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March 18, 2010
Surplus of Ideas
Economy, healthcare remain prominent concerns
By Jeffery M. Jones
PRINCETON, NJ -- Unemployment now stands alone as the top issue in Gallup's latest update on the most important problem facing the country. Thirty-one percent of Americans mention jobs or unemployment, significantly more than say the economy in general (24%), healthcare (20%), or dissatisfaction with government (10%).
By Jeffery M. Jones
PRINCETON, NJ -- Unemployment now stands alone as the top issue in Gallup's latest update on the most important problem facing the country. Thirty-one percent of Americans mention jobs or unemployment, significantly more than say the economy in general (24%), healthcare (20%), or dissatisfaction with government (10%).
PRINCETON, NJ -- Unemployment now stands alone as the top issue in Gallup's latest update on the most important problem facing the country. Thirty-one percent of Americans mention jobs or unemployment, significantly more than say the economy in general (24%), healthcare (20%), or dissatisfaction with government (10%).
This month, unemployment overtook general mentions of the economy, as the percentage naming unemployment held steady at 31% while the mentions of the economy dipped from 31% to 24%. Unemployment, the economy, and healthcare have been the top three cited problems each month since last May.
The economy had ranked No. 1 in Gallup's monthly most important problem measure since February 2008, when it overtook the Iraq war. The war in Iraq had been the top issue (or tied for the top) each month since April 2004. Thus, unemployment's position at the top of the list marks the first time in six years that something other than Iraq or the economy in general has led Americans' list of national concerns.
More broadly, the economy's struggles are apparent, as 66% of Americans mention some economic issue as the nation's most important problem. At least half of Americans have done so each month since March 2008.
In addition to asking about current problems facing the country, the March 4-7 poll also asked Americans to say what they think will be the most important problem facing the United States in 25 years.
The federal budget deficit is mentioned most often in this regard, by 14% of Americans, slightly more than say the economy in general (11%) and the environment (11%).
This is the first time the federal budget deficit has topped the list of future problems, and indeed the first time it has exceeded 5% mentions. That likely reflects public concern over increased federal spending and expanding budget deficits.
Typically, the environment and the economy figure prominently when Americans predict what the nation's top problem will be 25 years from now. One of those two issues has been the most commonly mentioned in 7 of the 10 years Gallup has asked this question. Social Security topped the list in 2005 and 2006.
Bottom Line
The job market has overtaken the economy as the nation's most pressing problem in Americans' minds. Americans last ranked unemployment as the most important problem during the Reagan administration. Since many economists expect unemployment to remain high for much of this year, it would seem unlikely that the public's concern about the issue will diminish anytime soon.
President Obama has said a jobs bill is his top legislative priority -- and though the push for resolution on healthcare reform has slowed progress, the Senate this week passed such legislation, with a House bill in the works. The irony, however, is that in an attempt to address Americans' current most important problem, the legislation will add to the federal budget deficit -- Americans' prediction of the top problem for the United States in 25 years.
Survey Methods
Results are based on telephone interviews with a random sample of 1,014 national adults, aged 18 and older, conducted March 4-7, 2010. For results based on the total sample of national adults, one can say with 95% confidence that the maximum margin of sampling error is ±4 percentage points.
Interviews are conducted with respondents on land-line telephones (for respondents with a land-line telephone) and cellular phones (for respondents who are cell-phone only). In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.
To view the original article, click here.
This month, unemployment overtook general mentions of the economy, as the percentage naming unemployment held steady at 31% while the mentions of the economy dipped from 31% to 24%. Unemployment, the economy, and healthcare have been the top three cited problems each month since last May.
The economy had ranked No. 1 in Gallup's monthly most important problem measure since February 2008, when it overtook the Iraq war. The war in Iraq had been the top issue (or tied for the top) each month since April 2004. Thus, unemployment's position at the top of the list marks the first time in six years that something other than Iraq or the economy in general has led Americans' list of national concerns.
More broadly, the economy's struggles are apparent, as 66% of Americans mention some economic issue as the nation's most important problem. At least half of Americans have done so each month since March 2008.
In addition to asking about current problems facing the country, the March 4-7 poll also asked Americans to say what they think will be the most important problem facing the United States in 25 years.
The federal budget deficit is mentioned most often in this regard, by 14% of Americans, slightly more than say the economy in general (11%) and the environment (11%).
This is the first time the federal budget deficit has topped the list of future problems, and indeed the first time it has exceeded 5% mentions. That likely reflects public concern over increased federal spending and expanding budget deficits.
Typically, the environment and the economy figure prominently when Americans predict what the nation's top problem will be 25 years from now. One of those two issues has been the most commonly mentioned in 7 of the 10 years Gallup has asked this question. Social Security topped the list in 2005 and 2006.
Bottom Line
The job market has overtaken the economy as the nation's most pressing problem in Americans' minds. Americans last ranked unemployment as the most important problem during the Reagan administration. Since many economists expect unemployment to remain high for much of this year, it would seem unlikely that the public's concern about the issue will diminish anytime soon.
President Obama has said a jobs bill is his top legislative priority -- and though the push for resolution on healthcare reform has slowed progress, the Senate this week passed such legislation, with a House bill in the works. The irony, however, is that in an attempt to address Americans' current most important problem, the legislation will add to the federal budget deficit -- Americans' prediction of the top problem for the United States in 25 years.
Survey Methods
Results are based on telephone interviews with a random sample of 1,014 national adults, aged 18 and older, conducted March 4-7, 2010. For results based on the total sample of national adults, one can say with 95% confidence that the maximum margin of sampling error is ±4 percentage points.
Interviews are conducted with respondents on land-line telephones (for respondents with a land-line telephone) and cellular phones (for respondents who are cell-phone only). In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.
To view the original article, click here.
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March 16, 2010
Surplus of Ideas
By Matthew Brown
Originally posted on March 15, 2010
The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.
The governments of the two economies must balance bringing down their debt burdens without damaging growth by removing fiscal stimulus too quickly,Pierre Cailleteau, managing director of sovereign risk at Moody’s in London, said in a telephone interview.
Originally posted on March 15, 2010
The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.
The governments of the two economies must balance bringing down their debt burdens without damaging growth by removing fiscal stimulus too quickly,Pierre Cailleteau, managing director of sovereign risk at Moody’s in London, said in a telephone interview.
U.S., U.K. Move Closer to Losing AAA Rating, Moody’s Says
By Matthew Brown
March 15 (Bloomberg) -- The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.
The governments of the two economies must balance bringing down their debt burdens without damaging growth by removing fiscal stimulus too quickly,Pierre Cailleteau, managing director of sovereign risk at Moody’s in London, said in a telephone interview.
Under the ratings company’s so-called baseline scenario, the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K., and will be the biggest spender from 2011 to 2013, Moody’s said today in a report.
“We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing,” Cailleteau said. “This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics.”
The pound fell against the dollar and the euro for the first time in three days, depreciating 0.8 percent to $1.5090, while the dollar index snapped a four-day drop, adding 0.3 percent to 90.075.
The U.S. government will spend about 7 percent of its revenue servicing debt in 2010 and almost 11 percent in 2013, according to the baseline scenario of moderate economic recovery, fiscal adjustments in line with government plans and a gradual increase in interest rates , Moody’s said.
Under its adverse scenario, which assumes 0.5 percent lower growth each year, less fiscal adjustment and a stronger interest-rate shock, the U.S. will be paying about 15 percent of revenue in interest payments, more than the 14 percent limit that would lead to a downgrade to AA, Moody’s said.
U.K. Debt Service
The U.K. is likely to spend 7 percent of revenue servicing debt this year and 9 percent in 2013, rising to almost 12 percent under the adverse scenario, Moody’s said.
Financing costs above 10 percent put countries outside of the AAA category into a so-called debt reversibility band, the size of which depends on the ability and willingness of nations to reduce their debt burden by raising taxes or reducing spending. The U.S. has a 4 percentage-point band, while the U.K. has a 3 percentage-point band.
“Those economies have been caught in a crisis while they are highly leveraged,” Cailleteau said, referring to the level of private and public debt as a percentage of gross domestic product. “They have to make the required adjustment to stabilize markets without choking off growth.”
The U.S. would be the “most affected” under the adverse scenario, as the only country that would face a downgrade, Cailleteau said. The company’s baseline scenario assumes that all current AAA sovereigns will keep their ratings over the next three years, he said.
‘Warning Shot’
“On balance, we believe that the ratings of all large Aaa governments remain well positioned, although their ‘distance-to- downgrade’ has in all cases substantially diminished,” Moody’s said in the report.
None of the current Aaa rated countries are likely to lose their ratings, said Peter Chatwell, a fixed-income strategist at Credit Agricole CIB in London.
“This report is a warning shot to governments, setting out the line that they can’t cross with their budgets,” he said.
While the U.S. is likely to benefit from economic growth more than other AAA nations, weak public consumption is likely to weigh on GDP this year, the ratings company said.
“The pattern of growth and the high rate of unemployment raise the question of how strong the recovery will be going forward,” Moody’s said. “The ability of the U.S. economy to grow more rapidly and, therefore, for government revenues to contribute to fiscal consolidation, will have to depend on a revival in the growth of consumption.”
U.S. Growth
The U.S. economy will grow 3 percent this year and in 2011 after contracting 2.4 percent in 2009, according to the median estimate of economist forecasts compiled by Bloomberg. Unemployment will average 9.6 percent this year, up from 5.8 percent in 2008, and will fall to 9 percent next year, based on the median estimate.
Sales at U.S. retailers unexpectedly climbed 0.3 percent in February, compared with a median forecast for a 0.2 percent contraction, the Commerce Department said on March 12.
“The emphasis of the market, and our own, will move increasingly away from public finance developments in 2010, towards medium-term consolidation plans and the credibility thereof,” Moody’s said.
Achieving the fiscal consolidation necessary to avert a downgrade will test “social cohesion” and may involve rewriting the “social contract” between governments and their people, Cailleteau said. “People have to decide what level of pain they are willing to accept to have a healthy economy.”
U.K. Prime Minister Gordon Brownvhas clashed with opposition leader David Cameron over the timing and speed of budget cuts as they prepare for an election that must be held by June 3.
‘Very Fragile’
The opposition Conservatives argue that the government should come to grips now with the budget deficit, while Brown’s Labour Party says it’s too soon to remove fiscal stimulus.
“Although the economy is now growing, recovery is still in its early stages and remains very fragile,” Brown told business leaders in London on March 10. “We’re not going to withdraw the stimulus until the recovery is assured.”
The U.K. economy, which emerged from its longest-ever recession last quarter, is forecast to expand by 1.2 percent this year after a 5 percent contraction in 2009, according to median economist estimates compiled by Bloomberg. Unemployment will average 8 percent this year and 7.9 percent next year, the estimates show.
“The question here is less when fiscal retrenchment ought to start, but rather how credible it is that sufficient retrenchment will take place,” Moody’s said.
Originally posted on Bloomberg.com.
By Matthew Brown
March 15 (Bloomberg) -- The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.
The governments of the two economies must balance bringing down their debt burdens without damaging growth by removing fiscal stimulus too quickly,Pierre Cailleteau, managing director of sovereign risk at Moody’s in London, said in a telephone interview.
Under the ratings company’s so-called baseline scenario, the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K., and will be the biggest spender from 2011 to 2013, Moody’s said today in a report.
“We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing,” Cailleteau said. “This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics.”
The pound fell against the dollar and the euro for the first time in three days, depreciating 0.8 percent to $1.5090, while the dollar index snapped a four-day drop, adding 0.3 percent to 90.075.
The U.S. government will spend about 7 percent of its revenue servicing debt in 2010 and almost 11 percent in 2013, according to the baseline scenario of moderate economic recovery, fiscal adjustments in line with government plans and a gradual increase in interest rates , Moody’s said.
Under its adverse scenario, which assumes 0.5 percent lower growth each year, less fiscal adjustment and a stronger interest-rate shock, the U.S. will be paying about 15 percent of revenue in interest payments, more than the 14 percent limit that would lead to a downgrade to AA, Moody’s said.
U.K. Debt Service
The U.K. is likely to spend 7 percent of revenue servicing debt this year and 9 percent in 2013, rising to almost 12 percent under the adverse scenario, Moody’s said.
Financing costs above 10 percent put countries outside of the AAA category into a so-called debt reversibility band, the size of which depends on the ability and willingness of nations to reduce their debt burden by raising taxes or reducing spending. The U.S. has a 4 percentage-point band, while the U.K. has a 3 percentage-point band.
“Those economies have been caught in a crisis while they are highly leveraged,” Cailleteau said, referring to the level of private and public debt as a percentage of gross domestic product. “They have to make the required adjustment to stabilize markets without choking off growth.”
The U.S. would be the “most affected” under the adverse scenario, as the only country that would face a downgrade, Cailleteau said. The company’s baseline scenario assumes that all current AAA sovereigns will keep their ratings over the next three years, he said.
‘Warning Shot’
“On balance, we believe that the ratings of all large Aaa governments remain well positioned, although their ‘distance-to- downgrade’ has in all cases substantially diminished,” Moody’s said in the report.
None of the current Aaa rated countries are likely to lose their ratings, said Peter Chatwell, a fixed-income strategist at Credit Agricole CIB in London.
“This report is a warning shot to governments, setting out the line that they can’t cross with their budgets,” he said.
While the U.S. is likely to benefit from economic growth more than other AAA nations, weak public consumption is likely to weigh on GDP this year, the ratings company said.
“The pattern of growth and the high rate of unemployment raise the question of how strong the recovery will be going forward,” Moody’s said. “The ability of the U.S. economy to grow more rapidly and, therefore, for government revenues to contribute to fiscal consolidation, will have to depend on a revival in the growth of consumption.”
U.S. Growth
The U.S. economy will grow 3 percent this year and in 2011 after contracting 2.4 percent in 2009, according to the median estimate of economist forecasts compiled by Bloomberg. Unemployment will average 9.6 percent this year, up from 5.8 percent in 2008, and will fall to 9 percent next year, based on the median estimate.
Sales at U.S. retailers unexpectedly climbed 0.3 percent in February, compared with a median forecast for a 0.2 percent contraction, the Commerce Department said on March 12.
“The emphasis of the market, and our own, will move increasingly away from public finance developments in 2010, towards medium-term consolidation plans and the credibility thereof,” Moody’s said.
Achieving the fiscal consolidation necessary to avert a downgrade will test “social cohesion” and may involve rewriting the “social contract” between governments and their people, Cailleteau said. “People have to decide what level of pain they are willing to accept to have a healthy economy.”
U.K. Prime Minister Gordon Brownvhas clashed with opposition leader David Cameron over the timing and speed of budget cuts as they prepare for an election that must be held by June 3.
‘Very Fragile’
The opposition Conservatives argue that the government should come to grips now with the budget deficit, while Brown’s Labour Party says it’s too soon to remove fiscal stimulus.
“Although the economy is now growing, recovery is still in its early stages and remains very fragile,” Brown told business leaders in London on March 10. “We’re not going to withdraw the stimulus until the recovery is assured.”
The U.K. economy, which emerged from its longest-ever recession last quarter, is forecast to expand by 1.2 percent this year after a 5 percent contraction in 2009, according to median economist estimates compiled by Bloomberg. Unemployment will average 8 percent this year and 7.9 percent next year, the estimates show.
“The question here is less when fiscal retrenchment ought to start, but rather how credible it is that sufficient retrenchment will take place,” Moody’s said.
Originally posted on Bloomberg.com.
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0
March 16, 2010
Surplus of Ideas
Originally Posted: March 10, 2010
WASHINGTON — The government ran up the largest monthly deficit in history in February, keeping the flood of red ink on track to top last year's record for the full year.
The Treasury Department said Wednesday that the February deficit totaled $220.9 billion, 14 percent higher than the previous record set in February of last year.
The deficit through the first five months of this budget year totals $651.6 billion, 10.5 percent higher than a year ago.
WASHINGTON — The government ran up the largest monthly deficit in history in February, keeping the flood of red ink on track to top last year's record for the full year.
The Treasury Department said Wednesday that the February deficit totaled $220.9 billion, 14 percent higher than the previous record set in February of last year.
The deficit through the first five months of this budget year totals $651.6 billion, 10.5 percent higher than a year ago.
Budget deficit sets record in February
By MARTIN CRUTSINGER (AP)
WASHINGTON — The government ran up the largest monthly deficit in history in February, keeping the flood of red ink on track to top last year's record for the full year.
The Treasury Department said Wednesday that the February deficit totaled $220.9 billion, 14 percent higher than the previous record set in February of last year.
The deficit through the first five months of this budget year totals $651.6 billion, 10.5 percent higher than a year ago.
The Obama administration is projecting that the deficit for the 2010 budget year will hit an all-time high of $1.56 trillion, surpassing last year's $1.4 trillion total. The administration is forecasting that the deficit will remain above $1 trillion in 2011, giving the country thrree straight years of $1 trillion-plus deficits.
The administration says the huge deficits are necessary to get the country out of the deepest recession since the 1930s. But Republicans have attacked the stimulus spending as wasteful and a failure at the primary objective of lowering unemployment.
The administration defends the economic stimulus bill that Congress passed in February 2009 with a pricetag at the time of $787 billion as the right medicine to get the economy back on its feet. President Barack Obama has said even more is needed to battle an unemployment rate that remained stuck in February at 9.7 percent.
The White House says that job creation will remain a top priority, hoping to convince voters that Obama did not spend too much time during his first year in office trying to get Congress to pass health care reform.
The government's monthly budget report showed the record $220.9 billion deficit for February reflected outlays of $328.4 billion and revenues of $107.5 billion. The February receipts marked the first time that revenues are up compared with the same month a year ago since April 2008. Revenues had fallen for 21 straight months as the recession cut into both individual and corporate income tax payments.
Deficits normally shoot up in February because it is a month when the government makes large refund payments to individuals and corporations as part of the tax filing process. Those payments were boosted this year by various tax credits that were expanded or added as part of the government's stimulus efforts including the "Making Work Pay" tax credit and the first-time home buyers tax credit.
Through the first five months of the budget year, government revenues totaled $800.5 billion, down 7 percent from a year ago, while outlays totaled $1.45 trillion, up a slight 0.1 percent from a year ago.
The deficit of $651.6 billion through February is up by 10.5 percent from the $589.8 billion deficit run up during the first five months of the 2009 budget year. The government's budget year begins on Oct. 1.
The budget that Obama sent to Congress in February projects that the deficits over the next decade will total $8.53 trillion. But the Congressional Budget Office last week put the 10-year total even higher at $9.8 trillion. Part of the reason for the $1.2 trillion difference is that the CBO is projecting slower economic growth and thus less tax revenues than the administration over the next decade.
The administration has maintained that the country must run large budget deficits until the economy has begun to grow at a sustainable pace that is bringing the unemployment rate down. Only then, the administration says, should the government focus on getting control of the deficits.
Obama has created by executive order an 18-member fiscal reform commission that has been charged with coming up with a plan to shrink the deficit to 3 percent of the economy within five years. The plan is scheduled to be unveiled in December, after the midterm congressional elections.
With the economy so weak, the interest rates that the government has to finance the flood of red ink have remained low. However, economists are worried that the favorable outlook on interest rates could change quickly if investors, including foreign investors, start to worry about the government's commitment to restraining future deficits. China is the largest foreign holder of U.S. Treasury securities.
Through the first five months of this budget year, net interest payments totaled $86.5 billion, up 15.3 percent from a year ago.
In its report last week, the CBO predicted that the government debt held by investors would climb from $7.5 trillion at the end of last year to $20.3 trillion in 2020. CBO forecast that interest payments would more than quadruple from a projected $209 billion this year to $916 billion annually by the end of the decade.
By MARTIN CRUTSINGER (AP)
WASHINGTON — The government ran up the largest monthly deficit in history in February, keeping the flood of red ink on track to top last year's record for the full year.
The Treasury Department said Wednesday that the February deficit totaled $220.9 billion, 14 percent higher than the previous record set in February of last year.
The deficit through the first five months of this budget year totals $651.6 billion, 10.5 percent higher than a year ago.
The Obama administration is projecting that the deficit for the 2010 budget year will hit an all-time high of $1.56 trillion, surpassing last year's $1.4 trillion total. The administration is forecasting that the deficit will remain above $1 trillion in 2011, giving the country thrree straight years of $1 trillion-plus deficits.
The administration says the huge deficits are necessary to get the country out of the deepest recession since the 1930s. But Republicans have attacked the stimulus spending as wasteful and a failure at the primary objective of lowering unemployment.
The administration defends the economic stimulus bill that Congress passed in February 2009 with a pricetag at the time of $787 billion as the right medicine to get the economy back on its feet. President Barack Obama has said even more is needed to battle an unemployment rate that remained stuck in February at 9.7 percent.
The White House says that job creation will remain a top priority, hoping to convince voters that Obama did not spend too much time during his first year in office trying to get Congress to pass health care reform.
The government's monthly budget report showed the record $220.9 billion deficit for February reflected outlays of $328.4 billion and revenues of $107.5 billion. The February receipts marked the first time that revenues are up compared with the same month a year ago since April 2008. Revenues had fallen for 21 straight months as the recession cut into both individual and corporate income tax payments.
Deficits normally shoot up in February because it is a month when the government makes large refund payments to individuals and corporations as part of the tax filing process. Those payments were boosted this year by various tax credits that were expanded or added as part of the government's stimulus efforts including the "Making Work Pay" tax credit and the first-time home buyers tax credit.
Through the first five months of the budget year, government revenues totaled $800.5 billion, down 7 percent from a year ago, while outlays totaled $1.45 trillion, up a slight 0.1 percent from a year ago.
The deficit of $651.6 billion through February is up by 10.5 percent from the $589.8 billion deficit run up during the first five months of the 2009 budget year. The government's budget year begins on Oct. 1.
The budget that Obama sent to Congress in February projects that the deficits over the next decade will total $8.53 trillion. But the Congressional Budget Office last week put the 10-year total even higher at $9.8 trillion. Part of the reason for the $1.2 trillion difference is that the CBO is projecting slower economic growth and thus less tax revenues than the administration over the next decade.
The administration has maintained that the country must run large budget deficits until the economy has begun to grow at a sustainable pace that is bringing the unemployment rate down. Only then, the administration says, should the government focus on getting control of the deficits.
Obama has created by executive order an 18-member fiscal reform commission that has been charged with coming up with a plan to shrink the deficit to 3 percent of the economy within five years. The plan is scheduled to be unveiled in December, after the midterm congressional elections.
With the economy so weak, the interest rates that the government has to finance the flood of red ink have remained low. However, economists are worried that the favorable outlook on interest rates could change quickly if investors, including foreign investors, start to worry about the government's commitment to restraining future deficits. China is the largest foreign holder of U.S. Treasury securities.
Through the first five months of this budget year, net interest payments totaled $86.5 billion, up 15.3 percent from a year ago.
In its report last week, the CBO predicted that the government debt held by investors would climb from $7.5 trillion at the end of last year to $20.3 trillion in 2020. CBO forecast that interest payments would more than quadruple from a projected $209 billion this year to $916 billion annually by the end of the decade.
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March 02, 2010
Surplus of Ideas
Originally Posted: March 01, 2010
Even if President Obama's healthcare reform plan dies in Congress, Republican analysts and pollsters believe that the soaring federal deficit and congressional spending will be the dominating political issues this year, possibly sparking a new call for a constitutional amendment to balance the budget.
Even if President Obama's healthcare reform plan dies in Congress, Republican analysts and pollsters believe that the soaring federal deficit and congressional spending will be the dominating political issues this year, possibly sparking a new call for a constitutional amendment to balance the budget.
Even if President Obama's healthcare reform plan dies in Congress, Republican analysts and pollsters believe that the soaring federal deficit and congressional spending will be the dominating political issues this year, possibly sparking a new call for a constitutional amendment to balance the budget.
"The balanced budget amendment will come back as a major issue," former House Speaker Newt Gingrich says. "Spending and deficits are now a much bigger issue."
Gingrich, who came to power after the 1994 election, which put the GOP in charge of the House for the first time in decades, said that the antispending mood in the nation is much more grim than in 1994, owing to the multiple bailouts and the public's concerns about the economy and higher taxes. By just raising the idea of renewing the balanced budget amendment debate, Gingrich is giving House and Senate conservatives a new issue to rally around. A House GOP aide said that if Gingrich is already talking about it, then it won't be long before the Republican Caucus in the House takes up the cause. "He's still the guy we go to for the big ideas," said the aide.
Read Full Article Here
"The balanced budget amendment will come back as a major issue," former House Speaker Newt Gingrich says. "Spending and deficits are now a much bigger issue."
Gingrich, who came to power after the 1994 election, which put the GOP in charge of the House for the first time in decades, said that the antispending mood in the nation is much more grim than in 1994, owing to the multiple bailouts and the public's concerns about the economy and higher taxes. By just raising the idea of renewing the balanced budget amendment debate, Gingrich is giving House and Senate conservatives a new issue to rally around. A House GOP aide said that if Gingrich is already talking about it, then it won't be long before the Republican Caucus in the House takes up the cause. "He's still the guy we go to for the big ideas," said the aide.
Read Full Article Here
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February 25, 2010
Surplus of Ideas
President's Plan Projects $1.75 Trillion Deficit
Originally Posted: Feb 26, 2009
WASHINGTON (AP) President Obama sent to Congress today his $3.55 trillion budget plan for 2010.President Barack Obama charted a dramatic new course for the nation Thursday with a bold but contentious budget proposing higher taxes for the wealthy and the first steps toward guaranteed health care for all — accompanied by an astonishing $1.75 trillion federal deficit that would be nearly four times the highest in history.
Originally Posted: Feb 26, 2009
WASHINGTON (AP) President Obama sent to Congress today his $3.55 trillion budget plan for 2010.President Barack Obama charted a dramatic new course for the nation Thursday with a bold but contentious budget proposing higher taxes for the wealthy and the first steps toward guaranteed health care for all — accompanied by an astonishing $1.75 trillion federal deficit that would be nearly four times the highest in history.
Denouncing what he called the "dishonest accounting" of recent federal budgets, Obama unveiled his own $3.6 trillion blueprint for next year, a bold proposal that would transfer wealth from rich taxpayers to the middle class and the poor.
Congressional approval without major change is anything but sure. The plan is filled with political land mines including an initiative to combat global warming that would hit consumers with considerably higher utility bills. Other proposals would take on entrenched interests such as big farming, insurance companies and drug makers.
Obama blamed the expected federal deficit explosion on a "deep and destructive" recession and recent efforts to battle it including the Wall Street bailout and the just-passed $787 billion stimulus plan. The $1.75 trillion deficit estimate for this year is $250 billion more than projected just days ago because of proposed new spending for a fresh bailout for banks and other financial institutions.
As the nation digs out of the most serious economic crisis in decades, Obama said, "We will, each and every one of us, have to compromise on certain things we care about but which we simply cannot afford right now."
Signaling budget battles to come, Republicans were skeptical Obama was doing without much at all.
"We can't tax and spend our way to prosperity," said House GOP leader John Boehner of Ohio. "The era of big government is back, and Democrats are asking you to pay for it."
Obama plans to move aggressively toward rebalancing the tax system, extending a $400 tax credit for most workers — $800 for couples — while letting expire President George W. Bush's tax cuts for couples making more than $250,000 a year.
Thursday's 134-page budget submission, a nonbinding recommendation to Congress, says the plan would close the deficit to a a more reasonable — but still eye-popping — $533 billion after five years. That would still be higher than last year's record $455 billion deficit.
And the national debt would more than double by the end of the upcoming decade, raising worries that so much federal borrowing could drive up interest rates and erode the value of the dollar.
Also, to narrow the budget gap, Obama relies on rosier predictions of economic growth — including a 3.2 percent boost in the economy next year — than most private sector economists foresee.
There is already resistance from Democrats who are upset with the budget's plan to curb the ability of wealthier people to reduce their tax bills through deductions for mortgage interest, charitable contributions and state and local taxes.
That tax hike would raise $318 billion over the upcoming decade toward a down payment on Obama's high-priority universal health care plan. Cuts to the Medicare and Medicaid federal health programs would supply an additional $316 billion, but that still wouldn't provide enough money to guarantee coverage for all, and Obama wants Congress to come up with hundreds of billions of dollars in additional hard-to-raise revenues to pay for the rest.
Then there is the proposed clampdown on the Pentagon budget, which would get a 4 percent boost, to $534 billion next year, but would then get increases of 2 percent or less over the next several years. Domestic programs favored by Democrats would, on average, receive a 7 percent boost over regularly appropriated levels — even as many agencies are already swimming in cash from the just-enacted economic stimulus plan.
Taken together, Obama's plan contains so many difficult-to-digest ideas that it's virtually certain to be significantly redrafted during debates later this year.
"It's going to be a tough row to hoe, but he has large Democratic majorities and a lot of popular support and we're in times of crisis," said Robert Reischauer, president of the Urban Institute. "So his prospects of him getting much of what he is seeking, while not good, are higher than ... we've seen in the past."
Senate Budget Committee Chairman Kent Conrad, D-N.D., predicted Congress would pass much of Obama's plan, though with significant revisions. For instance, he's unimpressed with a proposal to reduce payments to farming operations with sales above $500,000 per year and says the plan to curb tax deductions for the wealthy faces uncertain prospects because of opposition from lawmakers from high tax states and universities whose endowments have shrunk.
A plan to devote up to $250 billion to support as much as $750 billion in increased spending under the government's rescue program for banks and other financial institutions landed with a thud.
Republicans scoffed at the idea that Obama's plan calls for much sacrifice on the spending front, citing the big increases for many agencies. they also pointed to tax increases and hundreds of billions in revenues from a contentious proposal to auction off permits for carbon emissions in a bid to address global warming.
Obama and top aides emphasized that they didn't make the financial mess.
Said the president: "We cannot lose sight of the long-run challenges that our country faces and that threaten our economic health — specifically, the trillions of dollars of debt that we inherited, the rising costs of health care and the growing obligations of Social Security."
"For too long, our budget has not told the whole truth about how precious tax dollars are spent," he said. "Large sums have been left off the books, including the true cost of fighting in Iraq and Afghanistan. And that kind of dishonest accounting is not how you run your family budgets at home. It's not how your government should run its budgets either."
Among the many programs that would receive generous boosts are education and cancer research. The size of education Pell Grants would automatically increase every year by inflation plus 1 percent, while Obama promises to double cancer research over several years. He also wants to put the United States on a path to double foreign aid.
Obama's budget contains almost $1 trillion in tax hikes over 10 years on individuals making more than $200,000 and couples earning over $250,000. About $350 billion more would be raised through a variety of other hikes, including raising taxes on hedge-fund managers by taxing their compensation as income rather than at the 15 percent capital gains rate. Obama would also increase taxes on corporate income earned abroad.
Some $526 billion in revenue from carbon pollution permits would be used to extend the "Making Work Pay" tax credit of $400 for individuals and $800 for couples beyond 2010 as provided in the just-passed economic stimulus bill.
The budget would make permanent the expanded $2,500 tax credit for college expenses that was provided for two years in the just-passed economic stimulus bill. It also would renew most of the Bush tax cuts enacted in 2001 and 2003, and would permanently update the alternative minimum tax so that it would hit fewer middle- to upper-income taxpayers.
Obama's $634 billion head start on expanding health care could easily double as lawmakers flesh out details in coming months on how to provide medical coverage to all of the 48 million Americans now uninsured while also trying to slow increases in costs. Health care costs now total $2.4 trillion a year and keep rising even as the economy is shrinking.
Thursday's submission was an overview of a more comprehensive plan that will be submitted in April.
© 2010 The Associated Press
Congressional approval without major change is anything but sure. The plan is filled with political land mines including an initiative to combat global warming that would hit consumers with considerably higher utility bills. Other proposals would take on entrenched interests such as big farming, insurance companies and drug makers.
Obama blamed the expected federal deficit explosion on a "deep and destructive" recession and recent efforts to battle it including the Wall Street bailout and the just-passed $787 billion stimulus plan. The $1.75 trillion deficit estimate for this year is $250 billion more than projected just days ago because of proposed new spending for a fresh bailout for banks and other financial institutions.
As the nation digs out of the most serious economic crisis in decades, Obama said, "We will, each and every one of us, have to compromise on certain things we care about but which we simply cannot afford right now."
Signaling budget battles to come, Republicans were skeptical Obama was doing without much at all.
"We can't tax and spend our way to prosperity," said House GOP leader John Boehner of Ohio. "The era of big government is back, and Democrats are asking you to pay for it."
Obama plans to move aggressively toward rebalancing the tax system, extending a $400 tax credit for most workers — $800 for couples — while letting expire President George W. Bush's tax cuts for couples making more than $250,000 a year.
Thursday's 134-page budget submission, a nonbinding recommendation to Congress, says the plan would close the deficit to a a more reasonable — but still eye-popping — $533 billion after five years. That would still be higher than last year's record $455 billion deficit.
And the national debt would more than double by the end of the upcoming decade, raising worries that so much federal borrowing could drive up interest rates and erode the value of the dollar.
Also, to narrow the budget gap, Obama relies on rosier predictions of economic growth — including a 3.2 percent boost in the economy next year — than most private sector economists foresee.
There is already resistance from Democrats who are upset with the budget's plan to curb the ability of wealthier people to reduce their tax bills through deductions for mortgage interest, charitable contributions and state and local taxes.
That tax hike would raise $318 billion over the upcoming decade toward a down payment on Obama's high-priority universal health care plan. Cuts to the Medicare and Medicaid federal health programs would supply an additional $316 billion, but that still wouldn't provide enough money to guarantee coverage for all, and Obama wants Congress to come up with hundreds of billions of dollars in additional hard-to-raise revenues to pay for the rest.
Then there is the proposed clampdown on the Pentagon budget, which would get a 4 percent boost, to $534 billion next year, but would then get increases of 2 percent or less over the next several years. Domestic programs favored by Democrats would, on average, receive a 7 percent boost over regularly appropriated levels — even as many agencies are already swimming in cash from the just-enacted economic stimulus plan.
Taken together, Obama's plan contains so many difficult-to-digest ideas that it's virtually certain to be significantly redrafted during debates later this year.
"It's going to be a tough row to hoe, but he has large Democratic majorities and a lot of popular support and we're in times of crisis," said Robert Reischauer, president of the Urban Institute. "So his prospects of him getting much of what he is seeking, while not good, are higher than ... we've seen in the past."
Senate Budget Committee Chairman Kent Conrad, D-N.D., predicted Congress would pass much of Obama's plan, though with significant revisions. For instance, he's unimpressed with a proposal to reduce payments to farming operations with sales above $500,000 per year and says the plan to curb tax deductions for the wealthy faces uncertain prospects because of opposition from lawmakers from high tax states and universities whose endowments have shrunk.
A plan to devote up to $250 billion to support as much as $750 billion in increased spending under the government's rescue program for banks and other financial institutions landed with a thud.
Republicans scoffed at the idea that Obama's plan calls for much sacrifice on the spending front, citing the big increases for many agencies. they also pointed to tax increases and hundreds of billions in revenues from a contentious proposal to auction off permits for carbon emissions in a bid to address global warming.
Obama and top aides emphasized that they didn't make the financial mess.
Said the president: "We cannot lose sight of the long-run challenges that our country faces and that threaten our economic health — specifically, the trillions of dollars of debt that we inherited, the rising costs of health care and the growing obligations of Social Security."
"For too long, our budget has not told the whole truth about how precious tax dollars are spent," he said. "Large sums have been left off the books, including the true cost of fighting in Iraq and Afghanistan. And that kind of dishonest accounting is not how you run your family budgets at home. It's not how your government should run its budgets either."
Among the many programs that would receive generous boosts are education and cancer research. The size of education Pell Grants would automatically increase every year by inflation plus 1 percent, while Obama promises to double cancer research over several years. He also wants to put the United States on a path to double foreign aid.
Obama's budget contains almost $1 trillion in tax hikes over 10 years on individuals making more than $200,000 and couples earning over $250,000. About $350 billion more would be raised through a variety of other hikes, including raising taxes on hedge-fund managers by taxing their compensation as income rather than at the 15 percent capital gains rate. Obama would also increase taxes on corporate income earned abroad.
Some $526 billion in revenue from carbon pollution permits would be used to extend the "Making Work Pay" tax credit of $400 for individuals and $800 for couples beyond 2010 as provided in the just-passed economic stimulus bill.
The budget would make permanent the expanded $2,500 tax credit for college expenses that was provided for two years in the just-passed economic stimulus bill. It also would renew most of the Bush tax cuts enacted in 2001 and 2003, and would permanently update the alternative minimum tax so that it would hit fewer middle- to upper-income taxpayers.
Obama's $634 billion head start on expanding health care could easily double as lawmakers flesh out details in coming months on how to provide medical coverage to all of the 48 million Americans now uninsured while also trying to slow increases in costs. Health care costs now total $2.4 trillion a year and keep rising even as the economy is shrinking.
Thursday's submission was an overview of a more comprehensive plan that will be submitted in April.
© 2010 The Associated Press
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0
February 25, 2010
Surplus of Ideas
Posted by Alan Orfi
Originally Published: February 5, 2010
South Carolina Republican Senators Jim Demint and Lindsey Graham called on colleagues Thursday to support a balanced budget amendment to the Constitution and commit to a one-year ban on all earmarks.
Originally Published: February 5, 2010
South Carolina Republican Senators Jim Demint and Lindsey Graham called on colleagues Thursday to support a balanced budget amendment to the Constitution and commit to a one-year ban on all earmarks.
A growing number of Senators have joined the call. Demint, who has refused to seek any earmarks, explained that such a bill will force Democrats and Republicans alike to be exposed as to whether or not they are serious about cutting wasteful spending. "Americans know earmarks are at the heart of the spending addiction in Congress, and they cannot understand why we don't have to balance the budget, just like they have to," he said.
These proposals come as the House passed a bill allowing Congress to raise the national debt ceiling by a staggering $1.9 trillion. The Senate passed the bill last week with every Republican voting in opposition.
Obviously a balanced budget amendment is a virtual impossibility as it would require two-thirds support in both chambers of Congress, but Demint makes a strong point that it is critical for Republicans to force the spenders to expose themselves in a public vote against such legislation. The earmarks ban can also be fertile ground for Republicans who can at least pledge that they alone will reject them.
These proposals come as the House passed a bill allowing Congress to raise the national debt ceiling by a staggering $1.9 trillion. The Senate passed the bill last week with every Republican voting in opposition.
Obviously a balanced budget amendment is a virtual impossibility as it would require two-thirds support in both chambers of Congress, but Demint makes a strong point that it is critical for Republicans to force the spenders to expose themselves in a public vote against such legislation. The earmarks ban can also be fertile ground for Republicans who can at least pledge that they alone will reject them.
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0
February 25, 2010
Surplus of Ideas
By Gov. Tim Pawlenty 01/11/10
As we begin a new year and Congress reconvenes, an unpleasant reality is increasingly hitting home with ordinary Americans: Leaders in both parties have irresponsibly run up debt. And, since President Obama took office, the debt crisis has grown exponentially worse. The only way to solve the problem in the long run is with a Constitutional amendment.
As we begin a new year and Congress reconvenes, an unpleasant reality is increasingly hitting home with ordinary Americans: Leaders in both parties have irresponsibly run up debt. And, since President Obama took office, the debt crisis has grown exponentially worse. The only way to solve the problem in the long run is with a Constitutional amendment.
The facts tell the story. The average American household now carries over half-a-million dollars in Federal debt. And it’s growing quickly: The Obama administration is now predicting that the federal budget deficit will exceed $10 trillion through 2019. Meanwhile, some economists are predicting that in about 15 years, our public debt will be more than 100 percent of gross domestic product (GDP). And that figure is just the tip of the iceberg: If you look at all of the unfunded liabilities of the Federal government, the national debt right now is already at least $65 trillion.
With the Federal government taking in about $2 trillion a year, this runaway spending is not sustainable. If we continue down the current path of runaway deficits, we’re going to have the Federal government creating a public-finances-equivalent to the subprime mortgage meltdown in the not too distant future.
When a family or business faces the sort of revenue gap we are facing as a nation, they have to drastically tighten their belts. Government must do the same.
States across the country are making difficult choices to balance their books. In Minnesota, we’ve prioritized veterans, public safety and schools, while making difficult cuts to almost everything else in order to avoid even higher taxes. Most other states are making similar tough choices – choices that could grow even harder depending on the changes to Medicaid being proposed by Congressional Democrats.
Cutting spending is necessary because our nation’s fiscal imbalance threatens our future prosperity, our national security, and the heart of the American dream. Without change, sooner or later massive Federal debt will force painful spending cuts, higher taxes, a weaker dollar and runaway inflation.
Fortunately, it’s not too late to turn things around. By reining in our spending now, we can right our fiscal ship. We can extend freedom and opportunity by making government live within its means. We can safeguard our prospects for long-term, future prosperity that will make this country an even greater place for future generations to grow up, live, work and raise a family than it already is—but we must act.
Balancing the budget will require some tough decisions. Congress must reduce discretionary spending in real terms, with exceptions for key programs such as military, veterans, and public safety. The Congress must also reject costly new spending initiatives, like new health care entitlements.
In the long run, sending different politicians to Washington will not be enough. We need a mechanism in place to enforce balanced budgets, because regardless of which party is in power, they have not done a good job of getting budgets to balance over time. That’s why I’m calling for a Constitutional amendment to require a balanced budget, with exceptions for war, natural disasters, and other emergencies.
That won’t be easy; it will require a lot of hard work; and it will be a hard agenda to sell. That’s what leadership is about, though. My wish, as we begin this year, is for us to see much more of that from this administration and Congress.
Tim Pawlenty is the Governor of Minnesota
With the Federal government taking in about $2 trillion a year, this runaway spending is not sustainable. If we continue down the current path of runaway deficits, we’re going to have the Federal government creating a public-finances-equivalent to the subprime mortgage meltdown in the not too distant future.
When a family or business faces the sort of revenue gap we are facing as a nation, they have to drastically tighten their belts. Government must do the same.
States across the country are making difficult choices to balance their books. In Minnesota, we’ve prioritized veterans, public safety and schools, while making difficult cuts to almost everything else in order to avoid even higher taxes. Most other states are making similar tough choices – choices that could grow even harder depending on the changes to Medicaid being proposed by Congressional Democrats.
Cutting spending is necessary because our nation’s fiscal imbalance threatens our future prosperity, our national security, and the heart of the American dream. Without change, sooner or later massive Federal debt will force painful spending cuts, higher taxes, a weaker dollar and runaway inflation.
Fortunately, it’s not too late to turn things around. By reining in our spending now, we can right our fiscal ship. We can extend freedom and opportunity by making government live within its means. We can safeguard our prospects for long-term, future prosperity that will make this country an even greater place for future generations to grow up, live, work and raise a family than it already is—but we must act.
Balancing the budget will require some tough decisions. Congress must reduce discretionary spending in real terms, with exceptions for key programs such as military, veterans, and public safety. The Congress must also reject costly new spending initiatives, like new health care entitlements.
In the long run, sending different politicians to Washington will not be enough. We need a mechanism in place to enforce balanced budgets, because regardless of which party is in power, they have not done a good job of getting budgets to balance over time. That’s why I’m calling for a Constitutional amendment to require a balanced budget, with exceptions for war, natural disasters, and other emergencies.
That won’t be easy; it will require a lot of hard work; and it will be a hard agenda to sell. That’s what leadership is about, though. My wish, as we begin this year, is for us to see much more of that from this administration and Congress.
Tim Pawlenty is the Governor of Minnesota
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0
February 25, 2010
Surplus of Ideas
Alister Bull and Jeff Mason
February 1, 2010
WASHINGTON (Reuters)
U.S. President Barack Obama pledged on Monday to halve a record 2010 budget deficit by the end of his first term in office, but made tackling double-digit unemployment his immediate priority with a spending plan that risked public ire and a rough battle in Congress.
February 1, 2010
WASHINGTON (Reuters)
U.S. President Barack Obama pledged on Monday to halve a record 2010 budget deficit by the end of his first term in office, but made tackling double-digit unemployment his immediate priority with a spending plan that risked public ire and a rough battle in Congress.
Criticized by Republicans for raising taxes on wealthy Americans, Obama is under pressure to convince investors and vital creditors like China that he has a credible plan to control the U.S. deficit and debt over time.
"We won't be able to bring down this deficit overnight, given that the recovery is still taking hold," Obama said after laying out $3.8 trillion (2.38 trillion pounds) in spending plans for the fiscal year to September 30, 2011.
"We will continue, for example, to do what it takes to create jobs. That is reflected in my budget. It is essential," he said in a televised statement from the White House.
Financial markets largely ignored the budget, which was previewed in his State of the Union address last week, and will be subject to lengthy wrangling between U.S. lawmakers.
Obama's blueprint now goes to a Congress deeply split on how to handle the twin woes of a massive deficit and high unemployment amid a still fragile emergence from recession.
Lawmakers girding for the annual budget battle will be in no mood to anger voters ahead of congressional elections in November.
The budget forecast a $1.56 trillion deficit in 2010, or 10.6 percent of gross domestic product (GDP), up from a 9.9 percent share of GDP in 2009.
But the shortfall was forecast to shrink to 8.3 percent of GDP in 2011. By the time his term ends in January 2013, it would have halved from the level Obama inherited on taking office last year, keeping a key pledge. That supposes Obama gets Congress to agree to spending cuts and that the economy rebounds strongly enough to sharply lift tax revenues.
The deficit's rise in 2010 was partly due to the $787 billion stimulus package Obama pushed through Congress soon after taking office last year to fight the recession.
Obama, a Democrat, said he had inherited the financial mess from his Republican predecessor President George W. Bush but did not pretend that the budget would please many people.
"Budget day is like tax day -- it's never fun. No matter what, it's big numbers," he said.
REPUBLICAN IRE
But Republicans seized on the grim fiscal forecast to criticise Obama's handling of the economy.
Senator Judd Gregg, the top Republican on the Senate Budget Committee, warned the country was sinking into a "quagmire" of debt and said Obama's stimulus plan had failed to create jobs.
"These circumstances call for a bold, game-changing budget that will turn things around, put in place a plan to restrain spending, reduce the debt and tackle the big entitlement programs that are growing out-of-control," he said. "Instead, the president has sent us more of the same."
The budget outlined some expected savings from the reform of Medicare and Medicaid entitlement programs that care for elderly and poor Americans. But his health reforms have stalled in Congress and Obama did not dwell on healthcare in detail.
Republicans complain the projected improvements in the country's fiscal position come mainly through higher taxes and stronger growth, while spending emerges largely unscathed.
Obama plans to allow tax cuts to expire on affluent American families who make more than $250,000 a year, which is expected to raise $678 billion over the next decade.
He will extract $90 billion from big banks with a fee to recoup taxpayer losses for bailing out the industry during the financial crisis during 2008. Scrapping subsidies to oil, coal and natural gas companies will raise a further $40 billion.
Obama also plans to save $250 billion between 2011 and 2020 by curbing 120 federal projects, including $23 billion next year. These cuts included the country's powerfully symbolic space mission to return to the moon, but the White House says it will also invest more in education and research.
Although Obama submits the budget to Congress, actual decisions about how the government raises and spends money are made on Capitol Hill in a process that can last a year.
Polls show voters are worried by the weak condition of U.S. finances, and Obama plans to create a bipartisan fiscal commission to figure out options on taxes and spending.
GROWTH FORECASTS
Much of the improvement in the fiscal picture is driven by underlying forecasts in the budget for solid economic growth -- which will not necessarily be shared by all economists.
The economy is forecast to expand by 2.7 percent in 2010, but then pull at an above-average 3.8 percent in 2011 and rise above 4 percent for the following 3 years.
The budget also assumes unemployment will remain high, edging to 8.2 percent in 2012 from 10 percent this year, while inflation stays mild and interest rates rise only slightly.
Discontent over the jobless rate translated into political defeat for Obama's Democrats in an election last month for the U.S. Senate in Massachusetts, costing the Democrats a crucial Senate seat and foreshadowing potentially big losses for the party in the November congressional elections.
Unemployment is a key concern for voters who will elect all 435 members in the House of Representatives and more than a third of the 100 Senate members in November.
To boost jobs, Obama is setting aside $100 billion in 2010 in tax credits aimed at small businesses as well as investments in clean energy and infrastructure, before starting to tighten the country's fiscal belt the following year.
Economists say withdrawing policies aimed at boosting growth too soon helped prolong the Great Depression in the 1930s, a mistake Obama is determined to avoid repeating.
Democrats control both chambers in Congress. But with Republicans united in opposition to Obama's agenda, he still faces a struggle pulling together Democrats -- who badly need to show voters they are taking steps on jobs but at the same time face a voter backlash over aggressive spending measures taken to boost the economy.
"Part of the problem is a stalemated Congress and Senate that probably isn't in the mood to pass another stimulus package," said Carl Birkelbach, chairman and chief executive officer of Birkelbach Management in Chicago.
In another sign of the challenge Obama has already faced pushing through his domestic agenda in his first year in office, the budget dropped $646 billion in revenues from a cap-and-trade system to curb greenhouse gases -- signalling pessimism Congress will pass a climate bill with this provision intact.
Originally Posted Here
"We won't be able to bring down this deficit overnight, given that the recovery is still taking hold," Obama said after laying out $3.8 trillion (2.38 trillion pounds) in spending plans for the fiscal year to September 30, 2011.
"We will continue, for example, to do what it takes to create jobs. That is reflected in my budget. It is essential," he said in a televised statement from the White House.
Financial markets largely ignored the budget, which was previewed in his State of the Union address last week, and will be subject to lengthy wrangling between U.S. lawmakers.
Obama's blueprint now goes to a Congress deeply split on how to handle the twin woes of a massive deficit and high unemployment amid a still fragile emergence from recession.
Lawmakers girding for the annual budget battle will be in no mood to anger voters ahead of congressional elections in November.
The budget forecast a $1.56 trillion deficit in 2010, or 10.6 percent of gross domestic product (GDP), up from a 9.9 percent share of GDP in 2009.
But the shortfall was forecast to shrink to 8.3 percent of GDP in 2011. By the time his term ends in January 2013, it would have halved from the level Obama inherited on taking office last year, keeping a key pledge. That supposes Obama gets Congress to agree to spending cuts and that the economy rebounds strongly enough to sharply lift tax revenues.
The deficit's rise in 2010 was partly due to the $787 billion stimulus package Obama pushed through Congress soon after taking office last year to fight the recession.
Obama, a Democrat, said he had inherited the financial mess from his Republican predecessor President George W. Bush but did not pretend that the budget would please many people.
"Budget day is like tax day -- it's never fun. No matter what, it's big numbers," he said.
REPUBLICAN IRE
But Republicans seized on the grim fiscal forecast to criticise Obama's handling of the economy.
Senator Judd Gregg, the top Republican on the Senate Budget Committee, warned the country was sinking into a "quagmire" of debt and said Obama's stimulus plan had failed to create jobs.
"These circumstances call for a bold, game-changing budget that will turn things around, put in place a plan to restrain spending, reduce the debt and tackle the big entitlement programs that are growing out-of-control," he said. "Instead, the president has sent us more of the same."
The budget outlined some expected savings from the reform of Medicare and Medicaid entitlement programs that care for elderly and poor Americans. But his health reforms have stalled in Congress and Obama did not dwell on healthcare in detail.
Republicans complain the projected improvements in the country's fiscal position come mainly through higher taxes and stronger growth, while spending emerges largely unscathed.
Obama plans to allow tax cuts to expire on affluent American families who make more than $250,000 a year, which is expected to raise $678 billion over the next decade.
He will extract $90 billion from big banks with a fee to recoup taxpayer losses for bailing out the industry during the financial crisis during 2008. Scrapping subsidies to oil, coal and natural gas companies will raise a further $40 billion.
Obama also plans to save $250 billion between 2011 and 2020 by curbing 120 federal projects, including $23 billion next year. These cuts included the country's powerfully symbolic space mission to return to the moon, but the White House says it will also invest more in education and research.
Although Obama submits the budget to Congress, actual decisions about how the government raises and spends money are made on Capitol Hill in a process that can last a year.
Polls show voters are worried by the weak condition of U.S. finances, and Obama plans to create a bipartisan fiscal commission to figure out options on taxes and spending.
GROWTH FORECASTS
Much of the improvement in the fiscal picture is driven by underlying forecasts in the budget for solid economic growth -- which will not necessarily be shared by all economists.
The economy is forecast to expand by 2.7 percent in 2010, but then pull at an above-average 3.8 percent in 2011 and rise above 4 percent for the following 3 years.
The budget also assumes unemployment will remain high, edging to 8.2 percent in 2012 from 10 percent this year, while inflation stays mild and interest rates rise only slightly.
Discontent over the jobless rate translated into political defeat for Obama's Democrats in an election last month for the U.S. Senate in Massachusetts, costing the Democrats a crucial Senate seat and foreshadowing potentially big losses for the party in the November congressional elections.
Unemployment is a key concern for voters who will elect all 435 members in the House of Representatives and more than a third of the 100 Senate members in November.
To boost jobs, Obama is setting aside $100 billion in 2010 in tax credits aimed at small businesses as well as investments in clean energy and infrastructure, before starting to tighten the country's fiscal belt the following year.
Economists say withdrawing policies aimed at boosting growth too soon helped prolong the Great Depression in the 1930s, a mistake Obama is determined to avoid repeating.
Democrats control both chambers in Congress. But with Republicans united in opposition to Obama's agenda, he still faces a struggle pulling together Democrats -- who badly need to show voters they are taking steps on jobs but at the same time face a voter backlash over aggressive spending measures taken to boost the economy.
"Part of the problem is a stalemated Congress and Senate that probably isn't in the mood to pass another stimulus package," said Carl Birkelbach, chairman and chief executive officer of Birkelbach Management in Chicago.
In another sign of the challenge Obama has already faced pushing through his domestic agenda in his first year in office, the budget dropped $646 billion in revenues from a cap-and-trade system to curb greenhouse gases -- signalling pessimism Congress will pass a climate bill with this provision intact.
Originally Posted Here
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0
February 25, 2010
Surplus of Ideas
Who’ll Pay the Piper?
Big government's big shortfall.
By Robert J. Samuelson
Published Feb 5, 2010
In all the recent reports, speeches, and press conferences concerning the federal budget outlook—including the administration's proposed budget for 2011—hardly anyone has posed these crucial questions: what should the federal government do and why, and who should pay?
Big government's big shortfall.
By Robert J. Samuelson
Published Feb 5, 2010
In all the recent reports, speeches, and press conferences concerning the federal budget outlook—including the administration's proposed budget for 2011—hardly anyone has posed these crucial questions: what should the federal government do and why, and who should pay?
We ought to go back to first principles of defining a desirable role for government and abandon the expediency of assuming that anyone receiving a federal benefit is morally entitled to it simply because it's been received before.
We have a massive candor gap, led by President Obama but also implicating most leaders of both parties. The annual budget necessarily involves a bewildering blizzard of numbers. But just a few figures capture the essence of our predicament. Here they are:
First, from 2011 to 2020, the administration projects total federal spending of $45.8 trillion against taxes and receipts of $37.3 trillion. The $8.5 trillion deficit is almost a fifth of spending. In the last year (2020), the gap is $1 trillion, again approaching a fifth: spending is $5.7 trillion, taxes $4.7 trillion. All amounts assume a full economic recovery. The message: there's a huge mismatch between Americans' desire for high government services and low taxes.
Second, almost $20 trillion of the $45.8 trillion of spending involves three programs—Social Security, Medicare (health insurance for those 65 and over), and Medicaid (health insurance for the poor). The message: the budget is mainly a vehicle for transferring income to retirees from workers, who pay most taxes. As more baby boomers retire in the 2020s, deficits will grow.
Third, there is no way to close the massive deficits without big cuts in existing government programs or stupendous tax increases. Suppose we decided to cover all future deficits by raising taxes. Taxes would rise in the 2020s by roughly 50 percent from the average 1970–2009 tax burden.
That's the guts of it. At age 65, average Americans live for about another 18 years. Government now subsidizes each of them by roughly $25,000 a year (almost $14,000 in Social Security, $11,000 in Medicare). We cannot sensibly afford all these subsidies without oppressive tax increases (see above), draconian cuts in other programs, or immense budget deficits that someday might trigger another financial crisis. Bond buyers might balk at swallowing so much debt.
Eligibility for both Social Security and Medicare should be gradually raised to 70, coupled with a requirement for people to buy into Medicare at 65. Wealthier retirees should receive lower Social Security benefits and pay more for Medicare. Programs that have outlived their usefulness need to be abolished: farm subsidies, for instance. Even with these cuts, future taxes would need to rise. Unless you're confronting these issues—and Obama isn't—you're evading the central budget problems.
True, this is a confusing time to engage. Trying to cut the deficit immediately could undermine the recovery; what's needed are credible steps to curb future deficits. It's also true that most Republican congressional leaders (some exceptions: Rep. Paul Ryan and Sen. Judd Gregg) and presidents have ducked the hard questions. Finally, Obama has endorsed a bipartisan commission to propose budget changes. But the commission's powers are unclear, and the administration's goal is modest. It's not to balance the budget; the aim is merely a smaller deficit—one limited to the annual interest payments on the debt. In 2015, that implies a deficit of $571 billion instead of $752 billion. No big deal.
We can no longer just tinker. Delay in acting has already eliminated a long grace period to prepare for reduced retirement benefits or to wind down useless programs. Now we are increasingly condemned to be unfair. If we don't cut spending, the young may complain (correctly) that they've been saddled with immense tax increases; if we do cut spending, beneficiaries may complain (correctly) that they didn't receive ample warning.
The politics of procrastination is bipartisan and rests on shared assumptions: that we don't know that large budget deficits will pro-duce a crisis or when; that, therefore, the easiest political course is to dawdle and blame the other party. But this inattention, coupled with much larger deficits, is tempting fate. If investors lose confidence in Treasury bonds, the ensuing crisis might compel abrupt spending cuts and tax increases that make today's choices look gentle.
We have a massive candor gap, led by President Obama but also implicating most leaders of both parties. The annual budget necessarily involves a bewildering blizzard of numbers. But just a few figures capture the essence of our predicament. Here they are:
First, from 2011 to 2020, the administration projects total federal spending of $45.8 trillion against taxes and receipts of $37.3 trillion. The $8.5 trillion deficit is almost a fifth of spending. In the last year (2020), the gap is $1 trillion, again approaching a fifth: spending is $5.7 trillion, taxes $4.7 trillion. All amounts assume a full economic recovery. The message: there's a huge mismatch between Americans' desire for high government services and low taxes.
Second, almost $20 trillion of the $45.8 trillion of spending involves three programs—Social Security, Medicare (health insurance for those 65 and over), and Medicaid (health insurance for the poor). The message: the budget is mainly a vehicle for transferring income to retirees from workers, who pay most taxes. As more baby boomers retire in the 2020s, deficits will grow.
Third, there is no way to close the massive deficits without big cuts in existing government programs or stupendous tax increases. Suppose we decided to cover all future deficits by raising taxes. Taxes would rise in the 2020s by roughly 50 percent from the average 1970–2009 tax burden.
That's the guts of it. At age 65, average Americans live for about another 18 years. Government now subsidizes each of them by roughly $25,000 a year (almost $14,000 in Social Security, $11,000 in Medicare). We cannot sensibly afford all these subsidies without oppressive tax increases (see above), draconian cuts in other programs, or immense budget deficits that someday might trigger another financial crisis. Bond buyers might balk at swallowing so much debt.
Eligibility for both Social Security and Medicare should be gradually raised to 70, coupled with a requirement for people to buy into Medicare at 65. Wealthier retirees should receive lower Social Security benefits and pay more for Medicare. Programs that have outlived their usefulness need to be abolished: farm subsidies, for instance. Even with these cuts, future taxes would need to rise. Unless you're confronting these issues—and Obama isn't—you're evading the central budget problems.
True, this is a confusing time to engage. Trying to cut the deficit immediately could undermine the recovery; what's needed are credible steps to curb future deficits. It's also true that most Republican congressional leaders (some exceptions: Rep. Paul Ryan and Sen. Judd Gregg) and presidents have ducked the hard questions. Finally, Obama has endorsed a bipartisan commission to propose budget changes. But the commission's powers are unclear, and the administration's goal is modest. It's not to balance the budget; the aim is merely a smaller deficit—one limited to the annual interest payments on the debt. In 2015, that implies a deficit of $571 billion instead of $752 billion. No big deal.
We can no longer just tinker. Delay in acting has already eliminated a long grace period to prepare for reduced retirement benefits or to wind down useless programs. Now we are increasingly condemned to be unfair. If we don't cut spending, the young may complain (correctly) that they've been saddled with immense tax increases; if we do cut spending, beneficiaries may complain (correctly) that they didn't receive ample warning.
The politics of procrastination is bipartisan and rests on shared assumptions: that we don't know that large budget deficits will pro-duce a crisis or when; that, therefore, the easiest political course is to dawdle and blame the other party. But this inattention, coupled with much larger deficits, is tempting fate. If investors lose confidence in Treasury bonds, the ensuing crisis might compel abrupt spending cuts and tax increases that make today's choices look gentle.
-
0
February 25, 2010
Surplus of Ideas
This is a very scary article and one I believe to be very accurate. Think it today's indication that something must be done to force a balanced budget ASAP!
Rather than government spending and borrowing creating jobs, government spending and borrowing is crowding out the ability of small businesses to find capital. The answer to job creation isn't for government to spend more but to spend less! You've all now heard the acronym PIIGS -- Portugal, Ireland, Italy, Greece and Spain -- as in the countries where their debt day of reckoning is upon them. I'll add a new one. Portugal, Ireland, Greece, Ireland, Spain, United States --- PIG IS US!
Rather than government spending and borrowing creating jobs, government spending and borrowing is crowding out the ability of small businesses to find capital. The answer to job creation isn't for government to spend more but to spend less! You've all now heard the acronym PIIGS -- Portugal, Ireland, Italy, Greece and Spain -- as in the countries where their debt day of reckoning is upon them. I'll add a new one. Portugal, Ireland, Greece, Ireland, Spain, United States --- PIG IS US!
Debt + Dollar + Delusion + Depletion = Decline
By Jim Quinn Feb 24, 2010 9:45 am
een blindsided by the country's sudden mood shift in the last few years. The reason is because they believe world history is linear. These people think the world only progresses. The facts indicate otherwise. History is cyclical. History is replete with grand empires like Rome, Spain, and Britain. It's also replete with dark ages, depressions, and wars.
Politicians have voted for bailouts of criminal banks run by Boomers, voted for hundreds of billions of dollars in pork projects for their corporate constituents, delegated their constitutional duty of declaring war to the executive branch, voted for the Patriot Act and creation of a Department of Homeland Security, which have stolen freedoms and liberties from the citizens, and have deferred the critical cuts that must be made to entitlement promises they’ve made to the American public in order to get elected.
These politicians have doubled the national debt of the United States to $12.4 trillion in less than eight years. It took 213 years to accumulate $6 trillion of debt ($5.6 trillion added since 1971) and only eight years to add another $6.4 trillion. These same politicians have approved current budgets that will add $1.5 trillion to $2 trillion per year to the national debt for the next 10 years. Progressives put forth the preposterous idea that piling on more debt will solve a problem created by too much debt. They've pressed the accelerator to the floor as we approach a turn on a mountain road.
The current millennial crisis that we're attempting to grasp was commenced by the combination of a housing collapse caused by loose Federal Reserve monetary policy, no regulation of financial institutions, and corrupt greedy bankers on Wall Street. The depth and breadth of this financial disaster is being exacerbated by government borrow and spend policies and the free-market globalism mantra of big business being sold to the American public. This fraudulent economy has been supported by a world awash in cheap oil. The American people have been scammed. Free-market globalism didn’t benefit the middle class and the era of cheap oil is running out.
We’ve sold out America for cheap Chinese hair dryers, inexpensive Mexican apparel, economy packs of Fruit of the Loom from Indonesia, and yellow smiley face stickers for our kids. As reward for gutting the American economy by shipping jobs overseas, American CEOs have enriched themselves at a rate 500 times higher than the average worker’s pay.
Wall Street bankers were paying close attention to how corporate CEOs were able to reap ungodly profits while socializing the costs. With a clear signal from Alan Greenspan that the Federal Reserve would save anyone on Wall Street who got in trouble, the gluttonous MBAs created exotic financial products and convinced the world they could spin gold from straw.
The CEOs of the five biggest investment banks (including Goldman Sachs' (GS) Hank Paulson) convinced the SEC to waive their 12-to-1 leverage ratio and leveraged their Wall Street gambling casinos at 40 to 1. This excessive leverage, combined with financial products designed to confuse and bamboozle investors, generated billions in profits for these banks and hundreds of millions in pay and bonuses for their Boomer leaders.
When the crooked house of cards collapsed under the weight of lies and fraud, these banks were essentially insolvent. At that point, Paulson, who was now Treasury Secretary, and Ben Bernanke decided to socialize their losses by having the US taxpayer pick up the tab. Middle class Americans lost 8 million jobs and Wall Street bankers used the taxpayer bailout to generate billions in fake profits while paying themselves hundreds of millions in pay again. The resentment of average Americans is boiling over and will play a main role in the unfolding crisis.
The anger and disillusionment of the population are seen as worrisome and disturbing by those who believe history is linear. The entrenched ruling elite should be apprehensive. During a crisis existing institutions are torn down as the social fabric of the country undergoes wrenching changes. Those in power are rightfully fearful of the masses they have screwed for decades. President Barack Obama, Bernanke, Timothy Geithner, and the majority of economists and TV pundits are convinced the crisis has passed and they have successfully maneuvered the country through the worst, avoiding a second Great Depression.
History suggests otherwise. We have yet to experience the nastiest part of the crisis. We can expect to encounter private and civic choices analogous to the cruelest ever confronted by ancestral generations. The recently submitted Obama budget, adjusted for reality, will add at least $12 trillion to the national debt in the next 10 years. That would bring the national debt to $24 trillion in 2019. At a modest interest rate of 5%, the country would be paying $1.2 trillion per year in interest. The more likely scenario would be a 10% interest rate, resulting in annual interest costs of $2.4 trillion. The entire spending of the Federal government was only $1.2 trillion in 1990.
Mr. Progressive, Paul Krugman, insists that worries about the debt are overblown. Despite the fact that our economy isn’t capable of growing more than 2.5% over the long term, he sees no problem growing our national debt by 10% per year. Perhaps Nobel Prize-winning Krugman, who argues that doubling our debt will solve a crisis caused by too much debt, wants to become the Irving Fisher of his time. One week prior to the Stock Market Crash of 1929 Fisher famously pronounced:
Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon, if ever, a 50- or 60-point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.
The truth is our lenders won't allow our national debt to reach $24 trillion by 2019. The US dollar has already lost more than 80% of its purchasing power since Nixon closed the gold window in 1971.
The amount of currency in circulation since that time has gone up by a factor of 16, to $800 billion. The result has been a stagnation of real wages for the middle class, while the ruling elite have seen their wealth soar to astronomical levels.
The correlation between printing more of something and its relative value is clear as day. Bernanke is attempting to print his way out of this financial crisis. He's playing a game of chicken with our foreign lenders. He wants to devalue the US dollar slowly to reduce the unbearable weight of US debt.
Foreign lenders from China, Japan, and the Middle East know what he's doing. They'll be the long-term losers in this scenario. At some point in the next few years they will balk at buying more US debt. A “Weimar Moment” will strike the United States like a sledgehammer. The veil of financial stability will be revealed to be a fallacy and the worldwide reserve currency will revert to its intrinsic value of zero. The chaos that would ensue as people’s life savings are wiped out would test the mettle of our country’s citizens, government, and military.
The dollar is likely to collapse just based on current spending and borrowing trends. The unsustainable entitlement promises made by politicians over decades would have guaranteed a dollar collapse by 2030 anyway. Not one politician has the courage to stand in front of the American people and tell them they won't receive the Social Security and Medicare benefits they were promised. Not one politician is even willing to discuss the fact that these promises can't be honored.
This train has been headed down the track since the 1960s, picking up speed, and no one is willing to apply the brakes. The Baby Boomers have sold their children and grandchildren into slavery. Their unwillingness to sacrifice entitlement benefits guarantees a vastly lower standard of living for their descendents. Their generation would rather crash the economic system than make any personal sacrifice for future generations. The $106.8 trillion of unfunded promises will not be paid because there will be nothing left to pay. The country is bankrupt today. By 2030, half of all tax revenue would be needed to fund these programs. The Boomers will be forced to accept much less than they expected. The delusion of getting something for nothing will be put to rest during this crisis.
The wild card within the current crisis is cheap, easily accessible petroleum. Progressives and those who only view the world in a linear way fail to recognize that easily accessible oil only came onto the scene 150 years ago and we have depleted the easiest to reach 50%.
The implication of these facts is beyond the comprehension of linear thinkers. They trust our ingenuity and brilliance to solve the problem. A new form of energy will magically appear on the scene and save our industrial world.
Brain power and human resourcefulness played only a small part in the economic boom of the last 150 years, produced by cheap oil. The industrial revolution began more like Jed Clampett shooting at some food and getting bubbling crude. The world benefited from a positive Black Swan event. In other words, we got lucky.
Now the luck is running out. There's a finite amount of petroleum on the planet. Most of the remaining supply is trapped beneath deep oceans, within tar sands, in shale rock, and in inhospitable countries. Cheap, sweet crude is running out. New oil discoveries peaked in 1964. Worldwide oil production peaked between 2005 and 2010.
As supply enters terminal decline and demand continues its relentless rise, prices will soar and the world will be transformed forever. This could even put a creak in America’s military machine that consumes more than 150 million barrels of oil per year.
The deniers believe that technology will save the day. They don’t step back and think that their technology couldn’t function without cheap oil because the hardware and software are made in factories run by fossil fuel.
The amount of energy that exists on the planet is a closed-loop system. The sun’s energy created fossil fuels. The population of the planet has converted 50% of these fossil fuels back into CO2 and other byproducts. This is the process of entropy. Entropy is the movement of energy from complex, higher states to simple, lower states. Energy can't be created or destroyed, only changed -- entropy dictates that energy flows in only one direction, from being concentrated in one place to becoming diffused or dispersed and spread out; from being ordered to being disordered.
After 150 years of profligate use of oil, we are within a few years of experiencing an unsolvable oil shortage that will affect transportation, industry, heating, plastics, fertilizers, pharmaceuticals, and all the myriad products essential to our contemporary lives. Our energy-devouring civilization has been accelerating entropy.
The combination of debt, dollar devaluation, delusion, and depletion will make this crisis the most challenging and dangerous in US history.
For Original Article Click Here
By Jim Quinn Feb 24, 2010 9:45 am
een blindsided by the country's sudden mood shift in the last few years. The reason is because they believe world history is linear. These people think the world only progresses. The facts indicate otherwise. History is cyclical. History is replete with grand empires like Rome, Spain, and Britain. It's also replete with dark ages, depressions, and wars.
Politicians have voted for bailouts of criminal banks run by Boomers, voted for hundreds of billions of dollars in pork projects for their corporate constituents, delegated their constitutional duty of declaring war to the executive branch, voted for the Patriot Act and creation of a Department of Homeland Security, which have stolen freedoms and liberties from the citizens, and have deferred the critical cuts that must be made to entitlement promises they’ve made to the American public in order to get elected.
These politicians have doubled the national debt of the United States to $12.4 trillion in less than eight years. It took 213 years to accumulate $6 trillion of debt ($5.6 trillion added since 1971) and only eight years to add another $6.4 trillion. These same politicians have approved current budgets that will add $1.5 trillion to $2 trillion per year to the national debt for the next 10 years. Progressives put forth the preposterous idea that piling on more debt will solve a problem created by too much debt. They've pressed the accelerator to the floor as we approach a turn on a mountain road.
The current millennial crisis that we're attempting to grasp was commenced by the combination of a housing collapse caused by loose Federal Reserve monetary policy, no regulation of financial institutions, and corrupt greedy bankers on Wall Street. The depth and breadth of this financial disaster is being exacerbated by government borrow and spend policies and the free-market globalism mantra of big business being sold to the American public. This fraudulent economy has been supported by a world awash in cheap oil. The American people have been scammed. Free-market globalism didn’t benefit the middle class and the era of cheap oil is running out.
We’ve sold out America for cheap Chinese hair dryers, inexpensive Mexican apparel, economy packs of Fruit of the Loom from Indonesia, and yellow smiley face stickers for our kids. As reward for gutting the American economy by shipping jobs overseas, American CEOs have enriched themselves at a rate 500 times higher than the average worker’s pay.
Wall Street bankers were paying close attention to how corporate CEOs were able to reap ungodly profits while socializing the costs. With a clear signal from Alan Greenspan that the Federal Reserve would save anyone on Wall Street who got in trouble, the gluttonous MBAs created exotic financial products and convinced the world they could spin gold from straw.
The CEOs of the five biggest investment banks (including Goldman Sachs' (GS) Hank Paulson) convinced the SEC to waive their 12-to-1 leverage ratio and leveraged their Wall Street gambling casinos at 40 to 1. This excessive leverage, combined with financial products designed to confuse and bamboozle investors, generated billions in profits for these banks and hundreds of millions in pay and bonuses for their Boomer leaders.
When the crooked house of cards collapsed under the weight of lies and fraud, these banks were essentially insolvent. At that point, Paulson, who was now Treasury Secretary, and Ben Bernanke decided to socialize their losses by having the US taxpayer pick up the tab. Middle class Americans lost 8 million jobs and Wall Street bankers used the taxpayer bailout to generate billions in fake profits while paying themselves hundreds of millions in pay again. The resentment of average Americans is boiling over and will play a main role in the unfolding crisis.
The anger and disillusionment of the population are seen as worrisome and disturbing by those who believe history is linear. The entrenched ruling elite should be apprehensive. During a crisis existing institutions are torn down as the social fabric of the country undergoes wrenching changes. Those in power are rightfully fearful of the masses they have screwed for decades. President Barack Obama, Bernanke, Timothy Geithner, and the majority of economists and TV pundits are convinced the crisis has passed and they have successfully maneuvered the country through the worst, avoiding a second Great Depression.
History suggests otherwise. We have yet to experience the nastiest part of the crisis. We can expect to encounter private and civic choices analogous to the cruelest ever confronted by ancestral generations. The recently submitted Obama budget, adjusted for reality, will add at least $12 trillion to the national debt in the next 10 years. That would bring the national debt to $24 trillion in 2019. At a modest interest rate of 5%, the country would be paying $1.2 trillion per year in interest. The more likely scenario would be a 10% interest rate, resulting in annual interest costs of $2.4 trillion. The entire spending of the Federal government was only $1.2 trillion in 1990.
Mr. Progressive, Paul Krugman, insists that worries about the debt are overblown. Despite the fact that our economy isn’t capable of growing more than 2.5% over the long term, he sees no problem growing our national debt by 10% per year. Perhaps Nobel Prize-winning Krugman, who argues that doubling our debt will solve a crisis caused by too much debt, wants to become the Irving Fisher of his time. One week prior to the Stock Market Crash of 1929 Fisher famously pronounced:
Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon, if ever, a 50- or 60-point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.
The truth is our lenders won't allow our national debt to reach $24 trillion by 2019. The US dollar has already lost more than 80% of its purchasing power since Nixon closed the gold window in 1971.
The amount of currency in circulation since that time has gone up by a factor of 16, to $800 billion. The result has been a stagnation of real wages for the middle class, while the ruling elite have seen their wealth soar to astronomical levels.
The correlation between printing more of something and its relative value is clear as day. Bernanke is attempting to print his way out of this financial crisis. He's playing a game of chicken with our foreign lenders. He wants to devalue the US dollar slowly to reduce the unbearable weight of US debt.
Foreign lenders from China, Japan, and the Middle East know what he's doing. They'll be the long-term losers in this scenario. At some point in the next few years they will balk at buying more US debt. A “Weimar Moment” will strike the United States like a sledgehammer. The veil of financial stability will be revealed to be a fallacy and the worldwide reserve currency will revert to its intrinsic value of zero. The chaos that would ensue as people’s life savings are wiped out would test the mettle of our country’s citizens, government, and military.
The dollar is likely to collapse just based on current spending and borrowing trends. The unsustainable entitlement promises made by politicians over decades would have guaranteed a dollar collapse by 2030 anyway. Not one politician has the courage to stand in front of the American people and tell them they won't receive the Social Security and Medicare benefits they were promised. Not one politician is even willing to discuss the fact that these promises can't be honored.
This train has been headed down the track since the 1960s, picking up speed, and no one is willing to apply the brakes. The Baby Boomers have sold their children and grandchildren into slavery. Their unwillingness to sacrifice entitlement benefits guarantees a vastly lower standard of living for their descendents. Their generation would rather crash the economic system than make any personal sacrifice for future generations. The $106.8 trillion of unfunded promises will not be paid because there will be nothing left to pay. The country is bankrupt today. By 2030, half of all tax revenue would be needed to fund these programs. The Boomers will be forced to accept much less than they expected. The delusion of getting something for nothing will be put to rest during this crisis.
The wild card within the current crisis is cheap, easily accessible petroleum. Progressives and those who only view the world in a linear way fail to recognize that easily accessible oil only came onto the scene 150 years ago and we have depleted the easiest to reach 50%.
The implication of these facts is beyond the comprehension of linear thinkers. They trust our ingenuity and brilliance to solve the problem. A new form of energy will magically appear on the scene and save our industrial world.
Brain power and human resourcefulness played only a small part in the economic boom of the last 150 years, produced by cheap oil. The industrial revolution began more like Jed Clampett shooting at some food and getting bubbling crude. The world benefited from a positive Black Swan event. In other words, we got lucky.
Now the luck is running out. There's a finite amount of petroleum on the planet. Most of the remaining supply is trapped beneath deep oceans, within tar sands, in shale rock, and in inhospitable countries. Cheap, sweet crude is running out. New oil discoveries peaked in 1964. Worldwide oil production peaked between 2005 and 2010.
As supply enters terminal decline and demand continues its relentless rise, prices will soar and the world will be transformed forever. This could even put a creak in America’s military machine that consumes more than 150 million barrels of oil per year.
The deniers believe that technology will save the day. They don’t step back and think that their technology couldn’t function without cheap oil because the hardware and software are made in factories run by fossil fuel.
The amount of energy that exists on the planet is a closed-loop system. The sun’s energy created fossil fuels. The population of the planet has converted 50% of these fossil fuels back into CO2 and other byproducts. This is the process of entropy. Entropy is the movement of energy from complex, higher states to simple, lower states. Energy can't be created or destroyed, only changed -- entropy dictates that energy flows in only one direction, from being concentrated in one place to becoming diffused or dispersed and spread out; from being ordered to being disordered.
After 150 years of profligate use of oil, we are within a few years of experiencing an unsolvable oil shortage that will affect transportation, industry, heating, plastics, fertilizers, pharmaceuticals, and all the myriad products essential to our contemporary lives. Our energy-devouring civilization has been accelerating entropy.
The combination of debt, dollar devaluation, delusion, and depletion will make this crisis the most challenging and dangerous in US history.
For Original Article Click Here
-
0
December 11, 2009
Surplus of Ideas
FOX News
December 11, 2009
Republicans in the House are trying to derail Democratic efforts to lift the national debt limit, though they acknowledge it may be too late this time around.
December 11, 2009
Republicans in the House are trying to derail Democratic efforts to lift the national debt limit, though they acknowledge it may be too late this time around.
Republicans in the House are trying to derail Democratic efforts to lift the national debt limit, though they acknowledge it may be too late this time around.
House Majority Leader Steny Hoyer said Friday that Congress needs to raise the limit by at least $1.8 trillion. In response, nearly 50 Republicans in the House have co-sponsored a bill that would make it harder for Congress to raise that ceiling -- which is currently set at $12.1 trillion.
They want Congress to think twice before upping the limit on the national credit card. Congress has raised the limit seven times since 2002, with no end in sight.
"We need to restore fiscal responsibility in Washington and put an end to this out-of-control spending and massive debt that's being dumped onto our children and grandchildren," Rep. Steve Scalise, R-La., said in a written statement. He and Rep. Kevin Brady, R-Texas, on Friday unveiled a bill that would require a two-thirds majority in both the Senate and House to increase the national debt ceiling. It also would prohibit lawmakers from tacking such measures on to other budget bills.
But Scalise's spokesman, Luke Bolar, acknowledged it is likely too late in the game to stop the Democrats from raising the limit this year. He said the legislation is aimed more at any future attempts to do so.
House Majority Leader Steny Hoyer said Friday that Congress needs to raise the limit by at least $1.8 trillion. In response, nearly 50 Republicans in the House have co-sponsored a bill that would make it harder for Congress to raise that ceiling -- which is currently set at $12.1 trillion.
They want Congress to think twice before upping the limit on the national credit card. Congress has raised the limit seven times since 2002, with no end in sight.
"We need to restore fiscal responsibility in Washington and put an end to this out-of-control spending and massive debt that's being dumped onto our children and grandchildren," Rep. Steve Scalise, R-La., said in a written statement. He and Rep. Kevin Brady, R-Texas, on Friday unveiled a bill that would require a two-thirds majority in both the Senate and House to increase the national debt ceiling. It also would prohibit lawmakers from tacking such measures on to other budget bills.
But Scalise's spokesman, Luke Bolar, acknowledged it is likely too late in the game to stop the Democrats from raising the limit this year. He said the legislation is aimed more at any future attempts to do so.
"The whole legislative process would not happen in time for this round of appropriations," he said. "Ideally you could get it through and pass it as fast as possible."
With the fiscal 2009 deficit at $1.4 trillion and the current debt at $12.09 trillion, advocates of raising the limit say it is essential because the country will probably hit the current limit by the end of the month.
"We expect Congress to raise the debt ceiling in a timely manner," a Treasury official said.
Democrats want to hike the ceiling and face the music now rather than deal with the fallout next year, when Republicans could seize on the issue for political gain in the 2010 congressional election.
For now, it appears Democrats are driving ahead with the move to combine legislation raising the debt limit with a bill that funds the wars in Iraq and Afghanistan. Republicans also don't have the numbers to pass the Scalise bill without Democratic support, and Bolar said none of the co-sponsors are Democrats.
"We have already raised it in the House but we need to have a vehicle so that the Senate can vote on it, and it is our intention to have something on the Department of Defense bill next week," House Speaker Nancy Pelosi said at a news conference Thursday.
But Democrats could face a difficult task in folding the measure into the Defense spending bill, since House rules make that tricky and because attaching a debt measure to a troops funding bill is unpalatable to some lawmakers.
Scalise called on Pelosi Friday to let the defense bill stand on its own, calling the bid to attach the debt limit increase to the troops funding shameless.
"They have made a habit of taking defense appropriation bills, bills that fund the support of our troops, and adding on there the most distasteful things they can think of, trying to make sure they get it passed on the backs of our soldiers," House Minority Leader John Boehner, R-Ohio, said. "It's a bad way of doing business."
He said his party will vote against increasing the limit. Republicans have roundly rejected the move, arguing that it comes as Democrats are pushing a new stimulus package and a nearly $450 billion spending package that provides up to a 10 percent increase in funding to more than a dozen Cabinet departments and agencies.
Sen. Judd Gregg, R-N.H., said Thursday that the government is broke and should be concentrating more on being fiscally responsible. He and Sen. Kent Conrad, D-N.D., are pushing legislation calling for a special task force that could force speedy votes on deficit reduction in the next Congress.
Gregg said this "is not a theoretical problem -- it is directly in front of us." And he warned that "the nation will go bankrupt" if spending is not reined in.
Click here to see the original story posted on FOX News.-
0
November 23, 2009
Surplus of Ideas
Very Funny and True.
Very Funny and True.
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November 23, 2009
Surplus of Ideas
By: Edmund L. Andrews
The New York Times
The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.
But that happy situation, aided by ultralow interest rates, may not last much longer.
The New York Times
The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.
But that happy situation, aided by ultralow interest rates, may not last much longer.
By: Edmund L. Andrews
The New York Times
The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true. But that happy situation, aided by ultralow interest rates, may not last much longer.
Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.
Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.
With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.
In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.
The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means.
The surge in borrowing over the last year or two is widely judged to have been a necessary response to the financial crisis and the deep recession, and there is still a raging debate over how aggressively to bring down deficits over the next few years. But there is little doubt that the United States’ long-term budget crisis is becoming too big to postpone.
Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode.
The competing demands could deepen political battles over the size and role of the government, the trade-offs between taxes and spending, the choices between helping older generations versus younger ones, and the bottom-line questions about who should ultimately shoulder the burden.
“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”
So far, the demand for Treasury securities from investors and other governments around the world has remained strong enough to hold down the interest rates that the United States must offer to sell them. Indeed, the government paid less interest on its debt this year than in 2008, even though it added almost $2 trillion in debt.
The government’s average interest rate on new borrowing last year fell below 1 percent. For short-term i.o.u.’s like one-month Treasury bills, its average rate was only sixteen-hundredths of a percent.
“All of the auction results have been solid,” said Matthew Rutherford, the Treasury’s deputy assistant secretary in charge of finance operations. “Investor demand has been very broad, and it’s been increasing in the last couple of years.”
The problem, many analysts say, is that record government deficits have arrived just as the long-feared explosion begins in spending on benefits under Medicare and Social Security. The nation’s oldest baby boomers are approaching 65, setting off what experts have warned for years will be a fiscal nightmare for the government.
“What a good country or a good squirrel should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group, the giant bond-management firm. “The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”
The current low rates on the country’s debt were caused by temporary factors that are already beginning to fade. One factor was the economic crisis itself, which caused panicked investors around the world to plow their money into the comparative safety of Treasury bills and notes. Even though the United States was the epicenter of the global crisis, investors viewed Treasury securities as the least dangerous place to park their money.
On top of that, the Fed used almost every tool in its arsenal to push interest rates down even further. It cut the overnight federal funds rate, the rate at which banks lend reserves to one another, to almost zero. And to reduce longer-term rates, it bought more than $1.5 trillion worth of Treasury bonds and government-guaranteed securities linked to mortgages.
Those conditions are already beginning to change. Global investors are shifting money into riskier investments like stocks and corporate bonds, and they have been pouring money into fast-growing countries like Brazil and China.
The Fed, meanwhile, is already halting its efforts at tamping down long-term interest rates. Fed officials ended their $300 billion program to buy up Treasury bonds last month, and they have announced plans to stop buying mortgage-backed securities by the end of next March.
Eventually, though probably not until at least mid-2010, the Fed will also start raising its benchmark interest rate back to more historically normal levels.
The United States will not be the only government competing to refinance huge debt. Japan, Germany, Britain and other industrialized countries have even higher government debt loads, measured as a share of their gross domestic product, and they too borrowed heavily to combat the financial crisis and economic downturn. As the global economy recovers and businesses raise capital to finance their growth, all that new government debt is likely to put more upward pressure on interest rates.
Even a small increase in interest rates has a big impact. An increase of one percentage point in the Treasury’s average cost of borrowing would cost American taxpayers an extra $80 billion this year — about equal to the combined budgets of the Department of Energy and the Department of Education.
But that could seem like a relatively modest pinch. Alan Levenson, chief economist at T. Rowe Price, estimated that the Treasury’s tab for debt service this year would have been $221 billion higher if it had faced the same interest rates as it did last year.
The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead.
To lock in low interest rates in the years ahead, Treasury officials are trying to replace one-month and three-month bills with 10-year and 30-year Treasury securities. That strategy will save taxpayers money in the long run. But it pushes up costs drastically in the short run, because interest rates are higher for long-term debt.
Adding to the pressure, the Fed is set to begin reversing some of the policies it has been using to prop up the economy. Wall Street firms advising the Treasury recently estimated that the Fed’s purchases of Treasury bonds and mortgage-backed securities pushed down long-term interest rates by about one-half of a percentage point. Removing that support could in itself add $40 billion to the government’s annual tab for debt service.
This month, the Treasury Department’s private-sector advisory committee on debt management warned of the risks ahead.
“Inflation, higher interest rate and rollover risk should be the primary concerns,” declared the Treasury Borrowing Advisory Committee, a group of market experts that provide guidance to the government, on Nov. 4.
“Clever debt management strategy,” the group said, “can’t completely substitute for prudent fiscal policy.”
This story originally appeared in the The New York Times. Click here to see the original version.
The New York Times
The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true. But that happy situation, aided by ultralow interest rates, may not last much longer.
Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.
Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.
With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.
In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.
The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means.
The surge in borrowing over the last year or two is widely judged to have been a necessary response to the financial crisis and the deep recession, and there is still a raging debate over how aggressively to bring down deficits over the next few years. But there is little doubt that the United States’ long-term budget crisis is becoming too big to postpone.
Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode.
The competing demands could deepen political battles over the size and role of the government, the trade-offs between taxes and spending, the choices between helping older generations versus younger ones, and the bottom-line questions about who should ultimately shoulder the burden.
“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”
So far, the demand for Treasury securities from investors and other governments around the world has remained strong enough to hold down the interest rates that the United States must offer to sell them. Indeed, the government paid less interest on its debt this year than in 2008, even though it added almost $2 trillion in debt.
The government’s average interest rate on new borrowing last year fell below 1 percent. For short-term i.o.u.’s like one-month Treasury bills, its average rate was only sixteen-hundredths of a percent.
“All of the auction results have been solid,” said Matthew Rutherford, the Treasury’s deputy assistant secretary in charge of finance operations. “Investor demand has been very broad, and it’s been increasing in the last couple of years.”
The problem, many analysts say, is that record government deficits have arrived just as the long-feared explosion begins in spending on benefits under Medicare and Social Security. The nation’s oldest baby boomers are approaching 65, setting off what experts have warned for years will be a fiscal nightmare for the government.
“What a good country or a good squirrel should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group, the giant bond-management firm. “The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”
The current low rates on the country’s debt were caused by temporary factors that are already beginning to fade. One factor was the economic crisis itself, which caused panicked investors around the world to plow their money into the comparative safety of Treasury bills and notes. Even though the United States was the epicenter of the global crisis, investors viewed Treasury securities as the least dangerous place to park their money.
On top of that, the Fed used almost every tool in its arsenal to push interest rates down even further. It cut the overnight federal funds rate, the rate at which banks lend reserves to one another, to almost zero. And to reduce longer-term rates, it bought more than $1.5 trillion worth of Treasury bonds and government-guaranteed securities linked to mortgages.
Those conditions are already beginning to change. Global investors are shifting money into riskier investments like stocks and corporate bonds, and they have been pouring money into fast-growing countries like Brazil and China.
The Fed, meanwhile, is already halting its efforts at tamping down long-term interest rates. Fed officials ended their $300 billion program to buy up Treasury bonds last month, and they have announced plans to stop buying mortgage-backed securities by the end of next March.
Eventually, though probably not until at least mid-2010, the Fed will also start raising its benchmark interest rate back to more historically normal levels.
The United States will not be the only government competing to refinance huge debt. Japan, Germany, Britain and other industrialized countries have even higher government debt loads, measured as a share of their gross domestic product, and they too borrowed heavily to combat the financial crisis and economic downturn. As the global economy recovers and businesses raise capital to finance their growth, all that new government debt is likely to put more upward pressure on interest rates.
Even a small increase in interest rates has a big impact. An increase of one percentage point in the Treasury’s average cost of borrowing would cost American taxpayers an extra $80 billion this year — about equal to the combined budgets of the Department of Energy and the Department of Education.
But that could seem like a relatively modest pinch. Alan Levenson, chief economist at T. Rowe Price, estimated that the Treasury’s tab for debt service this year would have been $221 billion higher if it had faced the same interest rates as it did last year.
The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead.
To lock in low interest rates in the years ahead, Treasury officials are trying to replace one-month and three-month bills with 10-year and 30-year Treasury securities. That strategy will save taxpayers money in the long run. But it pushes up costs drastically in the short run, because interest rates are higher for long-term debt.
Adding to the pressure, the Fed is set to begin reversing some of the policies it has been using to prop up the economy. Wall Street firms advising the Treasury recently estimated that the Fed’s purchases of Treasury bonds and mortgage-backed securities pushed down long-term interest rates by about one-half of a percentage point. Removing that support could in itself add $40 billion to the government’s annual tab for debt service.
This month, the Treasury Department’s private-sector advisory committee on debt management warned of the risks ahead.
“Inflation, higher interest rate and rollover risk should be the primary concerns,” declared the Treasury Borrowing Advisory Committee, a group of market experts that provide guidance to the government, on Nov. 4.
“Clever debt management strategy,” the group said, “can’t completely substitute for prudent fiscal policy.”
This story originally appeared in the The New York Times. Click here to see the original version.
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November 20, 2009
Surplus of Ideas
By Jeanne Sahadi, CNNMoney.com senior writer
Unless lawmakers make big changes, the interest Americans will have to pay to keep the country running over the next decade will reach unheard of levels.
Unless lawmakers make big changes, the interest Americans will have to pay to keep the country running over the next decade will reach unheard of levels.
NEW YORK (CNNMoney.com) -- Here's a new way to think about the U.S. government's epic borrowing: More than half of the $9 trillion in debt that Uncle Sam is expected to build up over the next decade will be interest.
More than half. In fact, $4.8 trillion.
If that's hard to grasp, here's another way to look at why that's a problem.
In 2015 alone, the estimated interest due - $533 billion - is equal to a third of the federal income taxes expected to be paid that year, said Charles Konigsberg, chief budget counsel of the Concord Coalition, a deficit watchdog group.
On the bright side - such as it is - the record levels of debt issued lately have paid for stimulus and other rescue programs that prevented the economy from falling off a cliff. And the money was borrowed at very low rates.
But accumulating any more interest on what the United States owes at this point is like extreme sport: dangerous.
All the more so because interest rates will rise when private sector borrowers return to the debt market and compete with the government for capital. At that point, the country's interest payments could jack up very fast.
"When interest rates rise even a small amount, the interest payments go up a lot because of the size of the debt," Konigsberg said.
The Congressional Budget Office, which made the $4.8 trillion forecast, already baked some increase in rates into the cake. But there is always a chance those estimates may prove too conservative.
And then it's Vicious Circle 101 - well known to anyone who has gotten too into hock with Visa and MasterCard.
The country depends heavily on borrowing to fund what it wants to do. But the more debt it racks up, the more likely it becomes that creditors could demand a higher interest rate for making new loans to the government.
Higher rates in turn make it harder to pay off the underlying debt because more and more money is going to pay off interest - money, by the way, which is also borrowed.
And as more money goes to interest, creditors may become concerned that the country can't pay down its principal and lawmakers will have less to fund all the things government is supposed to do.
"[P]olicymakers would be less able to pay for other national spending priorities and would have less flexibility to deal with unexpected developments (such as a war or recession). Moreover, rising interest costs would make the economy more vulnerable to a meltdown in financial markets," the CBO wrote in its most recentlong-term budget outlook.
So far, that crisis of confidence hasn't happened. And no one can predict with any certainty whether or when it could occur.
But should it occur, the change could be abrupt.
That's because the government frequently rolls over - or refinances - the debt it has issued as it comes due.
In other words, when a Treasury bond or note matures, the government must pay the investor the face value on that debt. In order to do that, the Treasury borrows money to pay back the investor, which means the debt would be refinanced at whatever the going interest rates are at the time.
Just how much churn is there? Of late, a fair bit it seems. A Treasury borrowing advisory committee reported in early November that "approximately 40 percent of the debt will need to be refinanced in less than one year."
Since rates may well stay low over the next year, it's possible that debt could be refinanced at the same or even lower rates. But that situation won't last forever.
So what will Washington do?
To help mitigate the potential risk of rising rates, the Treasury has said it would start increasing the average maturity of the new debt it issues. That way the debt it refinances in the next couple of years will be locked in at lower rates for longer periods of time.
And the Obama administration has promised to produce a deficit-reduction plan that would aim to bring down annual deficits to roughly 3% of GDP over the next several years, below the 4% to 5% currently projected.
If that happens, the $4.8 trillion in interest payments that CBO estimates for the next decade could go down if interest rates don't increase as much as CBO expects.
"There will be less debt outstanding than if we don't get the deficit down. It may also reduce [the average interest rate on the debt] since less debt means less pressure on interest rates," said William Gale, co-director of the Tax Policy Center.
But whether they can do that within a few years of an economic recovery is another matter. "Even under the president's [2010] budget as evaluated by the CBO we do not get anywhere close to that," Gale said.
That could mean the president's 2011 budget proposals would have to make a lot of changes to get closer to the 3% goal. Unpopular changes like tax hikes and spending cuts.
Budget hawks hope the president will push for a deficit-reduction commission to come up with ways to cut the deficit and then propose legislation that lawmakers would only be able to vote for or against. The reason: There is no political will to make the tough calls. Especially in a mid-term election year.
More than half. In fact, $4.8 trillion.
If that's hard to grasp, here's another way to look at why that's a problem.
In 2015 alone, the estimated interest due - $533 billion - is equal to a third of the federal income taxes expected to be paid that year, said Charles Konigsberg, chief budget counsel of the Concord Coalition, a deficit watchdog group.
On the bright side - such as it is - the record levels of debt issued lately have paid for stimulus and other rescue programs that prevented the economy from falling off a cliff. And the money was borrowed at very low rates.
But accumulating any more interest on what the United States owes at this point is like extreme sport: dangerous.
All the more so because interest rates will rise when private sector borrowers return to the debt market and compete with the government for capital. At that point, the country's interest payments could jack up very fast.
"When interest rates rise even a small amount, the interest payments go up a lot because of the size of the debt," Konigsberg said.
The Congressional Budget Office, which made the $4.8 trillion forecast, already baked some increase in rates into the cake. But there is always a chance those estimates may prove too conservative.
And then it's Vicious Circle 101 - well known to anyone who has gotten too into hock with Visa and MasterCard.
The country depends heavily on borrowing to fund what it wants to do. But the more debt it racks up, the more likely it becomes that creditors could demand a higher interest rate for making new loans to the government.
Higher rates in turn make it harder to pay off the underlying debt because more and more money is going to pay off interest - money, by the way, which is also borrowed.
And as more money goes to interest, creditors may become concerned that the country can't pay down its principal and lawmakers will have less to fund all the things government is supposed to do.
"[P]olicymakers would be less able to pay for other national spending priorities and would have less flexibility to deal with unexpected developments (such as a war or recession). Moreover, rising interest costs would make the economy more vulnerable to a meltdown in financial markets," the CBO wrote in its most recentlong-term budget outlook.
So far, that crisis of confidence hasn't happened. And no one can predict with any certainty whether or when it could occur.
But should it occur, the change could be abrupt.
That's because the government frequently rolls over - or refinances - the debt it has issued as it comes due.
In other words, when a Treasury bond or note matures, the government must pay the investor the face value on that debt. In order to do that, the Treasury borrows money to pay back the investor, which means the debt would be refinanced at whatever the going interest rates are at the time.
Just how much churn is there? Of late, a fair bit it seems. A Treasury borrowing advisory committee reported in early November that "approximately 40 percent of the debt will need to be refinanced in less than one year."
Since rates may well stay low over the next year, it's possible that debt could be refinanced at the same or even lower rates. But that situation won't last forever.
So what will Washington do?
To help mitigate the potential risk of rising rates, the Treasury has said it would start increasing the average maturity of the new debt it issues. That way the debt it refinances in the next couple of years will be locked in at lower rates for longer periods of time.
And the Obama administration has promised to produce a deficit-reduction plan that would aim to bring down annual deficits to roughly 3% of GDP over the next several years, below the 4% to 5% currently projected.
If that happens, the $4.8 trillion in interest payments that CBO estimates for the next decade could go down if interest rates don't increase as much as CBO expects.
"There will be less debt outstanding than if we don't get the deficit down. It may also reduce [the average interest rate on the debt] since less debt means less pressure on interest rates," said William Gale, co-director of the Tax Policy Center.
But whether they can do that within a few years of an economic recovery is another matter. "Even under the president's [2010] budget as evaluated by the CBO we do not get anywhere close to that," Gale said.
That could mean the president's 2011 budget proposals would have to make a lot of changes to get closer to the 3% goal. Unpopular changes like tax hikes and spending cuts.
Budget hawks hope the president will push for a deficit-reduction commission to come up with ways to cut the deficit and then propose legislation that lawmakers would only be able to vote for or against. The reason: There is no political will to make the tough calls. Especially in a mid-term election year.
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November 16, 2009
Surplus of Ideas
The Obama administration, mindful of public anxiety over the government's mushrooming debt, is shifting emphasis from big-spending policies to deficit reduction. Domestic agencies have been told to brace for a spending freeze or cuts of up to 5 percent as part of a midterm election-year push to rein in record budget shortfalls.
Yet with the economy still in distress and unemployment pushing past 10 percent, prospects for making a dent in a trillion-dollar-plus annual deficit seem slight. And since the Pentagon and Department of Veterans Affairs would likely be shielded from such cuts, overtures toward trimming the deficit may hold more symbolic value than substance.
President Barack Obama is expected to make post-recession spending restraint a key theme of his State of the Union address in January and an important element of the budget he submits to Congress a few weeks later. He is under increasing pressure, including from moderate and conservative members of his own party, to show he is serious about tackling a deficit that has become both an economic and political liability.
Yet with the economy still in distress and unemployment pushing past 10 percent, prospects for making a dent in a trillion-dollar-plus annual deficit seem slight. And since the Pentagon and Department of Veterans Affairs would likely be shielded from such cuts, overtures toward trimming the deficit may hold more symbolic value than substance.
President Barack Obama is expected to make post-recession spending restraint a key theme of his State of the Union address in January and an important element of the budget he submits to Congress a few weeks later. He is under increasing pressure, including from moderate and conservative members of his own party, to show he is serious about tackling a deficit that has become both an economic and political liability.
The Obama administration, mindful of public anxiety over the government's mushrooming debt, is shifting emphasis from big-spending policies to deficit reduction. Domestic agencies have been told to brace for a spending freeze or cuts of up to 5 percent as part of a midterm election-year push to rein in record budget shortfalls.
Yet with the economy still in distress and unemployment pushing past 10 percent, prospects for making a dent in a trillion-dollar-plus annual deficit seem slight. And since the Pentagon and Department of Veterans Affairs would likely be shielded from such cuts, overtures toward trimming the deficit may hold more symbolic value than substance.
President Barack Obama is expected to make post-recession spending restraint a key theme of his State of the Union address in January and an important element of the budget he submits to Congress a few weeks later. He is under increasing pressure, including from moderate and conservative members of his own party, to show he is serious about tackling a deficit that has become both an economic and political liability.
Not since billionaire Ross Perot made budget-balancing the centerpiece of his 1992 third-party presidential bid has so much public concern been voiced over the gulf between what the government spends and what it takes in.
White House budget director Peter Orszag on Friday told The Associated Press it is imperative to start curbing the flow of red ink. But he called it a balancing act and said acting too fast could undercut what appears to be a fledgling economic recovery.
Orszag has said the spending blueprint, for the budget year that begins Oct. 1, 2010, would put the nation "back on a fiscally sustainable path" and suggested it would include a mix of spending cuts and new revenue-producing measures.
Democratic officials in the White House and on Capitol Hill say options for locking in budget savings include caps on the amount of money Congress gets to distribute each year for agency operating budgets. They spoke on condition of anonymity to frankly discuss internal deliberations.
The White House told agencies to submit spending plans that would, at the very least, freeze their budgets, and to prepare for cuts as high as 5 percent. That edict is but one round in internal administration deliberations on the budget. Cabinet heads are sure to seek exemptions, and Orszag warned that firm budget decisions haven't been made.
The administration also is weighing committing to debt reduction any unspent funds from the $700 billion bank bailout program. However, such a move would be largely a bookkeeping shift and not likely to yield much in the way of deficit reduction.
The new emphasis at the White House on deficit-reduction follows last month's report showing the economy surged at a 3.5 percent annual pace in the July-September quarter after contracting for four consecutive quarters. That suggested the recession is likely over -- even though job losses are expected to continue for some time.
Congress will soon vote on legislation to raise the debt ceiling -- the limit on how much the government can borrow -- above the present $12.1 trillion. On Friday, the nation's overall debt stood at $11.99 trillion. Some fiscally conservative lawmakers have said they would not vote for further increases in the debt ceiling until the administration took deficit-cutting steps.
The national debt is the accumulation of annual budget deficits. The deficit for the 2009 budget year, which ended on Sept. 30, set an all-time record in dollar terms at $1.42 trillion.
The flow of red ink has been increased by war spending for Iraq and Afghanistan, recession-fighting stimulus and bank bailout spending and by reduced tax revenues from high unemployment and reduced personal and business income.
Polls show rising public concern over deficits. Exit polls from elections earlier this month showed clear majorities of Virginia and New Jersey voters said they were worried about the direction of the nation's economy. In both states, Republicans won gubernatorial seats that had been held by Democrats.
Republicans are seeking to capitalize on this month's Democratic election setbacks and rising voter concerns over the burst in federal spending. House Minority Leader John Boehner, R-Ohio, said the Democrats' "so-called `war on deficits' comes about a year late and more than a trillion dollars short."
"Spending in Washington has been out of control for years, and instead of changing it as they promised they would, Speaker Nancy Pelosi and President Obama have stepped on the accelerator," Boehner said in a statement.
Pollster Andrew Kohut, director of the Pew Research Center, said increasingly "the percentage of people naming the deficit as a problem is pretty substantial."
"It may be approaching the level of concern we had in the early 1990s when Ross Perot rode that horse for quite some time politically," Kohut said.
Still, politicians have typically avoided politically painful deficit-cutting steps in election years.
Stanley Collender, a budget expert at Qorvis Communications and a former staff aide to House and Senate budget committees, said if the administration could actually accomplish cuts in discretionary spending on the order of 5 percent -- a big "if" -- it would be a notable step toward bringing down deficits.
Despite today's hard times, putting such measures in play sooner rather than later makes sense since they wouldn't take effect until next Oct. 1, when jobs hopefully will be coming back and the economy humming again, Collender said. "It's sort of like an outfielder trying to catch a fly ball. You try to get to where the ball's going to be rather than where it is at that particular moment."
The deficit-cutting drive comes as Obama traveled to Asia where several nations, especially China, have expressed concerns about the size of U.S. deficits. China is the largest foreign holder of U.S. debt and policymakers worry that alarm over deficits could push foreigners into cutting back on their purchases of Treasury securities.
To read the original blog post, please click here: Wary of Rising GOP, Obama Pushes Tiny Budget Cuts
Yet with the economy still in distress and unemployment pushing past 10 percent, prospects for making a dent in a trillion-dollar-plus annual deficit seem slight. And since the Pentagon and Department of Veterans Affairs would likely be shielded from such cuts, overtures toward trimming the deficit may hold more symbolic value than substance.
President Barack Obama is expected to make post-recession spending restraint a key theme of his State of the Union address in January and an important element of the budget he submits to Congress a few weeks later. He is under increasing pressure, including from moderate and conservative members of his own party, to show he is serious about tackling a deficit that has become both an economic and political liability.
Not since billionaire Ross Perot made budget-balancing the centerpiece of his 1992 third-party presidential bid has so much public concern been voiced over the gulf between what the government spends and what it takes in.
White House budget director Peter Orszag on Friday told The Associated Press it is imperative to start curbing the flow of red ink. But he called it a balancing act and said acting too fast could undercut what appears to be a fledgling economic recovery.
Orszag has said the spending blueprint, for the budget year that begins Oct. 1, 2010, would put the nation "back on a fiscally sustainable path" and suggested it would include a mix of spending cuts and new revenue-producing measures.
Democratic officials in the White House and on Capitol Hill say options for locking in budget savings include caps on the amount of money Congress gets to distribute each year for agency operating budgets. They spoke on condition of anonymity to frankly discuss internal deliberations.
The White House told agencies to submit spending plans that would, at the very least, freeze their budgets, and to prepare for cuts as high as 5 percent. That edict is but one round in internal administration deliberations on the budget. Cabinet heads are sure to seek exemptions, and Orszag warned that firm budget decisions haven't been made.
The administration also is weighing committing to debt reduction any unspent funds from the $700 billion bank bailout program. However, such a move would be largely a bookkeeping shift and not likely to yield much in the way of deficit reduction.
The new emphasis at the White House on deficit-reduction follows last month's report showing the economy surged at a 3.5 percent annual pace in the July-September quarter after contracting for four consecutive quarters. That suggested the recession is likely over -- even though job losses are expected to continue for some time.
Congress will soon vote on legislation to raise the debt ceiling -- the limit on how much the government can borrow -- above the present $12.1 trillion. On Friday, the nation's overall debt stood at $11.99 trillion. Some fiscally conservative lawmakers have said they would not vote for further increases in the debt ceiling until the administration took deficit-cutting steps.
The national debt is the accumulation of annual budget deficits. The deficit for the 2009 budget year, which ended on Sept. 30, set an all-time record in dollar terms at $1.42 trillion.
The flow of red ink has been increased by war spending for Iraq and Afghanistan, recession-fighting stimulus and bank bailout spending and by reduced tax revenues from high unemployment and reduced personal and business income.
Polls show rising public concern over deficits. Exit polls from elections earlier this month showed clear majorities of Virginia and New Jersey voters said they were worried about the direction of the nation's economy. In both states, Republicans won gubernatorial seats that had been held by Democrats.
Republicans are seeking to capitalize on this month's Democratic election setbacks and rising voter concerns over the burst in federal spending. House Minority Leader John Boehner, R-Ohio, said the Democrats' "so-called `war on deficits' comes about a year late and more than a trillion dollars short."
"Spending in Washington has been out of control for years, and instead of changing it as they promised they would, Speaker Nancy Pelosi and President Obama have stepped on the accelerator," Boehner said in a statement.
Pollster Andrew Kohut, director of the Pew Research Center, said increasingly "the percentage of people naming the deficit as a problem is pretty substantial."
"It may be approaching the level of concern we had in the early 1990s when Ross Perot rode that horse for quite some time politically," Kohut said.
Still, politicians have typically avoided politically painful deficit-cutting steps in election years.
Stanley Collender, a budget expert at Qorvis Communications and a former staff aide to House and Senate budget committees, said if the administration could actually accomplish cuts in discretionary spending on the order of 5 percent -- a big "if" -- it would be a notable step toward bringing down deficits.
Despite today's hard times, putting such measures in play sooner rather than later makes sense since they wouldn't take effect until next Oct. 1, when jobs hopefully will be coming back and the economy humming again, Collender said. "It's sort of like an outfielder trying to catch a fly ball. You try to get to where the ball's going to be rather than where it is at that particular moment."
The deficit-cutting drive comes as Obama traveled to Asia where several nations, especially China, have expressed concerns about the size of U.S. deficits. China is the largest foreign holder of U.S. debt and policymakers worry that alarm over deficits could push foreigners into cutting back on their purchases of Treasury securities.
To read the original blog post, please click here: Wary of Rising GOP, Obama Pushes Tiny Budget Cuts
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November 16, 2009
Surplus of Ideas
By Jed Graham
Former Congressional Budget Office chief and Bush economic adviser Donald Marron asks for suggestions on his blog about how to drive home the impact of the $1.4 trillion deficit to the general public. It’s an important question.
The difficulty of getting people to care about deficits was on display at Tuesday’s Senate Budget Committee hearing on the need for a bipartisan deficit commission. Here is Chairman Kent Conrad, D-N.D., giving it a shot (pdf):
By Jed Graham
Former Congressional Budget Office chief and Bush economic adviser Donald Marron asks for suggestions on his blog about how to drive home the impact of the $1.4 trillion deficit to the general public. It’s an important question.
The difficulty of getting people to care about deficits was on display at Tuesday’s Senate Budget Committee hearing on the need for a bipartisan deficit commission. Here is Chairman Kent Conrad, D-N.D., giving it a shot (pdf):
“I want to remind everyone of the dramatic deterioration we have seen in our nation’s budget picture. The final deficit total in 2009 was $1.4 trillion — not million, not billion, trillion. That should sober us all — $1.4 trillion. Looking over the next 10 years, we see a sea of red ink.”
Is everyone now sober — or asleep?
There was a lot of talk at the Senate hearing about the U.S. nearing a fiscal tipping point that could lead to catastrophe. Rep. Jim Cooper, D-Tenn., among others, warned that the loss of international confidence in U.S. creditworthiness “could even make the current financial recession look like a sideshow.”
There is surely reason to worry about this worst-case scenario, and we should hope that bipartisan talk of this sort will be enough to spur the public — and Congress — to get serious about fiscal responsibility. But stark warnings may be a poor substitute for tangible evidence. As Morgan Stanley’s Richard Berner noted earlier this year, “The problem, ironically, is that the day of reckoning hasn’t come. This has seriously undermined doomsayers’ credibility and, more importantly, it has made the electorate and elected officials complacent about the threat from unsustainable fiscal policies.”
The problem with vague warnings that carry no clear timetable is the implication that the consequences of high debt levels may be well down the road, whereas the consequences — both political and economic — of doing some about the deficit may be right around the corner.
So what tangible evidence is available? A fairly common technique is to divide federal debt levels by the U.S. population to determine the share for each man, woman and child. Sen. Bayh did this the other day, arriving at a figure of $39,000 per person (pdf).
This approach suggests the potential for an individual to feel the consequences of high debt levels – though only if the country decides to pay back its debt. But no one is talking about paying down debt, and — at least for now — President Obama has promised not to raise taxes on households earning less than $250,000.
What might be the most persuasive evidence to argue for fiscal discipline — the threat of higher interest rates — does not appear to be a clear and present danger in the government scorekeeping that sets the terms of debate in Washington. On the other hand, in the same piece cited above, Morgan Stanley’s Berner noted, “Standard estimates suggest that a 20-point sustained increase in debt/GDP — what we will experience between 2008 and 2010 — will boost real rates by 70-110 basis points.”
By this measure, the difference between a debt level near 40% of GDP in 2008 and a projected 82% of GDP under President Obama’s budget in 2019 would range from a roughly 1.4-percentage-point to 2.2-percentage-point increase in real interest rates, which would be a big deal. Yet CBO offers no similarly clear standard and CBO rate projections don’t appear to factor in a comparably strong impact from projected debt levels.
All this means that making a convincing case for taking fiscal action probably must be done within the context of CBO’s 10-year budget projections, as imperfect as they are. Just a short time ago, this would have been impossible to do. As recently as 2008, CBO projected a balanced budget by 2012 under President Bush’s never-adopted proposals and continued economic growth.
Unfortunately, the budget news has become so bad so fast that the danger of continued big deficits is now readily apparent within this short time frame. As Rep. Cooper put it, “Sadly, the long term is not very far away anymore.”
So what tangible evidence is available within CBO’s projections of President Obama’s budget?
Here is one key datapoint: From 2008 to 2019, federal revenues are projected to grow by $1.45 trillion, but extra interest payments on the public debt of $550 billion will soak up nearly 40% of those extra tax dollars.
Here is another: Consider that in 2008, Washington spent about half as much on interest payments ($253 billion) as it did on the nondefense programs that it budgets on an annual basis ($508 billion).
Those nondefense outlays cover homeland security, education, job training, housing assistance, veterans’ health, science, workplace safety, transportation, the environment and foreign aid.
But by 2019, interest costs would reach $800 billion under the Obama budget compared with $720 billion in spending on nondefense discretionary programs.
From 2008 to 2019, interest costs are projected to grow more than twice as fast as the economy, from 1.8% of GDP to 3.8%. That extra 2% of GDP is roughly equal to the projected cost of Medicaid in 2019.
Meanwhile, spending on those discretionary programs would shrink relative to the size of the economy as interest costs consume 20 cents for every dollar in tax revenue, up from 10 cents in 2008.
All this is before the entitlement crisis turns really ugly in the following decade. And all this is in the president’s budget, which no one has argued presents a picture that is too pessimistic.
To read the original blog post, please click here: The Imact of Trillion Dollar Deficits
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November 15, 2009
Surplus of Ideas
Washington Times
By Tim Mooney
Pass it to restrain Congress' profligate ways
Congress is about to vote to extend America's indebtedness above $12,000,000,000,000 - that's 12 trillion! Our national debt grew last year by more than $1.4 trillion and will grow this year by $1.4 trillion. According to the Obama White House estimates, the national debt will continue to grow by more than $1 trillion for the next nine years. Except it won't ... because it can't.
For years we've heard about the immorality of putting this debt on our grandchildren. Forget the grandchildren, our economy is at grave risk of collapse right now!
By Tim Mooney
Pass it to restrain Congress' profligate ways
Congress is about to vote to extend America's indebtedness above $12,000,000,000,000 - that's 12 trillion! Our national debt grew last year by more than $1.4 trillion and will grow this year by $1.4 trillion. According to the Obama White House estimates, the national debt will continue to grow by more than $1 trillion for the next nine years. Except it won't ... because it can't.
For years we've heard about the immorality of putting this debt on our grandchildren. Forget the grandchildren, our economy is at grave risk of collapse right now!
Washington Times
By Tim Mooney
Pass it to restrain Congress' profligate ways
Congress is about to vote to extend America's indebtedness above $12,000,000,000,000 - that's 12 trillion! Our national debt grew last year by more than $1.4 trillion and will grow this year by $1.4 trillion. According to the Obama White House estimates, the national debt will continue to grow by more than $1 trillion for the next nine years. Except it won't ... because it can't.
For years we've heard about the immorality of putting this debt on our grandchildren. Forget the grandchildren, our economy is at grave risk of collapse right now!
The dollar is in free-fall. The Ponzi scheme Congress calls Social Security is about to collapse. Foreigners are beginning to balk at loaning the U.S. government more money. That grave economic turmoil our debt and deficit will cause in the future - it's now here.
Beyond threatening our economic security, our national debt is imperiling our national independence. We now owe foreign entities $3.448 trillion - 28.2 percent more than just 12 months ago!
Three of the five largest holders of U.S. debt should cause you sleepless nights. We owe China the most, $797 billion - 38.9 percent more than we did just 12 months ago. We owe Oil Exporting Countries $189.2 billion - 11.5 percent more than just 12 months ago. And we owe Caribbean Banking Centers (thought to hold billions in narco-terrorist money) $180.2 billion - 35.5 percent more than just 12 months ago. Japan and the United Kingdom round out the top five foreign debt holders, with our debt to the U.K. increasing an astonishing 173 percent in just the last 12 months.
Can we really expect China to increase its lending to the United States by nearly 40 percent next year and each of the next nine years? Even if it wanted to, the United Kingdom doesn't have the cash to increase its lending to the United States by another 173 percent next year.
Any one of these debt holders could put the U.S. economy in collapse overnight by selling or even just threatening to sell off their U.S. debt holdings.
We owe them ... they own us! Clearly, our national independence is in grave risk.
The federal government also owes Social Security and Medicare $4.5 trillion. With the economic downturn, Social Security doled out more money than it took from employees' paychecks for the first time this year. By 2016 - just seven years from now - according to the Social Security Trustees report, Social Security will move from surplus to permanent deficit as the baby boomers retire. (That "lockbox" presidential candidates like to talk about has never existed. The Social Security Ponzi scheme makes Bernard Madoff look like a wayward kid shoplifting a pack of gum.)
If we do not balance the budget by the time Social Security moves to permanent deficit in 2016, we almost assuredly will not without a cataclysmic economic crisis.
What's the solution? A balanced budget constitutional amendment. History has shown Congress simply won't act responsibly unless the voters force them to balance the budget. With great voter pressure, Congress came within 1 Senate vote of passage of the balanced budget amendment in 1996 - and the Congress passed balanced budgets each of the next four years.
When support for the balanced budget amendment waned, Congress spent like crazy.
A balanced budget amendment is the only cure to a Congress unwilling to control spending. In fact, Germany passed such a law just last year.
That's why we launch this week DeficitFree.com - a national push for a Balanced Budget Amendment by July 4, 2013, and a balanced federal budget by July 4, 2016. These would be the two best birthday gifts we could give our country!
Our first and immediate goal is to bring together 5 million Balanced Budget Amendment supporters by July 4, 2010, with a minimum of 5,000 from each congressional district. You can join the movement. This nonpartisan movement is being launched by some of America's most successful grass roots activists - not Washington politicians.
We need 5 million voters to work together to ensure the Balanced Budget Amendment becomes the most prominent issue in the 2010 congressional races and in the 2012 presidential contest.
If we don't, it won't be our grandchildren who will suffer the economic collapse of our country and our loss of national independence. It will be us!
Tim Mooney is a nationally recognized grass-roots political consultant and national coordinator of DeficitFree.com.
By Tim Mooney
Pass it to restrain Congress' profligate ways
Congress is about to vote to extend America's indebtedness above $12,000,000,000,000 - that's 12 trillion! Our national debt grew last year by more than $1.4 trillion and will grow this year by $1.4 trillion. According to the Obama White House estimates, the national debt will continue to grow by more than $1 trillion for the next nine years. Except it won't ... because it can't.
For years we've heard about the immorality of putting this debt on our grandchildren. Forget the grandchildren, our economy is at grave risk of collapse right now!
The dollar is in free-fall. The Ponzi scheme Congress calls Social Security is about to collapse. Foreigners are beginning to balk at loaning the U.S. government more money. That grave economic turmoil our debt and deficit will cause in the future - it's now here.
Beyond threatening our economic security, our national debt is imperiling our national independence. We now owe foreign entities $3.448 trillion - 28.2 percent more than just 12 months ago!
Three of the five largest holders of U.S. debt should cause you sleepless nights. We owe China the most, $797 billion - 38.9 percent more than we did just 12 months ago. We owe Oil Exporting Countries $189.2 billion - 11.5 percent more than just 12 months ago. And we owe Caribbean Banking Centers (thought to hold billions in narco-terrorist money) $180.2 billion - 35.5 percent more than just 12 months ago. Japan and the United Kingdom round out the top five foreign debt holders, with our debt to the U.K. increasing an astonishing 173 percent in just the last 12 months.
Can we really expect China to increase its lending to the United States by nearly 40 percent next year and each of the next nine years? Even if it wanted to, the United Kingdom doesn't have the cash to increase its lending to the United States by another 173 percent next year.
Any one of these debt holders could put the U.S. economy in collapse overnight by selling or even just threatening to sell off their U.S. debt holdings.
We owe them ... they own us! Clearly, our national independence is in grave risk.
The federal government also owes Social Security and Medicare $4.5 trillion. With the economic downturn, Social Security doled out more money than it took from employees' paychecks for the first time this year. By 2016 - just seven years from now - according to the Social Security Trustees report, Social Security will move from surplus to permanent deficit as the baby boomers retire. (That "lockbox" presidential candidates like to talk about has never existed. The Social Security Ponzi scheme makes Bernard Madoff look like a wayward kid shoplifting a pack of gum.)
If we do not balance the budget by the time Social Security moves to permanent deficit in 2016, we almost assuredly will not without a cataclysmic economic crisis.
What's the solution? A balanced budget constitutional amendment. History has shown Congress simply won't act responsibly unless the voters force them to balance the budget. With great voter pressure, Congress came within 1 Senate vote of passage of the balanced budget amendment in 1996 - and the Congress passed balanced budgets each of the next four years.
When support for the balanced budget amendment waned, Congress spent like crazy.
A balanced budget amendment is the only cure to a Congress unwilling to control spending. In fact, Germany passed such a law just last year.
That's why we launch this week DeficitFree.com - a national push for a Balanced Budget Amendment by July 4, 2013, and a balanced federal budget by July 4, 2016. These would be the two best birthday gifts we could give our country!
Our first and immediate goal is to bring together 5 million Balanced Budget Amendment supporters by July 4, 2010, with a minimum of 5,000 from each congressional district. You can join the movement. This nonpartisan movement is being launched by some of America's most successful grass roots activists - not Washington politicians.
We need 5 million voters to work together to ensure the Balanced Budget Amendment becomes the most prominent issue in the 2010 congressional races and in the 2012 presidential contest.
If we don't, it won't be our grandchildren who will suffer the economic collapse of our country and our loss of national independence. It will be us!
Tim Mooney is a nationally recognized grass-roots political consultant and national coordinator of DeficitFree.com.
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November 14, 2009
Surplus of Ideas
Examiner.com
If President Obama gets the health care bill passed, he might move onto deficit reduction next year, according to POLITICO. To put the level of spending in perspective, here is one stat about spending that really jumps out:
On the practical side, Obama has spent more money on new programs in nine months than Bill Clinton did in eight years, pushing the annual deficit to $1.4 trillion. This leaves little room for big spending initiatives.
If President Obama gets the health care bill passed, he might move onto deficit reduction next year, according to POLITICO. To put the level of spending in perspective, here is one stat about spending that really jumps out:
On the practical side, Obama has spent more money on new programs in nine months than Bill Clinton did in eight years, pushing the annual deficit to $1.4 trillion. This leaves little room for big spending initiatives.
Examiner.com
If President Obama gets the health care bill passed, he might move onto deficit reduction next year, according to POLITICO. To put the level of spending in perspective, here is one stat about spending that really jumps out:
On the practical side, Obama has spent more money on new programs in nine months than Bill Clinton did in eight years, pushing the annual deficit to $1.4 trillion. This leaves little room for big spending initiatives.
This might mean that cap and trade is not viable, at least for next year:
For starters, the White House has not dropped plans for an aggressive global warming bill early next year that will be loaded with new spending on green technology and jobs – that would be paid for with tax increases. Democratic lobbyist Steve Elmendorf says the White House focus on deficit reduction could easily kill the cap-and-trade effort. “I think this means cap-and-trade has to go to the backburner,” he said.
The administration may have to bet on whether voters are serious about holding Congress accountable for high deficits. Hopefully,"deficit reduction" will not be a charade similar to earlier this year when Obama asked cabinet secretaries to cut $100 million apiece from their budgets, which is pocket change in the federal budget. There are probably not any significant spending cuts which could receive bipartisan support next year, and the Democratic majority seems to be in a spending mood.
The Obama administration might decide that the risk of having a steadily climbing unemployment rate trumps the risk of having high deficits, and push forward for more programs to aid the economy. From a political standpoint, that could make a lot of sense, and it is a calculation made in previous administrations. In that sense, it might be a rare area of agreement between Obama and Dick Cheney (Cheney said in 2002 that Reagan proved "deficits don't matter").
Still, the important development is not that there will be any cuts, but that some major initiatives might get delayed, and possibly put off for good. It would be wise for everyone to expect, absent an unexpectedly quick economic recovery, that deficits will stay above $1 trillion a year for the foreseeable future and that there will not be any major push to cut them next year.
President-Elect Obama, promising to cut wasteful spending in November 2008:
If President Obama gets the health care bill passed, he might move onto deficit reduction next year, according to POLITICO. To put the level of spending in perspective, here is one stat about spending that really jumps out:
On the practical side, Obama has spent more money on new programs in nine months than Bill Clinton did in eight years, pushing the annual deficit to $1.4 trillion. This leaves little room for big spending initiatives.
This might mean that cap and trade is not viable, at least for next year:
For starters, the White House has not dropped plans for an aggressive global warming bill early next year that will be loaded with new spending on green technology and jobs – that would be paid for with tax increases. Democratic lobbyist Steve Elmendorf says the White House focus on deficit reduction could easily kill the cap-and-trade effort. “I think this means cap-and-trade has to go to the backburner,” he said.
The administration may have to bet on whether voters are serious about holding Congress accountable for high deficits. Hopefully,"deficit reduction" will not be a charade similar to earlier this year when Obama asked cabinet secretaries to cut $100 million apiece from their budgets, which is pocket change in the federal budget. There are probably not any significant spending cuts which could receive bipartisan support next year, and the Democratic majority seems to be in a spending mood.
The Obama administration might decide that the risk of having a steadily climbing unemployment rate trumps the risk of having high deficits, and push forward for more programs to aid the economy. From a political standpoint, that could make a lot of sense, and it is a calculation made in previous administrations. In that sense, it might be a rare area of agreement between Obama and Dick Cheney (Cheney said in 2002 that Reagan proved "deficits don't matter").
Still, the important development is not that there will be any cuts, but that some major initiatives might get delayed, and possibly put off for good. It would be wise for everyone to expect, absent an unexpectedly quick economic recovery, that deficits will stay above $1 trillion a year for the foreseeable future and that there will not be any major push to cut them next year.
President-Elect Obama, promising to cut wasteful spending in November 2008:
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November 12, 2009
Surplus of Ideas
by George Will
WASHINGTON -- One of the many television commercials exhorting viewers to buy gold says solemnly that it is an asset whose value "has never dropped to zero," a boast that surely sets a record for minimalism. Still, the world's appetite for gold as an investment option is intensifying.
WASHINGTON -- One of the many television commercials exhorting viewers to buy gold says solemnly that it is an asset whose value "has never dropped to zero," a boast that surely sets a record for minimalism. Still, the world's appetite for gold as an investment option is intensifying.
by George Will
WASHINGTON -- One of the many television commercials exhorting viewers to buy gold says solemnly that it is an asset whose value "has never dropped to zero," a boast that surely sets a record for minimalism. Still, the world's appetite for gold as an investment option is intensifying. Last month, India purchased 200 tons of gold at $1,045 an ounce, before the price topped $1,108 on Monday. China, too, may increasingly diversify from paper -- i.e., bonds -- into gold, the price of which, some experienced investors believe, could soar to $2,500 an ounce in three to five years. One reason for all this is U.S. behavior.
India's 2008 GDP was $1.2 trillion, so its $6.7 billion purchase was small beer. It may, however, be a large portent: Gold increasingly looks to investors to be a more reliable store of value than governments' bonds are, especially U.S. bonds as the U.S. government threatens to pile a mammoth health care entitlement onto the nation's Ponzi welfare state, increasing the nation's debt and borrowing.
The fiscal year 2009 budget deficit, triple that of 2008, was 10 percent of GDP and, Lawrence Lindsey says, probable policies will produce deficits of 7 percent of GDP for a decade. Ronald Reagan's worst deficit was 6 percent of GDP, and for only one year.
Lindsey -- former member of the Federal Reserve board of governors and director of George W. Bush's National Economic Council (2001-02) -- says Americans' net worth has dropped at least $13 trillion since the recession began in December 2007. What is to be done?
Americans could suddenly begin saving substantially more, but this would deepen and prolong the recession. Alternatively, America could reflate the value of its assets by printing money. Lindsey says it is already doing that -- printing bonds promiscuously and lending money to banks at negligible rates, money banks can use to buy the bonds. This sharply increases the money supply, which sets the stage either for inflation -- too much money chasing too few goods. Or for recovery-snuffing higher interest rates to try to prevent inflation. Or for something like Japan's lost decade -- banks pouring money into government bonds rather than the real economy.
America, says Lindsey, will not become Weimar Germany, where hyperinflation caused people to rush to stores with satchels of rapidly depreciating currency. But, he adds, no country has successfully behaved the way the United States is behaving.
Suppose, he says, you owned some U.S. Treasury bonds or other dollar-denominated assets, and you were sitting in front of two buttons, one marked Buy More, the other marked Sell. Which button would you push? Obviously, Sell.
Fortunately, Lindsey says, there is so much U.S. paper circulating, every owner cannot hit Sell at the same time. But if enough people, institutions or nations sell, others will not buy unless U.S. interest rates rise substantially, which can ignite a vicious cycle -- killing economic growth, thereby depressing revenues and increasing the deficit and borrowing.
Irwin Stelzer of the Hudson Institute notes that China, America's largest creditor, has increased its dollar holdings 20 percent this year, so China has increased its interest in not having the dollar devalued by mass selling. But, Stelzer adds, China thinks geopolitically as well as economically, and might have noneconomic reasons for encouraging a controlled flight from the dollar.
A cataclysmic event -- say, an interruption of the flow of Middle Eastern oil -- could, Stelzer says, cause the world to flee to the safety of even a depreciating dollar. But absent such an event, the world will be carefully watching a U.S. government that has a powerful incentive to try to use controlled inflation for the slow-motion repudiation of some of its mountain of new debt.
It is, however, hubris -- something abundant in Washington -- to think inflation can be precisely controlled, like an oven's temperature. It is hubris cubed to think inflation can be unleashed just short of provoking a flight from the dollar.
Perhaps Federal Reserve Chairman Ben Bernanke knows how to sop up the trillions of new dollars before inflation ignites. But will he? He knows about "the recession within the Depression" that occurred in 1937, perhaps as a result of premature confidence in a recovery.
Furthermore, he may feel duty-bound to try to use loose money to help reduce unemployment. But although the Fed has suddenly assumed stupendous powers, it still has one sovereign duty -- to preserve the currency as a store of value.
To Read Full Article See Below
http://townhall.com/columnists/GeorgeWill/2009/11/12/a_gold_standard_on_debt?page=full
WASHINGTON -- One of the many television commercials exhorting viewers to buy gold says solemnly that it is an asset whose value "has never dropped to zero," a boast that surely sets a record for minimalism. Still, the world's appetite for gold as an investment option is intensifying. Last month, India purchased 200 tons of gold at $1,045 an ounce, before the price topped $1,108 on Monday. China, too, may increasingly diversify from paper -- i.e., bonds -- into gold, the price of which, some experienced investors believe, could soar to $2,500 an ounce in three to five years. One reason for all this is U.S. behavior.
India's 2008 GDP was $1.2 trillion, so its $6.7 billion purchase was small beer. It may, however, be a large portent: Gold increasingly looks to investors to be a more reliable store of value than governments' bonds are, especially U.S. bonds as the U.S. government threatens to pile a mammoth health care entitlement onto the nation's Ponzi welfare state, increasing the nation's debt and borrowing.
The fiscal year 2009 budget deficit, triple that of 2008, was 10 percent of GDP and, Lawrence Lindsey says, probable policies will produce deficits of 7 percent of GDP for a decade. Ronald Reagan's worst deficit was 6 percent of GDP, and for only one year.
Lindsey -- former member of the Federal Reserve board of governors and director of George W. Bush's National Economic Council (2001-02) -- says Americans' net worth has dropped at least $13 trillion since the recession began in December 2007. What is to be done?
Americans could suddenly begin saving substantially more, but this would deepen and prolong the recession. Alternatively, America could reflate the value of its assets by printing money. Lindsey says it is already doing that -- printing bonds promiscuously and lending money to banks at negligible rates, money banks can use to buy the bonds. This sharply increases the money supply, which sets the stage either for inflation -- too much money chasing too few goods. Or for recovery-snuffing higher interest rates to try to prevent inflation. Or for something like Japan's lost decade -- banks pouring money into government bonds rather than the real economy.
America, says Lindsey, will not become Weimar Germany, where hyperinflation caused people to rush to stores with satchels of rapidly depreciating currency. But, he adds, no country has successfully behaved the way the United States is behaving.
Suppose, he says, you owned some U.S. Treasury bonds or other dollar-denominated assets, and you were sitting in front of two buttons, one marked Buy More, the other marked Sell. Which button would you push? Obviously, Sell.
Fortunately, Lindsey says, there is so much U.S. paper circulating, every owner cannot hit Sell at the same time. But if enough people, institutions or nations sell, others will not buy unless U.S. interest rates rise substantially, which can ignite a vicious cycle -- killing economic growth, thereby depressing revenues and increasing the deficit and borrowing.
Irwin Stelzer of the Hudson Institute notes that China, America's largest creditor, has increased its dollar holdings 20 percent this year, so China has increased its interest in not having the dollar devalued by mass selling. But, Stelzer adds, China thinks geopolitically as well as economically, and might have noneconomic reasons for encouraging a controlled flight from the dollar.
A cataclysmic event -- say, an interruption of the flow of Middle Eastern oil -- could, Stelzer says, cause the world to flee to the safety of even a depreciating dollar. But absent such an event, the world will be carefully watching a U.S. government that has a powerful incentive to try to use controlled inflation for the slow-motion repudiation of some of its mountain of new debt.
It is, however, hubris -- something abundant in Washington -- to think inflation can be precisely controlled, like an oven's temperature. It is hubris cubed to think inflation can be unleashed just short of provoking a flight from the dollar.
Perhaps Federal Reserve Chairman Ben Bernanke knows how to sop up the trillions of new dollars before inflation ignites. But will he? He knows about "the recession within the Depression" that occurred in 1937, perhaps as a result of premature confidence in a recovery.
Furthermore, he may feel duty-bound to try to use loose money to help reduce unemployment. But although the Fed has suddenly assumed stupendous powers, it still has one sovereign duty -- to preserve the currency as a store of value.
To Read Full Article See Below
http://townhall.com/columnists/GeorgeWill/2009/11/12/a_gold_standard_on_debt?page=full
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November 11, 2009
Surplus of Ideas
ST. PAUL, Minn. - Governor Tim Pawlenty has proposed a constitutional amendment to ensure the state has a balanced budget.
The proposed amendment would tie state spending to the revenues raised in the previous state budget. Currently the legislature and the governor base their future budgets on revenue forecasts provided by State Economist Tom Stinson. Pawlenty contends that often times the forecasts are wrong or often times may change providing less money than is available to spend.
The proposed amendment would tie state spending to the revenues raised in the previous state budget. Currently the legislature and the governor base their future budgets on revenue forecasts provided by State Economist Tom Stinson. Pawlenty contends that often times the forecasts are wrong or often times may change providing less money than is available to spend.
ST. PAUL, Minn. - Governor Tim Pawlenty has proposed a constitutional amendment to ensure the state has a balanced budget.
The proposed amendment would tie state spending to the revenues raised in the previous state budget. Currently the legislature and the governor base their future budgets on revenue forecasts provided by State Economist Tom Stinson. Pawlenty contends that often times the forecasts are wrong or often times may change providing less money than is available to spend.
"Basing legally binding spending commitments on guesses about revenue is like building a house on shifting sand," said Pawlenty.
DFL Senate Tax Committee Chairman Tom Baak said, "We're going to reach out to the governor and take the proposal very seriously in the senate tax committee."
Senate Majority Leader Larry Pogemiller also promised a serious look at the proposal. "We're looking at a $5-7 Billion ice berg. And if this helps us deal with that, then we'd like to consider it. However, Pogemiller said the governor has never proposed a state budget of his own that met his new criteria.
The governor's proposed wording of the constitutional amendment is as follows:
"Shall the Minnesota Constitution be amended to require that the state government general fund expenditures be limited to the amount of actual general fund revenues received by the state in the previous two-year budget period?"
Check out MyFox9.com
The proposed amendment would tie state spending to the revenues raised in the previous state budget. Currently the legislature and the governor base their future budgets on revenue forecasts provided by State Economist Tom Stinson. Pawlenty contends that often times the forecasts are wrong or often times may change providing less money than is available to spend.
"Basing legally binding spending commitments on guesses about revenue is like building a house on shifting sand," said Pawlenty.
DFL Senate Tax Committee Chairman Tom Baak said, "We're going to reach out to the governor and take the proposal very seriously in the senate tax committee."
Senate Majority Leader Larry Pogemiller also promised a serious look at the proposal. "We're looking at a $5-7 Billion ice berg. And if this helps us deal with that, then we'd like to consider it. However, Pogemiller said the governor has never proposed a state budget of his own that met his new criteria.
The governor's proposed wording of the constitutional amendment is as follows:
"Shall the Minnesota Constitution be amended to require that the state government general fund expenditures be limited to the amount of actual general fund revenues received by the state in the previous two-year budget period?"
Check out MyFox9.com
Carl E. Ockert, xtathdta, Pharmd94, …
17
- I think that there is a typo error in the reported wording of the Pawlenty balanced budget proposal, in that the expenditures for one fiscal year should be limited to the receipts received by the state is the previous fiscal year, (not the previous two-year period). This is the same as the proposal that I made on page 29 of my book, Compassion and Common Sense,published in 1980. (Although out of print, the book is still available from Amazon, or from me directly.)
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