Fibonacci

This is the most important isssue of our generation. IMO - history won't be kind to Dubya's legacy of fiscal profligacy. If we don't hold our "leadership" in Washington accountable, we are all doomed to a much dimmer future.

Many may think from my previous threads that I am a doomsayer, but the mainstream media is finally catching on to what I've been preaching: We've got to get our fiscal house in order.


A 'fiscal hurricane' on the horizon
By Richard Wolf, USA TODAY
WASHINGTON — The comptroller general of the United States is explaining over eggs how the nation's finances are going to hell.
"We face a demographic tsunami" that "will never recede," David Walker tells a group of reporters. He runs through a long list of fiscal challenges, led by the imminent retirement of the baby boomers, whose promised Medicare and Social Security benefits will swamp the federal budget in coming decades.

The breakfast conversation remains somber for most of an hour. Then one reporter smiles and asks, "Aren't you depressed in the morning?"

Sadly, it's no laughing matter. To hear Walker, the nation's top auditor, tell it, the United States can be likened to Rome before the fall of the empire. Its financial condition is "worse than advertised," he says. It has a "broken business model." It faces deficits in its budget, its balance of payments, its savings — and its leadership.

Walker's not the only one saying it. As Congress and the White House struggle to trim up to $50 billion from the federal budget over five years — just 3% of the $1.6 trillion in deficits projected for that period — budget experts say the nation soon could face its worst fiscal crisis since at least 1983, when Social Security bordered on bankruptcy.

Without major spending cuts, tax increases or both, the national debt will grow more than $3 trillion through 2010, to $11.2 trillion — nearly $38,000 for every man, woman and child. The interest alone would cost $561 billion in 2010, the same as the Pentagon.

From the political left and right, budget watchdogs are warning of fiscal trouble:

• Douglas Holtz-Eakin, director of the non-partisan Congressional Budget Office, dispassionately arms 535 members of Congress with his agency's stark projections. Barring action, he admits to being "terrified" about the budget deficit in coming decades. That's when an aging population, health care inflation and advanced medical technology will create a perfect storm of spiraling costs.

• Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, sees a future of unfunded promises, trade imbalances, too few workers and too many retirees. She envisions a stock market dive, lost assets and a lower standard of living.

• Kent Conrad, a Democratic senator from North Dakota, points to the nation's $7.9 trillion debt, rising by about $600 billion a year. That, he notes, is before the baby boom retires. "We're not preparing for what we all know is to come," he says. "We're all sleepwalking through this period."

• Stuart Butler of the conservative Heritage Foundation projects a period from now until 2050 in which tax revenue stays stable as a share of the economy but Medicare, Medicaid and Social Security spending soars. To avoid big tax increases, he says the government has to "renegotiate" the social contracts it made with its citizens.

• Alice Rivlin and Isabel Sawhill of the centrist Brookings Institution put their pessimism into a book titled Restoring Fiscal Sanity. Rivlin, who became the first director of the Congressional Budget Office in 1974, says it will take an "economic scare" such as the 1987 stock market crash to spur action. Sawhill likens the growing gulf between what the government spends and takes in to a "Category 6 fiscal hurricane."

'The Fiscal Wake-Up Tour'

They are the preachers of doom and gloom. Liberals and conservatives, Democrats and Republicans, they are trying to be heard above the ka-ching of the cash register as it tallies the cost of government benefits and tax cuts, Iraq and Hurricane Katrina. To raise their profile in recent months, several have traveled together to places such as Richmond, Va., and Minneapolis for what they call a "Fiscal Wake-Up Tour."

Leon Panetta, former White House budget director and chief of staff to President Clinton, calls them "disciples of balanced budgets. ... And at some point, they'll be proven right."

The White House and Congress are trying to address the nation's short-term budget deficits, but their response pales against the size of the long-term problem. President Bush proposed nearly $90 billion in savings over five years in his 2006 budget. He also tried to trim future Social Security benefits for wealthier recipients. The Senate this month approved $35 billion in savings over five years. House Republicans tried to save more than $50 billion last week, but objections from moderates stalled action. Either way, the savings could be wiped out by $70 billion in proposed tax cuts.

The budget-cutting effort is being led by conservatives, who recoiled when Congress quickly voted to spend $62 billion after Hurricane Katrina struck New Orleans and the Gulf Coast. "Katrina served as a wake-up call," Walker says.

In prior years, facing a less imminent demographic explosion, Congress cut in politically agonizing increments of $500 billion over five years. Bush's father gave up his "no new taxes" campaign pledge in 1990. After Ross Perot focused attention on the deficit in his 1992 presidential campaign, Clinton and the Democratic-run Congress raised taxes even more in 1993. Clinton and the Republican-run Congress forced two government shutdowns before agreeing on a deficit-reduction package in 1997.

In each case, cutting the deficit backfired at the polls. The elder Bush lost re-election, the Democrats lost Congress, and Republicans' obstinacy helped Clinton win a second term. "The choices you have to make are almost exactly the opposite of what wins political elections," Panetta says.

The problem is also easy for Congress to postpone because the day of reckoning is years away. This year's deficit was $319 billion, down $94 billion from the year before. That's 2.6% of the nation's economy, an amount easily borrowed from foreign investors.

From 'Grenada' to 'Vietnam'

But there is every reason to act — and soon. Budget watchdogs cite these looming problems:

• Prescription-drug coverage under Medicare takes effect Jan. 1. Its projected cost, advertised at $400 billion over 10 years when it passed in 2003, has risen to at least $720 billion. "We couldn't afford" it, Walker says of the new law.

• The leading edge of the baby boom hits age 62 in 2008 and can take early retirement. The number of people covered by Social Security is expected to grow from 47 million today to 69 million in 2020. By 2030, the Congressional Budget Office projects, Social Security spending as a share of the U.S. economy will rise by 40%.

• The bulk of Bush's 10-year, $1.35 trillion tax-cut program is set to expire at the end of 2010. But Congress is moving to make the reductions permanent. That would keep tax revenue at roughly 18% of the economy, where it's been for the past half-century — too low to support even current spending levels. "We can't afford to make all the tax cuts permanent," Walker says.

• Baby boomers begin to reach age 65 in 2011 and go on Medicare. Of all the nation's fiscal problems, this is by far the biggest. If it grows 1% faster than the economy — a conservative estimate — Medicare would cost $2.6 trillion in 2050, after adjusting for inflation. That's the size of the entire federal budget today.

"Social Security is Grenada," Holtz-Eakin says. "Medicare is Vietnam."

Inaction could have these consequences, experts say: Higher interest rates. Lower wages. Shrinking pensions. Slower economic growth. A lesser standard of living. Higher taxes in the future for today's younger generation. Less savings. More consumption. Plunging stock and bond prices. Recession.

Some veterans of the deficit-cutting wars are pessimistic about avoiding disaster. "In the end, CBO and others are no more than speed bumps on the highway of fiscal irresponsibility," says Robert Reischauer, former Congressional Budget Office director and now president of the non-partisan Urban Institute.

'Where's Ross Perot?'

The gloom-and-doom crowd hopes to avoid that fate. Increasingly in recent months, they are traveling the country, writing and speaking out about the need to cut spending, raise taxes — or both.

The most outspoken is Walker, an impeccably dressed CPA whose 15-year term as head of the Government Accountability Office runs through 2013. He was a conservative Democrat, then a moderate Republican, and is now an independent. He's also a student of history, a Son of the American Revolution who lives on Virginia property once owned by George Washington.

Walker's agency churns out reports with titles such as "Human Capital: Selected Agencies Have Opportunities to Enhance Existing Succession Planning and Management Efforts." But he knows he must try to humanize the numbers, and his rhetoric on the nation's fiscal course has become more acerbic. "Anybody who says you're going to grow your way out of this problem," Walker says, "would probably not pass math."

Holtz-Eakin, a soft-spoken economist who said Monday he will leave CBO at the end of the year, takes a different approach. Less prone to giving speeches, he sees his role as a consultant and truth-sayer to Congress. "Numbers are the currency of the realm in Washington," he says, and most agree his agency has the best in town. But he concedes, "Sometimes it falls to the consultant to tell the client the bad news."

Holtz-Eakin's father was in steel, a cyclical business rocked by strikes and shutdowns. "I thought, 'This is nuts. No one should live like this,' " he says. That explains why he wants the government to prepare for new demands on its New Deal and Great Society benefit programs. "The baby boom has been getting older one year at a time with a striking regularity," he says.

MacGuineas is the outside agitator. An independent, she worked for Sen. John McCain's presidential campaign in 2000. She respects politicians who deliver bad news, as presidential candidate Walter Mondale did in 1984 when he said tax increases were inevitable — and then was defeated in 49 states.

"I want to see a presidential election where the candidates are talking about what taxes they'll raise and what spending they'll cut," she says. "It's not always a winning campaign slogan."

Conrad ran for the Senate in 1986 promising to reduce the budget deficit or quit after six years. By 1992, the deficit had hit an all-time high, and he said he would not seek re-election. Only the death of North Dakota's other senator kept him in Congress.

The former state tax commissioner has been doing this longer than other congressional budget officials — and he has the most charts. He's so numbers-oriented that at baseball games, he can instantly compute a hitter's average after each at-bat. "Numbers speak to me in a way that they don't speak to others," he says. "I guess it's the way my brain is wired."

Sawhill and Butler, from opposite ends of the political spectrum, lead a group of about 15 budget experts at Washington think tanks who gather periodically to discuss their dour crusade. Aided by Walker and the non-partisan Concord Coalition, a fiscal watchdog group, they have taken their show on the road.

Butler, a native of Britain, witnessed there in the 1960s and '70s the effects of slow growth and high unemployment, driven partly by generous government benefits. "We have a responsibility" to start the debate, he says, "because we don't have to get re-elected." But Sawhill says it's "an indictment of our political leadership that it is being left to outside groups such as ours to put these issues on the agenda."

After three decades in the business, Rivlin is frustrated by lawmakers' inaction and blames balanced-budget advocates for not better articulating the problem. "There may be better ways to talk about it," she says. "I sometimes think, 'Where's Ross Perot when we need him?' "


http://www.usatoday.com/news/washing...ne-cover_x.htm

Fibonacci

Dubya: try to invade sovereign nations when you're choking on debt. Bon Apetit!

SpeedyV6

Aside from money market funds and foreign ADR's, what should one invest in if he expects such an economic tsunami?

Fibonacci

Great question. Cash is king - MMKT's are an obvious safe haven at almost 4.00%

But as for foreign ADR's, I'm not sure that's a safe haven. Because the US is the global consumer of last resort, if we experience a downturn, it will most likely have global ramifications.

As for economic tsunamis, it's not going to happen overnight - you'll see it coming. If Warren Buffet says that it's a stretch to expect 6 percent returns in the equity markets - why not buy high quality short term bonds at 4.5 - 5 percent and reduce your risk exposure.

I'm still debating about where to place personal funds. Right now I'm 50% cash.

SpeedyV6

Barton Biggs uesed to warn of a severe downturn and sharp deflationary pressures. I can't remember what investments he was touting but he was a perennial doomsayer.

Fibonacci

Add Alan Greenspan to your doomsayer list...

Investors Are in for a Shock
Financial assets are richly priced. That means returns are likely to be far worse than most people expect.
By Shawn Tully

On Aug. 26, Alan Greenspan delivered a valedictory speech in balmy Jackson Hole, Wyo., that contained a wintry warning. Investors, the Fed chairman intoned, normally demand a substantial “risk premium”—a high return in exchange for taking a chance that they may lose money. Now, though, investors “accept increasingly low compensation for risk.” They are acting, he said, as if owning stocks or houses has suddenly become much less uncertain than it has been over the past century. Under these conditions, he concluded, “any onset of investor caution elevates risk premiums and lowers asset values. History has not dealt kindly with the aftermath of low risk premiums.”

The chairman’s chilling words attracted scant attention, but investors should treat them as holy writ. Greenspan spotlights a problem that everyone from Wall Street gurus spouting happy talk on CNBC to homebuilders touting the “new paradigm” in real estate choose to ignore. Let’s translate his warning into plain language: Most investments are extremely expensive right now if measured against historical norms. At best, people who buy at today’s levels are in for a sustained period of subpar returns, perhaps 4% or 5% annually, after inflation. That’s because the best predictor of future gains is the price you pay. “High prices and low risk premiums today mean low returns tomorrow,” says Cliff Asness, an economist who runs AQR Capital, a $17 billion hedge fund. The more dire alternative is a steep fall in prices that makes everything from the S&P 500 to homes what they aren’t today—that is, great investments.

Greenspan’s argument rests on the idea of the risk premium—the extra return (over a supersafe investment like Treasury bills) that investors have traditionally received for putting their money in peril. For stocks, the risk premium equals the expected real (inflation adjusted) return on a broad portfolio of shares, minus the real interest rate. To calculate the risk premium that stock investors are getting today, we turned to Asness. For expected return, Asness uses the earnings yield on the S&P 500—earnings per share divided by price—adjusted for cyclical swings in profits. Asness pegs today’s earnings yield at 4.3%.

To derive the real interest rate, Asness takes today’s ten-year Treasury yield of 4.6% and subtracts the average inflation rate over the past five years, 2.7%, to get a real rate of 1.9%. So today’s risk premium is the 4.3% expected return minus the 1.9% real interest rate, or 2.4%. That’s about half the 5% margin that stocks have delivered for the past 80 years. So investors aren’t getting the usual extra bang for holding equities.

The question is whether investors will remain satisfied with that 2.4% edge. It’s conceivable that a combination of lower transaction costs and enlightened monetary policy has sharply cut the risk of owning stocks. If so, it would make sense for stock investors to accept lower returns. On the other side of the scale is the weight of history: Whenever risk premiums have fallen to today’s piddling lows, they’ve always bounced back to far higher levels.

How far would prices have to drop to bring the risk premium up to normal levels? In a 2002 paper, professors Kenneth French of Dartmouth and Eugene Fama of the University of Chicago estimate that stock market investors would accept a premium of 4%. To reach that figure today, the expected return would have to climb to 5.9%. That would require the market's P/E ratio to fall to 16.9, which would work out to a 27% decline in the S&P 500.

But the fall could be much worse. That's because interest rates are still far below their customary levels. Since 1965, real interest rates have averaged 2.8%, half again as high as today's 1.9% figure. If the risk premium goes to 4% and real rates return to the norm, the stock market's average P/E would drop to 14.7 and prices would plunge 37%.

Indeed, the dramatic drop in real rates helped ignite the boom in asset prices. But rates have almost doubled since late 2004. Real rates under 2% just aren't sustainable,?says Mark Zandi of Economy.com. As the economy expands, demand for capital will rise. That will push up real rates and push down asset prices.?

What about seeking refuge in other asset classes? The situation is no better and arguably worse. Let뭩 start with fixed income. For corporate bonds, the risk premium is simply the spread between the yields on corporates and T-bills. Today investment-grade issues pay less than one percentage point more than comparable Treasuries, about half the recent average. Junk bonds yield only two to three points more than Treasuries, vs. the customary four to five points.

Real estate is also saddled with a shrunken risk premium. For nearly every type of property, the 밹ap rate,?or yield—the net rental income divided by the market price—is at an all-time low. On apartment buildings it stands at 5.5% to 6%, vs. its historical average of 8% to 9%. Today's prices ... don't reflect the true risk,?says Gleb Nechayev, an economist with Boston real estate forecasting firm Torto Wheaton Research.

What can a prudent investor do? Steer clear of real estate and fixed income. It뭩 likely that yields from both will be far better a year from now than they are today. But investing selectively in stocks could prove fruitful, if you follow these rules: First, buy value stocks—those trading at a discount to their peers based on earnings growth or book value. These stocks tend to boast far bigger earnings yields than the market as a whole, and hence are better shielded from the kind of drastic repricing likely to pummel high P/E stocks. Second, dividends are good: Companies that pay big dividends actually increase their earnings far faster than those that don't, mainly because they are more prudent with their scarce cash.

Third, hold down fees. In a low-return world those 1.5% mutual fund charges really hurt. It's best to go with index funds. Fourth, market timing isn뭪 all bad. That doesn't mean you should become a day trader. But when prices are at the extremes, as they are today, it's best to keep a lot of cash on hand so you can jump back in when P/Es drop and the risk premium returns to normal. Will it happen? When Greenspan is moved to issue an unambiguous warning, who are you gonna believe—Wall Street touts or the wrinkly wizard?


http://www.fortune.com/fortune/inves...romoid=preview

Fibonacci

For those of you who insist on cliff's notes:

Reebok AMG

I'm very under-educated when it comes to politics and I'm just learning more and more about how economies work and whatnot.. But I want to learn more.

Didn't Clinton actually have us in a surplus for a couple of years? Did that benefit us? Or is it better to be in a deficit? And how exactly (what measures and policies) did we achieve a budget surplus?

It seems like China, which is supposed to be growing at an incredible rate, and Japan, which is finally rebounding from its last recession, all operate on surpluses.

Is the only reason that we've fallen so deeply into debt because of the war in Iraq?

Fibonacci

Yes. 1998-2001.

Yes.

No.

Clinton rode the back of the Internet bubble, low inflation, falling long-term interest rates and the hard won decision of tax increases (George HW Bush), as well as a Republican Congress who held spending constraints in place.

Trade surpluses, yes.

Japan, has a budget deficit though - larger as a percentage of GDP than the US. However, much of Japan debt is held by Japanese savers whereas most of US debt is held by foreigners.

One of many reasons...Bush tax cuts, pork barrel spending, medicare benefits, etc...

Fibonacci

Greenspan Says Budget Gap May Have `Severe' Effects
2005-12-02 13:50 (New York)


By Scott Lanman and Craig Torres
Dec. 2 (Bloomberg) -- Federal Reserve Chairman Alan Greenspan
warned of the damaging consequences of widening budget deficits on
U.S. growth in two speeches today even as he said the economy is
currently expanding ``at a reasonably good pace.''
Rising retirement and medical costs are major threats that
loom over a ``positive'' outlook for the economy, Greenspan said in
a videotaped speech shown at a Philadelphia conference today. In a
second speech in London, Greenspan said a ``pernicious drift toward
fiscal instability'' may lead to a ``painful'' adjustment of the
record deficit in the current account, the widest measure of trade.
Today's speeches are among the final opportunities for
Greenspan, 79, to discuss two favorite topics: the U.S. deficits in
the budget and the current account. Greenspan retires Jan. 31. His
comments suggest the budget deficit is the greater risk while the
trade and investment gap may ease in time if the U.S. economy stays
flexible and attractive to overseas investment.
``Crafting a budget strategy that meets the nation's longer-
run needs will become more difficult the more we delay,'' Greenspan
said in his Philadelphia remarks. ``In the end, the consequences
for the U.S. economy of doing nothing could be severe.''
The Fed chairman said the U.S. economy ``has delivered a solid
performance thus far in 2005.'' Even after the disruptions from the
hurricanes, ``economic activity appears to be expanding at a
reasonably good pace as we head into 2006.''

Economic Reports

Greenspan said future economic growth will be determined in
part by the state of the budget, including meeting the demands of
the Social Security retirement system and rising costs for
government health care programs.
In neither speech did Greenspan discuss in detail the current
state of the economy, which added 215,000 jobs in November, the
biggest gain since July. Fed officials meet Dec. 13, and all 68
economists surveyed by Bloomberg News expect the benchmark interest
rate to be raised by a quarter percentage point for a 13th straight
meeting. The economy grew at a 4.3 percent annual rate from July to
September, the quickest pace since the first quarter of last year,
the Commerce Department said this week.
Treasury Secretary John Snow said the next federal budget
would take a strict approach to so-called discretionary spending,
or programs that Congress must approve each year.
``It is going to be a tough-minded, stringent budget,'' Snow
said in an interview with CNBC. ``It is going to go after
discretionary spending hard.''
Retirement and healthcare usually don't fall into that
category of spending because they are considered to be
``entitlements.''

Budget Gap

The deficit narrowed by $94 billion in the fiscal year ended
Sept. 30 to $318.6 billion. President George W. Bush has pledged to
cut the deficit to the equivalent of about 2.25 percent of the
economy by 2009 after tax cuts and spending increases pushed the
gap to 3.5 percent of gross domestic product, or a record $412.8
billion, a year earlier.
Economists at Goldman Sachs & Co. and Lehman Brothers Inc. say
rising federal spending and slower growth in tax receipts may wipe
out most or all of last year's improvement in the deficit. Lehman's
Drew Matus predicts the deficit will rise to $425 billion in the
current fiscal year.
The Fed chairman didn't comment on interest rates or inflation
in either speech.
Greenspan will retire after the Fed's January rate-setting
meeting, when his non-renewable term on the Board of Governors
ends. His successor, White House economic adviser Ben Bernanke,
told Congress last month that he doesn't intend to comment on
specific budget issues.

Investment Theories

In his London speech today, Greenspan refined his theories on
how a rising tendency by governments, individuals and corporations
to invest beyond their borders is helping America finance growing
debt. That may also explain why the trade and investment deficit
hasn't pushed the dollar lower so far, he noted.
``The reason the historically large U.S. current-account
deficit has not been placing persistent pressure on the exchange
rate of the U.S. dollar, at least to date, is that the deficit is a
reflection of far broader and long-standing financial development
in the United States and elsewhere,'' Greenspan said.
Those developments include the freer flow of money worldwide
and a rising preference by investors to direct their money
overseas. Greenspan said this reduction in ``home bias'' by
investors has channeled more money to the U.S. and helped the
country to finance its current-account deficit.

Current Account

Roger Kubarych, senior economic adviser at HVB America Inc.
in New York said the current-account deficit, which was equal to
6.3 percent of the economy in the second quarter, is ``high for the
U.S. and by any country's standards.'' He spoke in an interview.
Greenspan suggested the deficit may gradually ease.
Greenspan saved his harshest comments for the budget deficit
and said spending cuts, not tax increases, are the best way to
close the gap.
``Tax increases of sufficient dimension to deal with our
looming fiscal problems arguably pose significant risks to economic
growth,'' he said. Such risks are ``sufficiently worrisome to
warrant aiming, if at all possible,'' to use mainly spending cuts
to close the gap.
Greenspan cited projections from the White House Office of
Management and Budget that spending on Social Security, Medicare
and Medicaid will rise to 9.5 percent of the economy in 2015 and
about 13 percent in 2030 from 8 percent in the current fiscal year.
If healthcare costs outpace economic growth, ``they will exert
budget pressures that seem increasingly likely to make current
fiscal policy unsustainable,'' he said.

Healthcare Costs

``The soaring cost of medical care for an aging population is
certain to place enormous demands on our nation's resources and to
exert pressure on the budget that economic growth alone is unlikely
to eliminate,'' Greenspan said. Such deficits will ``cast an ever-
larger shadow over the growth of living standards.''
The Fed chairman said rules that automatically limit spending,
deal with ``unanticipated budget outcomes'' and let Congress
regularly assess the cost of programs may help narrow the budget
deficit.
The current account, Greenspan's other topic today, is the
broadest measure of trade because it includes income from
investments and transfer payments. The gap last year widened to a
record $665.9 billion from $530.7 billion and totaled $195.7
billion in the second quarter.
The U.S. finances the current-account deficit by borrowing
from overseas. Although yields on U.S. Treasury notes are less than
1 percentage point above annual inflation, foreign investors
continue to buy U.S. assets.
``Most policy makers marvel at the seeming ease with which the
United States continues to finance its current-account deficit,''
Greenspan said in London. ``At some point, foreign investors will
balk at a growing concentration of claims against U.S. residents,
even if rates of return on investment in the United States remain
competitively high.''
The Fed chairman suggested it is difficult to predict when
that will occur because ``globalization is changing many of our
economic guideposts.''

source: bloomberg.com

Fibonacci

I have a bet with one of our foreign exchange traders that CAN$ will hit parity with USD this year. It's a stretch, I know, but certainly within the realm of possibility. For all the clowns in Wash DC who were yelping about the Yuan peg to the dollar -- file this one under: "be careful what you wish for, you might just get it."

NSXNEXT

iTrader: (2)

User Profile:

User Name: PistonFan
Average # of words per post: 9,999,999,999

You should be required to submit cliff notes with every post you make. j/k

M TYPE X

User Name: PistonFan
Average # of original words per post: 2.4
Average # of articles clipped from Bloomberg newswires per post: 1.2
Original thoughts per post: 0.4
Original Bloomberg thoughts per post: 0

Those of you not using the metric system can round up or down to the nearest whole integer.

<= would link to the WSJ constantly if they didn't require membership to view articles

Fibonacci

User Name: M TYPE X
Average # of original words per post: way too many smarmy/choppy 'iamageniusreallybutnotreallyandicantgetlaidsoispe ndfridayandsaturdaynightsonacurazinemakingreallyla methreadssoicansatisfymyoutsizedego'
Average # of articles clipped from Bloomberg system per post: not enough (since Bloomberg is used by finance professionals around the globe - not numbskulls.)


Now, back to topic...

Greenspan Leaves Legacy of Prosperity Saddled by Debt (Update1)
2006-01-26 10:31 (New York)


(Adds Greenspan consulting firm in third to last paragraph.)

By Rich Miller
Jan. 26 (Bloomberg) -- Investors will be living with Federal
Reserve Chairman Alan Greenspan's legacy -- rising prosperity and
soaring debt -- long after he's gone.
Greenspan, who retires on Jan. 31, leaves an economy that
during the last decade enjoyed the lowest inflation and best
productivity growth in 40 years. It is also saddled with record
borrowing and a housing market that Yale University economist
Robert Shiller last year called the biggest property bubble ever.
Greenspan, 79, has acknowledged the economy's speculative
excesses during his years at the Fed, pointing to ``froth'' in the
housing market and an unsustainable trade deficit. Whether those
excesses unwind benignly, as Greenspan has suggested, or unnerve
financial markets and plunge the economy into recession, may
determine how the Fed chairman is judged by history.
``It will take at least 10 years to see the full effects of
the Greenspan era,'' said Edward Chancellor, author of ``Devil Take
the Hindmost: A History of Financial Speculation.''
During Greenspan's 18 1/2 years atop the Fed, the U.S. endured
only two recessions, both lasting less than a year, and enjoyed the
longest economic expansion in U.S. history. In the prior 18 years,
the economy experienced four downturns, including the two worst
recessions since the 1930s.

`Steady Hand'

A lifelong Republican, Greenspan won praise from Democrats,
too. ``He was a steady hand,'' former President Bill Clinton, who
re-nominated Greenspan as Fed chairman in 2000, said in a September
interview. ``He minimized the bad times and let the good times
roll.''
Alan Blinder, a Democrat who was Fed vice chairman from June
1994 to January 1996, called Greenspan ``the greatest central
banker who ever lived'' in a paper in August.
Emboldened in part by the buoyant Greenspan economy, Americans
have taken greater risks with their finances and increased
borrowing. U.S. household debt rose to $11 trillion, or 87 percent
of the economy, in the third quarter of last year, from $2.7
trillion, or 58 percent of the economy, in 1987, when Greenspan
took office. That helped fuel a 55 percent rise in house prices in
the last five years.
Much of the money Americans are spending has been borrowed
from other countries, causing the deficit in the current account,
the widest measure of trade, to rise seven-fold in the last 10
years.

Homeowners

Greenspan sees links between the imbalances in housing and
U.S. trade. As house prices soared, homeowners tapped into the
equity they built through mortgage refinancing, home-equity loans
and outright sales of their property. They have used some of that
money to buy imports, pushing up the trade deficit.
Exactly how much more consumers spend when their housing wealth
increases -- and how much they'll cut back when it falls -- is an
open question, even within the Fed.
The Fed's computer models show a small change. For every $100
increase in wealth, whether through higher prices for stocks,
houses or other means, consumers spend about $3.50 more than they
would have otherwise, according to the models.
Greenspan sees potentially bigger effects from housing. In a
paper published in September with Fed staff economist James
Kennedy, the chairman said borrowing against housing added $600
billion to consumer spending in 2004, equal to 7 percent of
personal disposable income. If he's right, and the housing market
cools, consumer spending may plunge.
``We are in the biggest real-estate boom we've ever seen,''
Shiller said in August. ``Something is going to happen to end
this.''

Stealth Bomber

Greenspan is optimistic the economy will adjust to a slower
housing market. He has likened the U.S. economy to a Stealth B-2
bomber, a once-secret aircraft shaped like a flying wedge. While
the B-2 is inherently unstable, an on-board computer system makes
small, constant adjustments to the wing flaps to keep it on course.
With the economy, it's the markets that perform that role,
according to Greenspan.
``Individual prices, exchange rates and interest rates adjust
incrementally in real time to restore balance,'' he told the
Italian American Foundation in a speech last October.
Fed officials are counting on stepped-up business investment
to take up some of the slack from a slowdown in consumer spending
and fewer home sales. Cash and other liquid assets held by
corporations were equal to 43 percent of their short-term
liabilities in the third quarter, just below the 45-year high of
44.3 percent set in 2004's fourth quarter.
``The fundamentals for business investment in equipment and
software look quite sound,'' Richmond Fed President Jeffrey Lacker
said Jan. 20.

From Bubble to Bubble

Some private economists aren't so sanguine. ``We've gone from
one bubble, in stocks, to another, in housing,'' said Stephen
Roach, chief global economist for Morgan Stanley in New York. It is
only a matter of time before the economy suffers a downdraft as
housing prices fall and consumers curb spending, he said.
Financial historian Chancellor agrees. ``I can't see there is
any bigger bubble to inflate to help the economy through'' this
time, said Chancellor, who also writes for BreakingViews, an on-
line financial commentary service.
Research by Goldman, Sachs & Co. in New York suggests a
stagnant housing market, in which prices grow in line with
inflation, may slow economic growth to a 2.5 percent annual rate
later this year from about 3.6 percent in 2005. Much of the
slowdown would come from a cut in consumer spending as homeowners
extract less cash from their houses, Goldman's analysis showed.
Economists surveyed by Bloomberg News earlier this month
expect the economy to grow by 3.5 percent this year as employers
add jobs and the unemployment rate stays below 5 percent.

Greenspan's Choices

The economy's strengths and weaknesses today began with
Greenspan's choices a decade ago, said James Glassman, senior U.S.
economist at JP Morgan Securities in New York.
``We are where we are because of the decisions Greenspan
made,'' he said.
When unemployment fell in the mid 1990s, Greenspan resisted
the standard central banker's response: raise interest rates to
contain inflation. He was convinced, he said later, that
productivity growth was accelerating, even though the figures
didn't show it. Productivity did rise, allowing the economy to grow
faster without fanning inflation, leading to the longest expansion
in U.S. history.
A few years later, Greenspan again resisted raising interest
rates, this time to rein in a soaring stock market. He waited for
the bubble to pop, then sheltered the economy by cutting interest
rates to a 45-year low of 1 percent in 2003. It's that low rate
that helped fuel the rise in mortgage borrowing and housing prices.

Not Disappearing

As he prepares to leave the Fed, Greenspan won't drop out of
sight. He will open a consulting firm, a person familiar with the
situation said. The company will specialize in economic analysis,
although details of the arrangement have not been completed.
Greenspan also plans to write a book and give lectures and will
avoid sitting on corporate boards.
Aware of the rigors of the Fed job, he won't be commenting on
how his nominated successor, Ben Bernanke, is doing. That may not
matter because the economy and Bernanke will be coping with the
consequences of Greenspan's tenure for some time.
``The final chapter of Greenspan's legacy has not been
written,'' said Paul Kasriel, director of economic research for
Northern Trust Securities in Chicago. ``Maybe it will work out
fine, but maybe not.''

source: bloomberg.com

Fibonacci

Bush's Low-Cost Borrowing `Comes Home to Roost' as Rates Rise
2006-02-06 00:17 (New York)


By Alison Fitzgerald and Kevin Carmichael
Feb. 6 (Bloomberg) -- President George W. Bush has increased
the national debt 45 percent while cutting the share of the
budget spent on interest by almost a third. That's about to
change as borrowing costs go up.
Bush benefited from the combination of economic expansion,
low interest rates and strong foreign demand for Treasury
securities as the national debt ballooned to more than $8
trillion from $5.6 trillion at his inauguration in January 2001.
Declining rates allowed interest expense to drop to 14.2 percent
of the budget in fiscal 2005 from 20.2 percent in fiscal 2000.
``Up until now, rising debt has been offset by a falling
interest rate,'' says Brad Setser, an economist at Roubini Global
Economics in New York. ``Now, debt is still rising and the
interest rate is no longer falling. The consequence of rising
debt will no longer be masked.''
The Treasury's interest costs are poised to jump after the
Federal Reserve's 14 consecutive rate increases, a record supply
of U.S. debt and signs that international investors are losing
their appetite for U.S. government securities, say strategists
such as Chris Rupkey of Bank of Tokyo-Mitsubishi and Lou Crandall
of Wrightson ICAP LLS, both of them based in New York.
``Federal interest costs are rising very rapidly,'' Crandall
says. ``Much of the debt that the government issues is short-term
debt, and that's all being repriced at progressively higher
interest rates.''
About 23 percent of the Treasury's $4.1 trillion in
marketable securities matures in less than a year, and almost
half matures in three years or less. Only 12 percent are 30-year
bonds, the smallest percentage since at least 1980, according to
Treasury figures. This week the Treasury is selling $14 billion
in 30-year bonds, the first to be offered by the U.S. government
since August 2001.

Bush's Budget

Bush will present Congress today with a fiscal 2007 budget
that the Congressional Budget Office estimates will have a
deficit of at least $270 billion before adding on costs of the
war in Iraq and rebuilding of the Gulf Coast after last year's
hurricanes. CBO projects the deficit for fiscal 2006, which ends
Sept. 30, will widen to as much as $360 billion from last year's
$319 billion.
Bush has boosted federal discretionary spending more than
any president in the last 40 years on an inflation adjusted
basis, according to the Cato Institute, a Washington-based
research group that advocates low taxes and small government.
Interest expense on the federal debt was $352.4 billion in
the fiscal year ended last Sept. 30, compared with $362 billion
in fiscal 2000. An increase in the government's interest costs to
21 percent of the total budget, the level that prevailed through
most of the 1990s, would add $200 billion to annual interest
expenditures, according to CBO figures.

Higher Yields Forecast

The CBO forecasts that 3-month Treasury yields will rise to
an average 4.5 percent in 2007 from 2.7 percent in 2005, while
10-year yields will average 5.2 percent next year, up from 4.2
percent last year. If Treasury sells the same $89 billion in 10-
year notes in 2007 that it did in 2005, interest expense will be
$900 million higher each year on those notes alone.
If interest rates are 1 percentage point higher than CBO's
forecast, interest expense would rise $10 billion, the budget
office said.
``The major run-up in borrowing from 2001 to 2003 is coming
home to roost,'' says Stephen Stanley, chief economist at RBS
Greenwich Capital in Greenwich, Connecticut. ``Even if the
deficit is roughly stable over the next several years, Treasury
will have to borrow more.''

More Pessimistic

Investors became more pessimistic about the $4 trillion
Treasury market in January, a JPMorgan Chase & Co. survey showed.
JPMorgan's sentiment index fell to minus 34 in the week ended
Jan. 31 from minus 20 on Dec. 20, the last survey done in
December.
The first signs of higher borrowing costs may come this
quarter with the sale of a record $188 billion of Treasury
securities. That may cut the price of government debt and boost
the interest the Treasury has to offer to make the securities
attractive to investors.
This week, the Treasury is selling $48 billion worth of
notes and bonds and $37 billion in bills, which will bring the
government close to the $8.14 trillion debt limit set by
Congress. Treasury Secretary John Snow has asked Congress to
boost the limit so the government can continue to fund its
operations beyond mid-march.

Soaring Yields?

``The huge amount of new Treasury debt on tap could be the
factor that sends bond yields soaring,'' Rupkey says.
``Foreigners have had an insatiable appetite for U.S. securities,
and this demand has helped to explain the low-yields. But even
these overseas investors may not be able to take down all the
debt that the Treasury is offering.''
Treasury yields have been held down in part because of
demand by overseas investors, including foreign central banks
that use dollars as their reserve currency. Investors abroad held
$2.17 trillion of the $4.19 trillion of marketable U.S.
securities outstanding in November.
Snow says he's confident higher debt costs won't be a burden
on the federal budget. ``Borrowing costs still by historical
standards are at the lower end of the historic range and the will
continue to be at the lower end of the historic range,'' he told
reporters last week in Pennsylvania. ``There will be some
increase as indicated by the rising debt level, but interest
rates continue to be low by historical standards.''

`Not a Big Thing'

If rates rise to slightly higher than 5 percent, ``it's not
a big thing,'' says Charles Schultze, a senior fellow emeritus at
the Brookings Institution in Washington.
Even as the Federal Reserve has raised its target overnight
rate since June 2004, the yield on the 10-year Treasury note
dropped to 4.51 percent from 4.68 percent.
After the Fed's latest rate increase, on Jan. 31, 10-year
yields jumped to the highest since early December. On Feb. 3, 10-
year notes yielded 4.53 percent.
Traders are pricing in an 88 percent chance the Fed will
raise its benchmark rate to 4.75 percent at its next meeting on
March 28, up from 46 percent on Jan. 5, according to interest-
rate futures. Traders raised bets on the odds of an increase at
the following meeting on May 10 to 38 percent, from no chance at
the end of last week.
The Cato Institute's Stephen Slivinski says the likeliest
prospect is for more borrowing that will push interest costs even
higher. ``The short-term budget is exacerbated by interest costs
going up,'' says Slivinski, director of budget studies at the
Washington-based research organization. ``There's no specific
policy, or interest in saying, `If we have higher interest
payments we need to cut the budget elsewhere.'''

source: bloomberg

Fibonacci

Who's spending big now? The 'party of small government'


Say you're in a financial hole. You're spending more money than you're taking in — $4,000 this year alone. After much effort, you figure out ways to save $400 in the next five years. Would you then turn around, spend double that amount and put yourself deeper in debt?
Probably not — unless, that is, you were a member of Congress running for re-election this year and you get to spend other people's money. Add eight zeros to the numbers in the example above, and you'll get an idea of the shell game going on in Washington.

The federal budget deficit will be in the range of $400 billion this year. That means roughly $1 in every $6 spent by the government will be borrowed money. So a few weeks ago, with great self-congratulatory fanfare, Congress passed and the president signed what was billed as a $40 billion, five-year deficit reduction. Now Congress is weighing tax-cut packages that would wipe out those projected savings almost twice over.

The House of Representatives already has passed a five-year, $70 billion package of goodies that focuses on extending reduced rates for those taxpayers who have dividend and capital-gain income. The Senate pushed through a similarly unaffordable plan. President Bush is seeking to make permanent all of his 2001 tax cuts, some of which are set to expire.

In truth, Uncle Sam doesn't have the money to do any of this.

In early 2001, when the federal government was running a surplus, a case could be made for a modest tax cut. But Bush and Congress went overboard, slashing taxes by an announced $1.35 trillion over 10 years but with gimmicks likely to push the actual cost well beyond $2 trillion. Then came 9/11, the wars in Afghanistan and Iraq, and Hurricane Katrina, all put on the federal charge card. The surplus was wiped out and replaced with record deficits.

The first law of holes is that when you're in one, stop digging. So the fiscally responsible policy would be to roll back some of the tax cuts, particularly those for the wealthiest Americans, or let them expire. But no. Bush and congressional Republicans won't hear of it.

Tax cuts, they say, force hard decisions and restrain reckless spending. The last time we looked, though, Republicans controlled both Congress and the White House. They are the spenders. In fact, since they took control in 2001, they've increased spending by an average of nearly 7.5% a year, more than double the rate in the last five years of Clinton-era budgets.

The irony is that their irresponsibility eventually will force tax increases. In the end, debts have to be paid — but only after the current crew no longer has to worry about getting elected.

The overall national debt amounts to nearly $75,000 hanging over every household in the nation. Meanwhile, the cost of servicing the debt rises, squandering $250 billion a year. Only the Pentagon, Social Security and Medicare cost more.

In the past, particularly during times of war, the nation's leaders have asked Americans to sacrifice in the name of the nation's well-being. And the public has done so, however unenthusiastically. These days, the message from the White House and Congress seems to be: "Party on!"


http://www.usatoday.com/news/opinion...our-view_x.htm

SakiGT

While I was reading the articles this is exactly what I was thinking.

I bet that if you actually made it through at least one of those articles you are better off than the average person anyways.

We seriously need an ostrich/hole in ground smiley.

mrsteve

iTrader: (1)

If the "don't post a complete article without sufficient commentary" rule is in effect in R&P and by and large these articles are related to our government's fiscal responsibility... why doesn't that rule apply to this thread and why isn't this in R&P?

Fibonacci

Bush, Congress Make a Farce of the Debt Ceiling: John M. Berry
2006-02-23 00:07 (New York)


(Commentary. John M. Berry is a Bloomberg News columnist.
The opinions expressed are his own.)

By John M. Berry
Feb. 23 (Bloomberg) -- The scary, totally unfunny debt
ceiling farce is playing once again in Washington.
With the federal government debt about to hit the $8.18
trillion legal limit, the Treasury Department last week suspended
sales of special securities bought by state and local governments
so that regular auctions of Treasury bills and notes could
continue.
More such steps undoubtedly will have to be taken in coming
weeks until Congress screws up the courage to increase the debt
limit. At some point next month, Treasury will run out of such
stop-gap measures and regular securities auctions may have to be
postponed.
F. Ward McCarthy of Stone & McCarthy noted that Treasury
officials said they were confident Congress would act ``because
it would be in `nobody's interest' to fail to do so.''
``Let's hope that this confidence is not misplaced, because
it could be very disruptive,'' McCarthy told his clients on Feb.
17. ``While it was in nobody's good interest, prior debt ceiling
impasses have resulted in Congress orchestrating intentional
delays in passing increases in the debt ceiling, temporary
increases in the debt ceiling, interruptions to the Treasury
financing calendar, the threat of government shutdowns, and the
attachment of questionable parasitic legislation to increases in
the debt ceiling.''
The problem, of course, is that voting to increase the debt
ceiling is approving profligate behavior, even though they have
little choice because of earlier tax and spending decisions.

Alternate Reality

The reality is that taxes and spending are badly out of
whack, and hardly anyone -- certainly neither President George W.
Bush nor Vice President Richard Cheney -- wants to admit it. If
the White House won't acknowledge what's happening, why should an
ordinary member of Congress?
Instead, Bush continues to push Congress to extend earlier
tax cuts that lowered the maximum personal income tax rate on
dividends and long-term capital gains to 15 percent. Those cuts
are set to expire at year-end.
Meanwhile, Cheney, in a Feb. 9 speech, called for extending
not just that pair of rate cuts, but all of the Bush-era cuts
that under current law would expire in 2010.
``In the last five years, the Bush tax relief has left $880
billion in the hands of American workers, investors, small
businesses, and families,'' Cheney said. ``They have used it to
help produce more than four years of uninterrupted economic
growth.''
``Yet the tax relief is set to expire in the next several
years. So if we do nothing, Americans will face a massive tax
increase. That would be counterproductive, it would be
irresponsible, it would be bad for the economy. Congress needs to
make the Bush tax cuts permanent,'' he said.

Less Is More

Irresponsible? Bad for the economy?
Not nearly as irresponsible as Cheney's claim in the speech
that ``despite forecasts to the contrary, the tax cuts have
translated into higher federal revenues.''
The vice president clearly wanted his listeners to assume
that the higher federal revenues were due to the tax cuts, not
some other factor.
In fact, total federal receipts in fiscal year 2005 were
higher than in each of the prior two years. On the other hand,
receipts as a share of gross domestic product were only 17.5
percent last year. Except for fiscal 2003 and 2004, that was the
lowest share at any time since 1992.

`Nobody's Perfect'

And since most of the cuts involved personal income taxes,
the more telling comparison is in those receipts as a share of
GDP. In fiscal 2005, individual income tax receipts were equal to
just 7.5 percent of GDP. Again, except for the prior two years,
that was the lowest share in 29 years.
In the speech, Cheney went on to say that receipts from
capital gains taxes rose after the maximum rate was cut to 15
percent, even though a revenue decline had been predicted.
``Nobody's perfect, but when revenue projections are off by
180 degrees, it's time to reexamine our assumptions and to
consider using more dynamic analysis to measure the true impact
of tax cuts on the American economy,'' Cheney said.
Actually, many tax economists have long agreed that cutting
capital-gains tax rates can temporarily raise revenue through the
``unlocking effect.'' That is, taxpayers who have unrealized
capital gains may be encouraged to sell the appreciated assets
given the reduction in tax liability.
Unfortunately, that's largely a one-time gain. There is no
reason to expect revenues to be permanently higher. If capital
gains tax rates are cut in half, then realizations would have to
be permanently twice as great in the future to keep revenue from
declining.

Analyze This

Nevertheless, the administration is greatly enamored with
the notion that tax cuts can more or less pay for themselves. For
instance, the fiscal 2007 Bush budget would create a new Dynamic
Analysis Division within the Treasury Department, at a cost of
more than a half-million dollars, to analyze major tax proposals
along those lines.
Analyze? Why waste the money?
As Cheney said in the speech, ``The evidence is in, it's
time for everyone to admit that sensible tax cuts increase
economic growth and add to the federal treasury.''
What if you don't want to increase growth because the
economy might be nearing full employment? That's more than a
passing concern at the Federal Reserve right now, as officials
there keep raising interest rates to make sure inflation stays
under control.

May Not Last

If tax cuts were a good way to stimulate the economy after
the 2001 recession hit, might raising taxes be a good way to help
restrain it when needed? Certainly the tight fiscal policies and
budget surpluses of the late 1990s helped the Fed keep interest
rates lower than they otherwise would have been.
And then there is the fundamental issue of balancing
revenues and spending. At the moment, investors and analysts seem
largely unperturbed by large continuing deficits, presumably
because other forces are helping keep interest rates low.
That's not likely to be the case indefinitely, and Federal
Reserve Chairman Ben S. Bernanke gave this warning in his
congressional testimony on Feb. 15.
``I am concerned about the prospective path of deficits,''
Bernanke said. ``I believe that that does reduce national savings
and therefore imperils, to some extent, the future prosperity of
our country and increases the burden that'll be faced by our
children and grandchildren.''
Bush and Cheney should keep it in mind.

source: bloomberg

Fibonacci

U.S. Feb. Budget Deficit Widens to Record $119.2 Bln
2006-03-10 14:32 (New York)

By Kevin Carmichael and Vincent Del Giudice
March 10 (Bloomberg) -- The U.S. government recorded the
biggest budget deficit ever for a single month in February as tax
receipts dwindled and costs for hurricane recovery and the Iraq war
climbed, the Treasury Department said.
February's $119.2 billion deficit compares with a $113.9
billion shortfall a year ago and follows surpluses in December and
January. Spending rose 8 percent from February 2005 to $232.1
billion, while revenue rose 11.9 percent to $112.9 billion.
Government revenue tends to lag in February because taxpayers
are claiming refunds and companies aren't facing quarterly tax
deadlines, Treasury spokeswoman Brookly McLaughlin said in an
interview. The seasonal downturn magnifies a deteriorating budget
picture, with President George W. Bush's administration predicting
a record deficit of $423 billion this year.
``The red ink was a one-month record in February, and the
records are likely to continue to be broken this year,'' said Chris
Rupkey, an economist at Bank of Tokyo-Mitsubishi in New York. ``The
spending side of the budget ledger remains out of control, despite
some effort to constrain these expenditures.''
Economists predicted a $118.3 billion deficit, the median of
30 estimates in a survey by Bloomberg News. The back-to-back
surpluses in the previous two months were the first consecutive
gains since December 2002 and January 2003.
February has been the weakest month for revenue each of the
last three years, and the February 2005 deficit was a record.
This year's figures ``are typical for this point in the tax
season,'' McLaughlin said. ``We are at a point where a lot of tax
refunds are going out and we generally don't' see a great number of
tax payments coming in until later in the filing season.''

Bush's Budget

Bush last month sent Congress a record $2.77 trillion budget
request for the fiscal year starting Oct. 1. His budget would
shrink Medicare and other entitlement spending by $65 billion over
five years as defense and homeland security outlays rise.
The $354 billion deficit forecast for fiscal 2007 is equal to
about 3.2 percent of the economy, an increase from $318 billion, or
2.6 percent of gross domestic product, in the fiscal year that
ended Sept. 30. The record shortfall was equal to 5.9 percent of
GDP in 1983.
``We are getting increasingly concerned that the
administration's forecast of a $400 billion budget deficit this
year will mean higher long-term yields, which could well put the
economic expansion since 2001 in jeopardy,'' Rupkey said.

Treasuries

The yield on the 10-year Treasury note rose 3 basis points, or
0.03 percentage point, to 4.76 percent at 2:18 p.m. The yield is up
from 4.68 percent a week ago and 4.29 percent on Jan. 18, the low
this year. The yield reached 4.8 percent on March 7, the highest
since before the Federal Reserve started increasing short-term
borrowing costs in June 2004.
For the fiscal year so far, which began in October, the budget
deficit was $217.5 billion compared with $223.4 billion a year
earlier.
Corporate tax receipts in February amounted to $4.2 billion
and for the year to date were $94.3 billion, up from $72.8 billion
a year earlier, according to the Treasury.
A faster-growing economy flooded the Treasury with unexpected
cash in the last fiscal year, led by a one-day record $71 billion
in taxes on Sept. 15, including a one-day record $63 billion from
corporations.
Individuals paid $393.3 billion in taxes for the year to date
compared with $354.9 billion a year earlier.

Hurricane Spending

Hurricane-related spending will strain the budget, as will
outlays for the conflicts in Afghanistan and Iraq and the cost of
social programs such as Medicare, which began paying for
prescription drugs for older people, economists said.
Bush last month asked Congress for an additional $72.4 billion
to pay for military operations in Iraq and Afghanistan and $19.8
billion more for hurricane recovery in New Orleans and other areas
of the Gulf Coast.
The government spent $32.4 billion on community and regional
development initiatives in the fiscal year so far, compared with
$11.1 billion a year earlier. Some hurricane-related spending is
included in that figure.
So far this fiscal year, defense spending was $202.1 billion,
up from $187.6 billion a year earlier. Spending for Social Security
rose to $237 billion from $227.1 billion. Outlays for the Medicare
health program increased to $125.4 billion from $115.6 billion.
Former U.S. Treasury Secretary Robert Rubin this week urged
fellow Democrats to reject Bush's plan for a bipartisan commission
to examine solutions to the mounting costs of Social Security and
health care.
Rubin, who served in President Bill Clinton's administration,
said Democratic leaders in Congress should instead insist Bush join
them in a ``fiscal commission'' to discuss all options for cutting
the budget deficit, including rolling back Bush's tax cuts.

--Editor: Abruzzese

Story illustration: To graph the change in the U.S. budget
deficit, {FDEBTY <Index> GP <GO>}. To graph the deficit as a
share of the economy, see {.BDDEF/SP <Index> GP <GO>}

source: bloomberg

Fibonacci

I found it:

Fibonacci

Print, Save for future reference.

M TYPE X

http://www.realclearpolitics.com/art...overtaxed.html

Bruce Bartlett: Inexorable rise in government expenditures means you're going to be paying for it all, eventually.
[The rest is just details.]

Silver™

The U.S. budget deficit this year could dip to as low as $300 billion, well below the White House's estimate, partly because the federal government was enjoying "robust growth" in revenues, the Congressional Budget Office said on Thursday.

CBO said that during the first seven months of the fiscal year that began on Oct. 1, the federal government ran a budget deficit of $183 billion, $53 billion less than for the same period in fiscal 2005.

http://today.reuters.com/investing/f...MY-DEFICIT.XML

mamboking

Dems still refuse to acknowledge that the tax cuts have something to do with it "robust growth".

Silver™

Cut more pork and we will be in decent shape





Aided by surging tax receipts, President Bush may make good on his pledge to cut the deficit in half in 2006 — three years early.

Tax revenues are running $176 billion, or 12.9%, over last year, the Treasury Department said Monday. The Congressional Budget Office said receipts have risen faster over the first eight months of fiscal '06 than in any other such period over the past 25 years — except for last year's 15.5% jump.

----

While gains are broad, those at higher-income levels are enjoying bigger salary hikes. Because they pay higher rates, federal tax revenues soar when they do well.

Those making over $200,000 now pay 46.6% of total income taxes, presidential adviser Karl Rove recently said. That's up from 40.5% — despite Bush's tax cuts.



http://www.investors.com/editorial/I...0060612&view=1

Fibonacci

Need to take a machete to those bloated congresssional spending bills

Seriously, Silver is right - the current budget picture is currently looking better than previously anticipated, but it still ignores the mugger lurking around the corner. :babyboomerssuckingmedicareandsocialsecuritybenefi tsupthewazoo:

Silver™

Surging growth has slashed the budget deficit to $127 billion below February's estimate. Now at only 2.3% of GDP, the unexpectedly small $296 billion shortfall is the clear result of President Bush's tax cuts.

With individual taxes growing at a 10%-plus rate and corporate taxes rising at nearly 20%, America's booming economy is washing away federal red ink like a tsunami.

The budget gap is now close to its historical average for the last four decades — remarkable so soon after 9-11, not to mention last year's devastating natural disasters. It's all part of a prosperity that has generated more than 5.4 million new jobs in the last three years.

We're witnessing an astoundingly rapid expansion of the U.S. economy. As economist Lawrence Kudlow notes, "over the past 11 quarters, dating back to the June 2003 Bush tax cuts, America has increased the size of its entire economy by 20%." And, he notes, that added output is roughly the same size as China's total economy.

http://www.investors.com/editorial/I...issue=20060711 (full article)

mrsteve

iTrader: (1)

Silver™

Read this and for some reason thought of PistonFan...



The United States is heading for bankruptcy, according to an extraordinary paper published by one of the key members of the country's central bank.

A ballooning budget deficit and a pensions and welfare timebomb could send the economic superpower into insolvency, according to research by Professor Laurence Kotlikoff for the Federal Reserve Bank of St Louis, a leading constituent of the US Federal Reserve.

Prof Kotlikoff said that, by some measures, the US is already bankrupt. "To paraphrase the Oxford English Dictionary, is the United States at the end of its resources, exhausted, stripped bare, destitute, bereft, wanting in property, or wrecked in consequence of failure to pay its creditors," he asked.

According to his central analysis, "the US government is, indeed, bankrupt, insofar as it will be unable to pay its creditors, who, in this context, are current and future generations to whom it has explicitly or implicitly promised future net payments of various kinds''.

The budget deficit in the US is not massive. The Bush administration this week cut its forecasts for the fiscal shortfall this year by almost a third, saying it will come in at 2.3pc of gross domestic product. This is smaller than most European countries - including the UK - which have deficits north of 3pc of GDP.

http://www.telegraph.co.uk/money/mai...14/ixcity.html

Fibonacci

^^^ this has been my bone of contention all along...

Dubya hands out Presidential Premature Ejaculation awards to L Paul Bremer, Gen Tommy Franks and CIA director 'slam dunk' George Tenet for their brilliant successes in Iraq.

Dubya also takes credit for 'narrowing' a budget deficit created on his watch. We're in the first quarter of a football game in the pre-season...are we beginning to see a pattern here?

Fibonacci

Inconvenient Facts and Bush's Supply-Side Boast



http://www.bloomberg.com/apps/news?p...d=aDHF_YUEljiw

Fibonacci

We Americans are oddly arrogant on this topic. We still believe that what happened to Italy, Latin America or Great Britain in the 1960s or 1970s can't happen to us...Amity Shlaes

SpeedyV6

This is an interesting article. I suspect that the US will eventually summon the resolve needed to turn this situation around and avoid bankruptcy.

My guess is that eventually we will see a massive rescaling of the extent to which government provides social services and retirement and healthcare benefits rather than a major episode of inflation. I think that the "starve the beast" scenario is pretty much the gameplan that will follow: taxcuts first; spending cuts second.

Fibonacci

One should certainly hope that congress and the president would show resolve and not cut and run from the spending problem, but I'm not holding my breath...


I wonder what our resident economist, NuttyPro has to say about this...

SpeedyV6

http://www.msnbc.msn.com/id/13957467/site/newsweek/

Looks like he may have set up his hypothesis test the wrong way. The goal shouldn't be to search for a simultaneous correlation but rather to look for a time lagged effect.

Anyway, I know I'll raise hell if I'm asked to pay for Baby Boomers retirement and healthcare needs. I say give 'em a bottle of penicillin and a job as a greeter at WalMart. That's the only retirement and healthcare benefits they deserve.

Fibonacci

Hope you've got your pitchfork ready.

In the meantime, hedge your bets by maximizing your income and investing wisely.

Something wicked this way comes...

Fibonacci

Aaaah, to be young and naive again...


http://www.usatoday.com/news/washing...cit-usat_x.htm

Fibonacci

You can only mask deteriorating fundamentals with the National Credit Card for so long before the bill comes due. Teh chronicles of ownage continues...

Silver™

The federal budget estimate for the fiscal year just completed dropped to $250 billion, congressional estimators said Friday, as the economy continues to fuel impressive tax revenues.

The Congressional Budget Office's latest estimate is $10 billion below CBO predictions issued in August and well below a July White House prediction of $296 billion.

The improving deficit picture - Bush predicted a $423 billion deficit in his February budget - has been driven by better-than-expected tax receipts, especially from corporate profits, CBO said.

http://www.mercurynews.com/mld/mercu...s/15696549.htm