduce the deficit, however, is difficult to say. That's partly because the White House wants to keep some TARP funds on ice for future crises, and partly because of how it originally accounted for TARP spending in the budget:

Agreeing not to spend a certain amount of TARP money will enable the White House, in its budget projections, to assume less money out the door and, therefore, less debt issued. The move would also reduce the deficit by an unknown amount since a certain level of spending and borrowing is already factored into estimated future deficits.
[Digging Out chart]

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