Yes, I know it's old news by now, just trying to get through the backlog of information I've needed to post for quite awhile now.
U.S. deficit looms over stimulus talks
Current plan to jump-start economy could push deficit to $400 billion
By Kevin G. Hall
McClatchy Newspapers
St. Paul Pioneer Press
Thursday January 24, 2008 Pg 3A
As the Bush administration and Congress try to craft an economic stimulus plan, a dark cloud hangs over them: the federal deficit.
Iraq war costs of $9.6 billion a month and a gaping federal deficit that's funded by borrowing from foreign governments limit how aggressively the U.S. government can cut taxes or boost spending to fend off a recession.
Just over the horizon, a fiscal crisis that some call a day of reckoning looms larger.
Statistics released Wednesday by the nonpartisan Congressional Budget Office show that the federal deficit, the gap between what the government spends and the revenue it collects, is projected to leap to $250 billion in the current budget year. That's up 53 percent from the $163 billion deficit in fiscal 2007.
If Congress approves the roughly $140 billion stimulus plan now being discussed, the deficit for the 2008 fiscal year, which began Oct. 1, could swell to almost $400 billion.
The CBO presented those estimates to Congress on Wednesday as part of its budget and economic outlook for 2008 to 2018.
"Ongoing increases in health care costs, along with the aging of the population, are expected to put subtantial pressure on the budget in coming decades," Director Peter Orszag told the House Budget Committee. "Those trends are already evident in the current projection period."
Lawmakers can sharply cut government spending, sharply raise taxes or pass some combination of spending cuts and tax increases, Orszag said.
The Bush administration frequently notes that although the deficit is high, it's low in hsitorical terms as a percentage of the total economy - 1.5 percent this budget year, according to CBO estimates.
That's true. But it's a snapshot of the moment. Seen in the context of what lies ahead, the deficit puts the U.S. economy on a weaker footing to address the fiscal challenges that successive Congresses have ducked.
Comptroller General David Walker, the chief auditor of the government's balance sheet, has all but shouted from the rooftop that the U.S. government had more than $50 trillion in unfunded liabilities at the close of 2006, compared with the $20 trillion in 2000. That number is the sum of everything the government has promised to pay in the future, from pensions and government healthcare to interest on the debt.
The liabilities now amount to about $170,000 per person or $440,000 per U.S. household, according to Walker. The largest drivers of this trend are big entitlement programs such as Social Security and Medicare, the government insurance program for the elderly. These programs will come under even more strain when the first baby boomers - Americans born between 1946 and 1964 - reach official retirement age in two years.
Some economists believe that to avoid passing the burden to future generations of Americans, lawmakers and President Bush should propose ways to pay for the stimulus - a combination of tax rebates for consumers and tax relief for business - over a longer time frame.
"If we do something right now like a tax rebate and a couple of other things, it would be sensible to pay for it over a five-year period or something like that," said Alice Rivlin, a former vice chairman of the Federal Reserve who's now a senior researcher at the Brookings Institution, a center-left policy research organization.
While supportive of a short-term stimulus, Rivlin said long-term challenges must be considered.
"In the long run, we are in serious deficit trouble, and the long run is not so long anymore," said Rivlin, who was the director of the Congressional Budget Office from 1975 to 1983.
Monday, February 25, 2008
Sunday, February 24, 2008
Washington warned on health costs
by Jeremy Grant
in Washington
Financial Times
Wednesday January 30, 2008 Pg 2
An influential US official yesterday hit out at his country's "addiction to debt" warning that the federal budget was on an "imprudent and unsustainable path" due to ballooning healthcare costs.
David Walker, US comptroller general, warned a Senate budget committee hearing that while recent falls in the budget deficit were encouraging, the long-term fiscal outlook was grim.
"Our real challenge is not this year's deficit, or even next year's; it is how to change our current path so that growing deficits and debt levels do not swamp our ship of state," he said.
"If there is one thing that could bankrupt America, it is runaway health costs. We must not allow this to happen. This is our addiction to debt."
Mr. Walker's comments echo a warning he made last year, in which he urged the US to "learn from the fall of Rome" and deal quickly with a "burning platform" of unsustainable policies, including fiscal deficits.
Moody's Investor Services, the credit rating agency, last month warned that a lack of reform to Medicare - the government-administered healthcare plan - and the social security system threatened the US's long-term fiscal outlook, and thus, its AAA bond rating.
Mr Walker said the root of the problem was the government's continuing pledge to fund the gap between promised and funded social security and Medicare benefits and other commitments. In a report released to coincide with the hearing, the Government Accountability Office - which Mr Walker heads - put the total US public debt at $9,000bn, including the debt held by social security funds. That was almost double the $5,000bn headline figure for the public debt, which excludes such funds' debt.
Including the gap between future promised and funded social security and Medicare benefits, the GAO put the total debt burden in present dollar value at $53,000bn - about four times the size of the US economy.
"Medicare and Medicaid spending threaten to consume an untenable share of the budget and economy in the coming decades," said Mr Walker. The government had essentially written a "blank cheque" for these programmes, he said.
There was a "shrinking window of opportunity" to address the issues, he added. "We have a five- to 10-year window to demonstrate to our foreign lenders that we are getting serious about this. I would say closer to five."
Kent Conrad, the committee chairman, said the US deficit was still a relatively small proportion of gross domestic product, at a projected 2.5 per cent for this year.
Mr Walker conceded that the current deficit and debt levels were "not a major problem." But he said the difference this time was that the US would be unable to grow its way out of a long term fiscal crunch. "We've never seen anything like what we are headed into."
in Washington
Financial Times
Wednesday January 30, 2008 Pg 2
An influential US official yesterday hit out at his country's "addiction to debt" warning that the federal budget was on an "imprudent and unsustainable path" due to ballooning healthcare costs.
David Walker, US comptroller general, warned a Senate budget committee hearing that while recent falls in the budget deficit were encouraging, the long-term fiscal outlook was grim.
"Our real challenge is not this year's deficit, or even next year's; it is how to change our current path so that growing deficits and debt levels do not swamp our ship of state," he said.
"If there is one thing that could bankrupt America, it is runaway health costs. We must not allow this to happen. This is our addiction to debt."
Mr. Walker's comments echo a warning he made last year, in which he urged the US to "learn from the fall of Rome" and deal quickly with a "burning platform" of unsustainable policies, including fiscal deficits.
Moody's Investor Services, the credit rating agency, last month warned that a lack of reform to Medicare - the government-administered healthcare plan - and the social security system threatened the US's long-term fiscal outlook, and thus, its AAA bond rating.
Mr Walker said the root of the problem was the government's continuing pledge to fund the gap between promised and funded social security and Medicare benefits and other commitments. In a report released to coincide with the hearing, the Government Accountability Office - which Mr Walker heads - put the total US public debt at $9,000bn, including the debt held by social security funds. That was almost double the $5,000bn headline figure for the public debt, which excludes such funds' debt.
Including the gap between future promised and funded social security and Medicare benefits, the GAO put the total debt burden in present dollar value at $53,000bn - about four times the size of the US economy.
"Medicare and Medicaid spending threaten to consume an untenable share of the budget and economy in the coming decades," said Mr Walker. The government had essentially written a "blank cheque" for these programmes, he said.
There was a "shrinking window of opportunity" to address the issues, he added. "We have a five- to 10-year window to demonstrate to our foreign lenders that we are getting serious about this. I would say closer to five."
Kent Conrad, the committee chairman, said the US deficit was still a relatively small proportion of gross domestic product, at a projected 2.5 per cent for this year.
Mr Walker conceded that the current deficit and debt levels were "not a major problem." But he said the difference this time was that the US would be unable to grow its way out of a long term fiscal crunch. "We've never seen anything like what we are headed into."
Cure the Disease, Not Just the Symptoms
by Ed Lotterman
St. Paul Pioneer Press
Thursday January 24, 2008 1C
Politicians and journalists are missing a key question when talking about ongoing U.S. economic problems: Is the current slowdown in economic activity and decline in asset prices cyclical or structural? Without answering that question, much public discussion is pointless.
Cyclical economic events result from the business cycle, the historical pattern of fluctuation in output, employment and inflation. Structural ones stem from longer-term shifts in the underlying framework of an economy.
This distinction is often applied to types of unemployment. Autoworkers laid off for a few months because auto sales drop during a recession are cyclically unemployed. The thousands of boilermakers let go in the 1950s as railroads shifted from steam locomotives to diesels represented structural unemployment.
The cyclical-structural distinction also applies to budget deficits. If tax receipts fall below outlays solely because a sluggish economy redues income - and sales-tax revenue, the deficit is cyclical. However, if a deficit persists at full employment and high output, the problem is structural.
The key question right now is wehther our economic problems are primarily cyclical - resulting from a long-established (even if not perfectly regular) pattern ofincreases and decreases in output, employment and prices. Or are our problems more fundamental and long-term?
Policies commonly deemed appropriate responses to business-cycle problems - manipulating the money supply, interest rates, taxes and government spending - are ineffective in addressing structural challenges. Indeed, they may make the situation worse rather than better.
We are in the same quandary as Japan was in 1989. That country faced an asset price bubble much greater than ours. Japanese stock prices rose by a factor of five in the 1980s. Real estate price increases were even more extreme.
At prevailing exchange rates, the grounds of the Imperial Palace in Tokyo were worth more than all of California. Ginza district land reached $139,000 per square foot.
But in 1989 the bottom fell out. Stock prices fell 50 percent from 1989 to 1990 and even more in following years. Tokyo home prices fell 90 percent. The crash wiped $25 trillion (in 2008 dollars) off of Japanese balance sheets.
The government treated the crash as a cyclical problem, lowering interest rates and increasing spending on vast public works projects. Japan went from having one of the lowest rations of national debt to GDP among industrialized countries to one of the highest.
Yes, the Bank of Japan was hesitant and erratic in money supply increases. Yes, there was poor coordination of fiscal and monetary policies. But overall, Japan had no lack of Keynesian stimulus. Yet its economy stagnated for more than a decade.
Japan's problems were structural. The economy depended too much on exports stoked by an undervalued yen. RElationships between financial institutions and corporations were too cozy and fraught with conflicts of interest. Financial regulators encouraged hiding losses than writing them off. Major corporations and banks could not go bankrupt, no matter how insolvent. An appreciating yen drew in more foreign investment than the country could absorb.
Traditional monetary and fiscal stimulus addressed none of these problems. Rather it made a bad situation worse.
President Bush repeatedly says that the U.S. economy is fundamentally sound, implying that current problems are merely cyclical. Is he correct? Will the fiscal package that he and other elected officials from both parties propose fix things?
At a very fundamental level and over the long term, the U.S. economy has great strengths. We have enormous natural resources. We have enormous natural resources. We have extensive private and public infrastructure. Most importantly, we have a hard working, skilled, creative and enterprising labor force. There is no bar to our long-term prosperity.
But in the medium term, we are ignoring important structural problems. For three decades, general government spending has exceeded general revenue by large margins - through booms as well as recessions. But the way we finance Social Security obscures the size of the general federal deficit. The national savings rate has fallen to near zero despite repeated tax cuts intended to boost savings and investment. Lenders market credit more aggressively than in any other country or era. Capital markets have created myriad complex and poorly understood financial instruments and new players, such as hedge funds, that are more difficult to regulate. We borrow hundreds of billions abroad while cheap imports suppress consumer inflation, even though the money supply grows faster than output, year after year.
If we ignore such fundamental underlying problems and expect cheaper money and a larger federal deficit to provide a quick fix, we are likely to be disappointed.
St. Paul Pioneer Press
Thursday January 24, 2008 1C
Politicians and journalists are missing a key question when talking about ongoing U.S. economic problems: Is the current slowdown in economic activity and decline in asset prices cyclical or structural? Without answering that question, much public discussion is pointless.
Cyclical economic events result from the business cycle, the historical pattern of fluctuation in output, employment and inflation. Structural ones stem from longer-term shifts in the underlying framework of an economy.
This distinction is often applied to types of unemployment. Autoworkers laid off for a few months because auto sales drop during a recession are cyclically unemployed. The thousands of boilermakers let go in the 1950s as railroads shifted from steam locomotives to diesels represented structural unemployment.
The cyclical-structural distinction also applies to budget deficits. If tax receipts fall below outlays solely because a sluggish economy redues income - and sales-tax revenue, the deficit is cyclical. However, if a deficit persists at full employment and high output, the problem is structural.
The key question right now is wehther our economic problems are primarily cyclical - resulting from a long-established (even if not perfectly regular) pattern ofincreases and decreases in output, employment and prices. Or are our problems more fundamental and long-term?
Policies commonly deemed appropriate responses to business-cycle problems - manipulating the money supply, interest rates, taxes and government spending - are ineffective in addressing structural challenges. Indeed, they may make the situation worse rather than better.
We are in the same quandary as Japan was in 1989. That country faced an asset price bubble much greater than ours. Japanese stock prices rose by a factor of five in the 1980s. Real estate price increases were even more extreme.
At prevailing exchange rates, the grounds of the Imperial Palace in Tokyo were worth more than all of California. Ginza district land reached $139,000 per square foot.
But in 1989 the bottom fell out. Stock prices fell 50 percent from 1989 to 1990 and even more in following years. Tokyo home prices fell 90 percent. The crash wiped $25 trillion (in 2008 dollars) off of Japanese balance sheets.
The government treated the crash as a cyclical problem, lowering interest rates and increasing spending on vast public works projects. Japan went from having one of the lowest rations of national debt to GDP among industrialized countries to one of the highest.
Yes, the Bank of Japan was hesitant and erratic in money supply increases. Yes, there was poor coordination of fiscal and monetary policies. But overall, Japan had no lack of Keynesian stimulus. Yet its economy stagnated for more than a decade.
Japan's problems were structural. The economy depended too much on exports stoked by an undervalued yen. RElationships between financial institutions and corporations were too cozy and fraught with conflicts of interest. Financial regulators encouraged hiding losses than writing them off. Major corporations and banks could not go bankrupt, no matter how insolvent. An appreciating yen drew in more foreign investment than the country could absorb.
Traditional monetary and fiscal stimulus addressed none of these problems. Rather it made a bad situation worse.
President Bush repeatedly says that the U.S. economy is fundamentally sound, implying that current problems are merely cyclical. Is he correct? Will the fiscal package that he and other elected officials from both parties propose fix things?
At a very fundamental level and over the long term, the U.S. economy has great strengths. We have enormous natural resources. We have enormous natural resources. We have extensive private and public infrastructure. Most importantly, we have a hard working, skilled, creative and enterprising labor force. There is no bar to our long-term prosperity.
But in the medium term, we are ignoring important structural problems. For three decades, general government spending has exceeded general revenue by large margins - through booms as well as recessions. But the way we finance Social Security obscures the size of the general federal deficit. The national savings rate has fallen to near zero despite repeated tax cuts intended to boost savings and investment. Lenders market credit more aggressively than in any other country or era. Capital markets have created myriad complex and poorly understood financial instruments and new players, such as hedge funds, that are more difficult to regulate. We borrow hundreds of billions abroad while cheap imports suppress consumer inflation, even though the money supply grows faster than output, year after year.
If we ignore such fundamental underlying problems and expect cheaper money and a larger federal deficit to provide a quick fix, we are likely to be disappointed.
Did you say deficit?
Wall Street Journal
Thursday January 24, 2008 Pg A16
The Congressional Budget Office yesterday estimated that the federal budget deficit will rise this year for the first time since 2004, and the explanation is no surprise: Revenue growth is slowing as the economy slows, while spending has begun to pick up again.
CBO forsees a fiscal 2008 deficit of $219 billion, or about 1.5% of GDP, and up about $65 billion from what the CBO projected as recently as last August. Most of the change from August is due to the one-year Alternative Minimum Tax fix passed in December - the previous "baseline" asumed 23 million new AMT victims would be welcomed into the fold this year. A smaller piece of the shortfall is due to lower projections for economic growth this year.
We should remind readers that back in 2004 CBO projected a $286 billion deficit for 2008, by that yardstick, $219 billion is an improvement. Back then, the CBO also projected some $200 billion less in corporate and personal income taxes than we actually saw, due mostly to better-than-expected growth after the 2003 tax cuts.
By the way, that $219 billion doesn't include any "stimulus" package. As we've seen since 2003, tax cuts on capital and marginal income rates can have a salutary effect on the deficit over time by helping to promote growth. The current Beltway mix of more spending and tax "rebates" will do very little for growth and thus have virtually no revenue feedback effect. Don't expect anyone in Washington to mention that while loudly deploring a higher deficit.
Thursday January 24, 2008 Pg A16
The Congressional Budget Office yesterday estimated that the federal budget deficit will rise this year for the first time since 2004, and the explanation is no surprise: Revenue growth is slowing as the economy slows, while spending has begun to pick up again.
CBO forsees a fiscal 2008 deficit of $219 billion, or about 1.5% of GDP, and up about $65 billion from what the CBO projected as recently as last August. Most of the change from August is due to the one-year Alternative Minimum Tax fix passed in December - the previous "baseline" asumed 23 million new AMT victims would be welcomed into the fold this year. A smaller piece of the shortfall is due to lower projections for economic growth this year.
We should remind readers that back in 2004 CBO projected a $286 billion deficit for 2008, by that yardstick, $219 billion is an improvement. Back then, the CBO also projected some $200 billion less in corporate and personal income taxes than we actually saw, due mostly to better-than-expected growth after the 2003 tax cuts.
By the way, that $219 billion doesn't include any "stimulus" package. As we've seen since 2003, tax cuts on capital and marginal income rates can have a salutary effect on the deficit over time by helping to promote growth. The current Beltway mix of more spending and tax "rebates" will do very little for growth and thus have virtually no revenue feedback effect. Don't expect anyone in Washington to mention that while loudly deploring a higher deficit.
Friday, February 22, 2008
PP: Quick fix is beyond government's power
Edward Lotterman: Quick fix is beyond government's power
St. Paul Pioneer Press
Wednesday January 23, 2008 Pg 1A
Don't put too much hope in the Fed's latest cut in its target interest rate or in any eventual fiscal stimulus package on which President Bush and Congress may agree. The ability of government to offset swings in employment, output and prices is much more limited than many people think, especially when dealing with a $14 trillion economy that is highly enmeshed with the rest of the world. At least that is my humble opinion.
The economic news this week has been dramatic. Several Asian stock markets fell more than 10 percent in two days. In an unscheduled meeting, the Federal Reserve's policymakers cut its target for the federal funds interest rate an unprecedented three-fourths of a percentage point, from 4.25 to 3.5 percent. Meanwhile, the president, Congress and sundry presidential candidates are falling over each other with proposals for "fiscal stimulus."
The situation raises many questions: Just what can government do to solve growing economic problems? Should the Fed cut interest rates even further? Is the danger of inflation real? Will rebates, further tax cuts or greater government spending forestall a recession?
Unfortunately, economists have different views on these issues, depending on the degree to which they are convinced by competing economic theories. John Maynard Keynes (1883-1946) argued government can manipulate four variables - taxes, government spending, the money supply and interest rates - to ward off recessions or curb inflation. Monetarists, led by the University of Chicago's articulate and energetic Milton Friedman (1912-2006), saw government tromping on fiscal and monetary gas and brake pedals as not only doomed to failure but also inherently harmful. So did a later group called "rational expectationists."
Virtually all economists agree on one thing: A central bank can control inflation if it does not let the money supply grow too fast. Prime Minister Margaret Thatcher of Great Britain and U.S. Fed Chairman Paul Volcker proved that.
What economists don't agree on is how well government policies can ward off a recession and on the relative usefulness of monetary policy (money supply and interest rates) compared to fiscal policy (government taxing and spending).
The historical record is mixed. Many argue that military spending wasa the primary factor in ending the Great Depression. Others point to the tax cuts enacted after John F. Kennedy's assassination as a success story of fiscal stimulus that worked. Some view the 2001 Bush tax cuts as having increased consumer spending, even though their stated purpose was to encourage long-term investment.
But there are many counter-arguments or examples. Rising spending on the Vietnam War was probably a bigger stimulus than the Kennedy-Johnson tax cuts. And in 2001, the Fed increased the money supply, pushing short-term interest rates to historic lows at the same time the Bush tax cuts took effect.
Moreover, after most industrialized countries overtly adopted Keynesian policies in the 1950s, many experienced increases in inflation even during recessions with high unemployment. Such "stagflation" dominated the 1970s and baffled both political parties.
Richard Nixon expolicitly proposed fiscal stimulus in 1971 and 1972 even as he cynically kept the lid on inflation with wage and price controls. Both inflation and unemployment soared a year later. Neither Gerald Ford nor Jimmy Carter could settle on a coherent response for either inflation or unemployment, and the nation suffered.
The 1980s demonstrated that the Fed could tame inflation if politicians were able to tolerate a harsh recession in the short term. Moreover, a stable price environment fostered investment by households and businesses.
But human nature leads central bankers into temptation. As memories of the 1970s inflation faded in the go-go years of the 1990s, arguments for faster money growth and lower interest rates overwhelmed calls for prudence. The Fed needed to lower interest rates to help out banks wracked by bad loans on commercial property. It needed to stop contagion from Asian financial crises or from Russia or Brazil.
Then, when the U.S. economy slowed in 2000, monetary expansion seemed necessary. People agreed it was even more true after Sept. 11.
Overall, we nearly doubled the money supply since the mid-1990s, while the real economy grew by about 50 percent. Such easy money clearly created many of the problems we face today.
Some say that calls for even lower interest rates mimic Will Rogers' sarcastic query "If stupidity got us into this mess, then why can't it get us out?" Moreover, as the Fed increases the money supply to lower interest rates, the value of the dollar tends to slide compared to other currencies.
Fiscal stimulus packages are even more fraught with difficulty.
Politicians love to step on the gas pedal, increasing spending and cutting taxes. They are especially quick to call for fiscal largesse in election years. The unemployment rate is never low enough or growth fast enough for a congressman facing reelection.
Politicans never want to step on the brake pedal, even when inflation gets out of control as it did in the 1970s. Moreover, the time lags in getting tax and spending bills through Congress are such that the economic effects often arrive too late. In many cases, they make business cycle fluctuations more extreme instead of dampening them.
At this juncture, the impulse to try anything with some plausible chance of success is powerful. Easier money and an even looser federal budget may ameliorate a bad, and worsening, situation. But the monetary, budgetary and trade imbalances that have accumulated over the years are large and difficult to resolve. Americans should not delude themselves with the idea that there are quick and easy fixes.
St. Paul Pioneer Press
Wednesday January 23, 2008 Pg 1A
Don't put too much hope in the Fed's latest cut in its target interest rate or in any eventual fiscal stimulus package on which President Bush and Congress may agree. The ability of government to offset swings in employment, output and prices is much more limited than many people think, especially when dealing with a $14 trillion economy that is highly enmeshed with the rest of the world. At least that is my humble opinion.
The economic news this week has been dramatic. Several Asian stock markets fell more than 10 percent in two days. In an unscheduled meeting, the Federal Reserve's policymakers cut its target for the federal funds interest rate an unprecedented three-fourths of a percentage point, from 4.25 to 3.5 percent. Meanwhile, the president, Congress and sundry presidential candidates are falling over each other with proposals for "fiscal stimulus."
The situation raises many questions: Just what can government do to solve growing economic problems? Should the Fed cut interest rates even further? Is the danger of inflation real? Will rebates, further tax cuts or greater government spending forestall a recession?
Unfortunately, economists have different views on these issues, depending on the degree to which they are convinced by competing economic theories. John Maynard Keynes (1883-1946) argued government can manipulate four variables - taxes, government spending, the money supply and interest rates - to ward off recessions or curb inflation. Monetarists, led by the University of Chicago's articulate and energetic Milton Friedman (1912-2006), saw government tromping on fiscal and monetary gas and brake pedals as not only doomed to failure but also inherently harmful. So did a later group called "rational expectationists."
Virtually all economists agree on one thing: A central bank can control inflation if it does not let the money supply grow too fast. Prime Minister Margaret Thatcher of Great Britain and U.S. Fed Chairman Paul Volcker proved that.
What economists don't agree on is how well government policies can ward off a recession and on the relative usefulness of monetary policy (money supply and interest rates) compared to fiscal policy (government taxing and spending).
The historical record is mixed. Many argue that military spending wasa the primary factor in ending the Great Depression. Others point to the tax cuts enacted after John F. Kennedy's assassination as a success story of fiscal stimulus that worked. Some view the 2001 Bush tax cuts as having increased consumer spending, even though their stated purpose was to encourage long-term investment.
But there are many counter-arguments or examples. Rising spending on the Vietnam War was probably a bigger stimulus than the Kennedy-Johnson tax cuts. And in 2001, the Fed increased the money supply, pushing short-term interest rates to historic lows at the same time the Bush tax cuts took effect.
Moreover, after most industrialized countries overtly adopted Keynesian policies in the 1950s, many experienced increases in inflation even during recessions with high unemployment. Such "stagflation" dominated the 1970s and baffled both political parties.
Richard Nixon expolicitly proposed fiscal stimulus in 1971 and 1972 even as he cynically kept the lid on inflation with wage and price controls. Both inflation and unemployment soared a year later. Neither Gerald Ford nor Jimmy Carter could settle on a coherent response for either inflation or unemployment, and the nation suffered.
The 1980s demonstrated that the Fed could tame inflation if politicians were able to tolerate a harsh recession in the short term. Moreover, a stable price environment fostered investment by households and businesses.
But human nature leads central bankers into temptation. As memories of the 1970s inflation faded in the go-go years of the 1990s, arguments for faster money growth and lower interest rates overwhelmed calls for prudence. The Fed needed to lower interest rates to help out banks wracked by bad loans on commercial property. It needed to stop contagion from Asian financial crises or from Russia or Brazil.
Then, when the U.S. economy slowed in 2000, monetary expansion seemed necessary. People agreed it was even more true after Sept. 11.
Overall, we nearly doubled the money supply since the mid-1990s, while the real economy grew by about 50 percent. Such easy money clearly created many of the problems we face today.
Some say that calls for even lower interest rates mimic Will Rogers' sarcastic query "If stupidity got us into this mess, then why can't it get us out?" Moreover, as the Fed increases the money supply to lower interest rates, the value of the dollar tends to slide compared to other currencies.
Fiscal stimulus packages are even more fraught with difficulty.
Politicians love to step on the gas pedal, increasing spending and cutting taxes. They are especially quick to call for fiscal largesse in election years. The unemployment rate is never low enough or growth fast enough for a congressman facing reelection.
Politicans never want to step on the brake pedal, even when inflation gets out of control as it did in the 1970s. Moreover, the time lags in getting tax and spending bills through Congress are such that the economic effects often arrive too late. In many cases, they make business cycle fluctuations more extreme instead of dampening them.
At this juncture, the impulse to try anything with some plausible chance of success is powerful. Easier money and an even looser federal budget may ameliorate a bad, and worsening, situation. But the monetary, budgetary and trade imbalances that have accumulated over the years are large and difficult to resolve. Americans should not delude themselves with the idea that there are quick and easy fixes.
LTTE: Sound as a Dollar?
Wall Street Journal
Tuesday January 22, 2008 Pg A17
Regarding David Malpass's op-ed ("Markets and the Dollar," Jan. 14), I cannot tell you how refreshing it is to see an economist take issue with the Fed lowering interest rates in these times of high inflation as well as the relentless printing of U.S. dollars, and its subsequent devaluation. While we're at it, could we please make a token effort at balancing our fiscal budget? Perhaps then we'll be real "conservative Republicans" instead of the "radical Republicans" who have been "governing" these last seven years. Doesn't anyone on the Bush economic team care what kind of currency and country their kids and grandkids will inherit? If not, please tell me where they are planning to relocate when the bottom drops out.
Mike Fitzsimmons
Crossville, Tenn.
Tuesday January 22, 2008 Pg A17
Regarding David Malpass's op-ed ("Markets and the Dollar," Jan. 14), I cannot tell you how refreshing it is to see an economist take issue with the Fed lowering interest rates in these times of high inflation as well as the relentless printing of U.S. dollars, and its subsequent devaluation. While we're at it, could we please make a token effort at balancing our fiscal budget? Perhaps then we'll be real "conservative Republicans" instead of the "radical Republicans" who have been "governing" these last seven years. Doesn't anyone on the Bush economic team care what kind of currency and country their kids and grandkids will inherit? If not, please tell me where they are planning to relocate when the bottom drops out.
Mike Fitzsimmons
Crossville, Tenn.
WSJ: Feel-Good Economics
By Bruce Bartlett
Wall Street Journal
Jan. 19-20, 2008 Weekend Edition Pg A12
With remarkable speed, Congress, the White House, Republicans, Democrats and even the Federal Reserve have come to a consensus on the need for economic stimulus to moderate and perhaps forestall a recession. It seems certain that the final stimulus package will contain a tax rebate.
The underlying theory for the rebate idea traces back to the British economist John Maynard Keynes. He believed that spending was the driving force in the economy. It didn't matter whether the spending was done by businesses on capital equipment, by governments on public works, or by consumers - spending is spending in the Keynesian modeal, and all of it is stimulative.
In Keynes' defense, his theory was developed during a severe, world-wide deflation. Spending of all kinds was paralyzed by a lack of liquidity, and the Federal Reserve had difficulty injecting money into the economy because so many banks had closed. Under these circumstances, deficit spending by governments made sense as a means of getting money into circulation and overcoming deflation. The problem is that, once World War II seemed to validate Keynes's theory, the idea of stimulating the economy by increasing government spending became the all-purpose cure for every economic slowdown, regardless of its underlying cause.
In the 1960s and 1970s, this usually took the form of public works spending. But in 1974, the White House was keen on the idea of cutting taxes to stimulate private spending. Since it was feared that a permanent tax cut might be inflationary, President Gerald Ford and the Democratic Congress agreeed on a one-shot tax rebate. It was thought that cash-strapped consumers would take their government checks and immediately run out and spend them on food, clothing and other necessities. This would give the economy a Keynesian boost.
One dissenter was economist Milton Friedman. His research had led him to conclude that consumer spending was less a function of liquidity than something he called "permanent income." Friedman observed that when workers lost their jobs, they didn't immediately cut back on spending. They borrowed or drew down savings to maintain spending, in the expectation of finding a new job shortly. Conversely, consumers didn't immediately spend windfalls. They kept spending on an even keel until they achieved a promotion at work, or other increase in their long-term income expectations.
Thus Friedman predicted that the $100 to $200 checks disbursed by the Treasury Department in the spring of 1975 would have a minimal impact on spending, because they did not alter peoples' permanent income. Most likely, people would save the money or pay down debt, which is the same thing. Very little of the rebate would cause consumers to buy things they wouldn't otherwise have bought in the near term.
Subsequent studies by MIT economists Franco Modigliani and Charles Steindel, and Alan Blinder of Princeton, showed that Freidman's prediction was correct. The 1975 rebate had very little impact on spending and much less than a permanent tax cut - which would change peoples' concept of their permanent income - of similiar magnitude.
In 2001 - despite the thoroughness and general acceptance of these studies - Congress and the White House once again chose a one-shot tax rebate to deal with an economic slowdown in 2001.
To his credit, Treasury Secretary Paul O'Neill cautioned against the rebate. "I was here when we tried that in 1975, and it just didn't work," he said. "If we want to change consumption patterns, we need to make permanent changes in peoples' tax burdens." But President George W. Bush overruled his Treasury secretary and approved the rebate idea. Checks of $300 to $600 per taxpayer were sent out in the late summer. Contemporaneous polls by Gallup, Bloomberg and the University of Michigan all found that the vast bulk of consumers expected to save the money or use it to pay bills. Subsequent studies confirmed these forecasts.
In short, there is virtually no empirical evidence that tax rebates are an effective response to economic slowdowns. The increased personal saving doesn't help the economy because the federal budget deficit, which can be thought of as negative saving, offsets all of it in the aggregate. The main benefit of a tax rebate would seem to be political - giving politicans a way of appearing to be doing something about the nation's economic problems that is superficially plausible.
A new rebate probably won't do much harm. But anyone who thinks it will prevent a recession - if one is actually in the pipeline, which is not at all certain - is dreaming. It's an insult to Keynes even to call a tax rebate Keynesian economics. It should be called "feel good economics" because its only real effect is to make politicans feel tood about themselves and buy reelection with the public purse.
Mr. Bartlett was deputy assistant secretary of the Treasury for econoimc policy during the administration of President George H.W. Bush
Wall Street Journal
Jan. 19-20, 2008 Weekend Edition Pg A12
With remarkable speed, Congress, the White House, Republicans, Democrats and even the Federal Reserve have come to a consensus on the need for economic stimulus to moderate and perhaps forestall a recession. It seems certain that the final stimulus package will contain a tax rebate.
The underlying theory for the rebate idea traces back to the British economist John Maynard Keynes. He believed that spending was the driving force in the economy. It didn't matter whether the spending was done by businesses on capital equipment, by governments on public works, or by consumers - spending is spending in the Keynesian modeal, and all of it is stimulative.
In Keynes' defense, his theory was developed during a severe, world-wide deflation. Spending of all kinds was paralyzed by a lack of liquidity, and the Federal Reserve had difficulty injecting money into the economy because so many banks had closed. Under these circumstances, deficit spending by governments made sense as a means of getting money into circulation and overcoming deflation. The problem is that, once World War II seemed to validate Keynes's theory, the idea of stimulating the economy by increasing government spending became the all-purpose cure for every economic slowdown, regardless of its underlying cause.
In the 1960s and 1970s, this usually took the form of public works spending. But in 1974, the White House was keen on the idea of cutting taxes to stimulate private spending. Since it was feared that a permanent tax cut might be inflationary, President Gerald Ford and the Democratic Congress agreeed on a one-shot tax rebate. It was thought that cash-strapped consumers would take their government checks and immediately run out and spend them on food, clothing and other necessities. This would give the economy a Keynesian boost.
One dissenter was economist Milton Friedman. His research had led him to conclude that consumer spending was less a function of liquidity than something he called "permanent income." Friedman observed that when workers lost their jobs, they didn't immediately cut back on spending. They borrowed or drew down savings to maintain spending, in the expectation of finding a new job shortly. Conversely, consumers didn't immediately spend windfalls. They kept spending on an even keel until they achieved a promotion at work, or other increase in their long-term income expectations.
Thus Friedman predicted that the $100 to $200 checks disbursed by the Treasury Department in the spring of 1975 would have a minimal impact on spending, because they did not alter peoples' permanent income. Most likely, people would save the money or pay down debt, which is the same thing. Very little of the rebate would cause consumers to buy things they wouldn't otherwise have bought in the near term.
Subsequent studies by MIT economists Franco Modigliani and Charles Steindel, and Alan Blinder of Princeton, showed that Freidman's prediction was correct. The 1975 rebate had very little impact on spending and much less than a permanent tax cut - which would change peoples' concept of their permanent income - of similiar magnitude.
In 2001 - despite the thoroughness and general acceptance of these studies - Congress and the White House once again chose a one-shot tax rebate to deal with an economic slowdown in 2001.
To his credit, Treasury Secretary Paul O'Neill cautioned against the rebate. "I was here when we tried that in 1975, and it just didn't work," he said. "If we want to change consumption patterns, we need to make permanent changes in peoples' tax burdens." But President George W. Bush overruled his Treasury secretary and approved the rebate idea. Checks of $300 to $600 per taxpayer were sent out in the late summer. Contemporaneous polls by Gallup, Bloomberg and the University of Michigan all found that the vast bulk of consumers expected to save the money or use it to pay bills. Subsequent studies confirmed these forecasts.
In short, there is virtually no empirical evidence that tax rebates are an effective response to economic slowdowns. The increased personal saving doesn't help the economy because the federal budget deficit, which can be thought of as negative saving, offsets all of it in the aggregate. The main benefit of a tax rebate would seem to be political - giving politicans a way of appearing to be doing something about the nation's economic problems that is superficially plausible.
A new rebate probably won't do much harm. But anyone who thinks it will prevent a recession - if one is actually in the pipeline, which is not at all certain - is dreaming. It's an insult to Keynes even to call a tax rebate Keynesian economics. It should be called "feel good economics" because its only real effect is to make politicans feel tood about themselves and buy reelection with the public purse.
Mr. Bartlett was deputy assistant secretary of the Treasury for econoimc policy during the administration of President George H.W. Bush
Wednesday, February 20, 2008
WSJ: In Times of Turmoil, Cautionary TIPS Tale
In Times of Turmoil, Cautionary TIPS Tale
Investors Flock to Bonds With Inflation Protection, Sending Prices Soaring
Wall Street Journal
Wednesday January 9, 2008 Pg C13
In times of market turmoil, many investors seek a haven for their money. And right now many are buying up inflation-protected U.s. government bonds in the belief that they are the safest investment around.
The markets are volatile amid worries about a recession, even as signs of inflation pressure emerge.
The best TIPS funds, meanwhile, offer low fees and a straightforward exposure to TIPS. Among the most popular, are Vanguard's Inflation Protected-Securities Index fund, and an exchange-traded fund, Lehman TIPS iShare.
All Crowd In?
The only problem is that everyone has the same idea. Huge demand has sent the price of these bonds, known as Treasury Inflation-Protected Securities, or TIPS, soaring to lofty levels. And while investors may not realize it, at current valuations thaey offer much more meager returns than normal.
TIPS are a relatively new class of government bond, launched in the 1990s. They offer an appealing double benefit for investors - especially those, such as retirees, seeking safety and conservation of capital.
First, like ordinary U.S. government bonds, they offer guaranteed income and return of capital. They are issued by the federal government and the risk of any default is miniscule.
Second, unlike most government bonds, they contain insurance against a rise in inflation as well. Through a complex formula involving both coupons and bond prices, TIPS guarantee that their annual interest rate will keep up with fluctuations in the consumer-price index over the price of the bond. They offer a guaranteed "real" yield on top of the CPI.
Careful on the Seesaw
Bonds work like a seesaw: When the price rises, the yield you get falls.
The accompanying chart shows that this is doing to TIP yields. The "real" or after-inflation yield on a benchmark 10-Year TIP has plunged by nearly half, from over 2.8% in August to just 1.57% today.
History is pretty clear. That tends to prove a poor deal for investors.
Only twice in recent history have these real yields fallen to similar levels: In early 2004, and again in 2005. On both occasions, those who invested quickly lost money as the bonds fell back again and the yields rose.
The best time to buy TIPS is when they are out of fashion and the real yield being offered is over 2%. The market seems to consider that a good long-term value.
TIPS do offer guaranteed income and protection against inflation. But always on Wall Street, price matters too. And there is no safety in numbers.
If TIPS appear to offer meager pickings right now, the same could also be said for regular government bonds - the ones with no inflation protection. The current yield on the 10-year Treasury is a dismal 3.85%, and 4.36% on the 30 year. Both have collapsed since last summer. It is worth adding that these yields are all subject to federal income tax as well, unless the bonds are held in a tax-sheltered account like an IRA.
For savers seeking better interest, it may be sensible to wait in cash for better opportunities. E*Trade Financial Corp.'s E*Trade Bank, for example, offers a savings account paying 4.93%. And deposits are federally guaranteed up to $100,000.
Investors Flock to Bonds With Inflation Protection, Sending Prices Soaring
Wall Street Journal
Wednesday January 9, 2008 Pg C13
In times of market turmoil, many investors seek a haven for their money. And right now many are buying up inflation-protected U.s. government bonds in the belief that they are the safest investment around.
The markets are volatile amid worries about a recession, even as signs of inflation pressure emerge.
The best TIPS funds, meanwhile, offer low fees and a straightforward exposure to TIPS. Among the most popular, are Vanguard's Inflation Protected-Securities Index fund, and an exchange-traded fund, Lehman TIPS iShare.
All Crowd In?
The only problem is that everyone has the same idea. Huge demand has sent the price of these bonds, known as Treasury Inflation-Protected Securities, or TIPS, soaring to lofty levels. And while investors may not realize it, at current valuations thaey offer much more meager returns than normal.
TIPS are a relatively new class of government bond, launched in the 1990s. They offer an appealing double benefit for investors - especially those, such as retirees, seeking safety and conservation of capital.
First, like ordinary U.S. government bonds, they offer guaranteed income and return of capital. They are issued by the federal government and the risk of any default is miniscule.
Second, unlike most government bonds, they contain insurance against a rise in inflation as well. Through a complex formula involving both coupons and bond prices, TIPS guarantee that their annual interest rate will keep up with fluctuations in the consumer-price index over the price of the bond. They offer a guaranteed "real" yield on top of the CPI.
Careful on the Seesaw
Bonds work like a seesaw: When the price rises, the yield you get falls.
The accompanying chart shows that this is doing to TIP yields. The "real" or after-inflation yield on a benchmark 10-Year TIP has plunged by nearly half, from over 2.8% in August to just 1.57% today.
History is pretty clear. That tends to prove a poor deal for investors.
Only twice in recent history have these real yields fallen to similar levels: In early 2004, and again in 2005. On both occasions, those who invested quickly lost money as the bonds fell back again and the yields rose.
The best time to buy TIPS is when they are out of fashion and the real yield being offered is over 2%. The market seems to consider that a good long-term value.
TIPS do offer guaranteed income and protection against inflation. But always on Wall Street, price matters too. And there is no safety in numbers.
If TIPS appear to offer meager pickings right now, the same could also be said for regular government bonds - the ones with no inflation protection. The current yield on the 10-year Treasury is a dismal 3.85%, and 4.36% on the 30 year. Both have collapsed since last summer. It is worth adding that these yields are all subject to federal income tax as well, unless the bonds are held in a tax-sheltered account like an IRA.
For savers seeking better interest, it may be sensible to wait in cash for better opportunities. E*Trade Financial Corp.'s E*Trade Bank, for example, offers a savings account paying 4.93%. And deposits are federally guaranteed up to $100,000.
WSJ: Consumer Borrowing Rises At Fastest Rate in 3 Months
Wall Street Journal
Wednesday January 9, 2008 Pg A2
U.S. consumer borrowing rose at an annual rate of 7.4% in November, the fastest pace in three months, the Federal Reserve said.
The 0.6% monthly increase in consumer credit outstanding, to $2.505 trillion, is a positive sign for consumer spending, which accounts for more than two-thirds of the nation's economic activity. Consumer credit increased at an annual rate of just 1% in October, or 0.08% for the month.
The Fed said revolving credit - largely credit-card financing - grew at an 11.3% rate to $937.5 billion, the fastest pace in six months.
Households' nonrevolving credit, such as car and boat loans, rose at an annualized 5.1% pace to $1.568 trillion, rebounding from October's drop in that category, the Fed said.
Separately, the National Association of Realtors said its forward-looking indicator of existing-home sales fell in November after rising for two months. The industry group's pending-home-sales index, based on signed contracts for homes, declined at a seasonally adjusted annual rate of 2.6% to 87.6.
Wednesday January 9, 2008 Pg A2
U.S. consumer borrowing rose at an annual rate of 7.4% in November, the fastest pace in three months, the Federal Reserve said.
The 0.6% monthly increase in consumer credit outstanding, to $2.505 trillion, is a positive sign for consumer spending, which accounts for more than two-thirds of the nation's economic activity. Consumer credit increased at an annual rate of just 1% in October, or 0.08% for the month.
The Fed said revolving credit - largely credit-card financing - grew at an 11.3% rate to $937.5 billion, the fastest pace in six months.
Households' nonrevolving credit, such as car and boat loans, rose at an annualized 5.1% pace to $1.568 trillion, rebounding from October's drop in that category, the Fed said.
Separately, the National Association of Realtors said its forward-looking indicator of existing-home sales fell in November after rising for two months. The industry group's pending-home-sales index, based on signed contracts for homes, declined at a seasonally adjusted annual rate of 2.6% to 87.6.
Monday, February 18, 2008
Delinquency rate up on consumer loans
Delinquency rate up on consumer loans
St. Paul Pioneer Press
Friday January 4, 2008 Pg 2C
Late payments on a cluster of consumer loans, including those for autos, home improvement and certain home-equity loans, climbed in the summer to their highest point since the country's last recession in 2001. The American Bankers Association said Thursday the delinquency rate on a composite of consumer loans increased to 2.44 percent in the July-to-September quarter. That was up sharply from 2.27 percent in the previous quarter and was the highest late-payment rate since the second quarter of 2001. Payments are considered delinquent if they are 30 or more days past due. The survey is based on information supplied by more than 300 banks nationwide. Late payments on credit cards, meanwhile, dipped during summer. The delinquency rate on credit cards dropped to 4.18 percent in the third quarter, down from 4.39 percent in the second quarter.
St. Paul Pioneer Press
Friday January 4, 2008 Pg 2C
Late payments on a cluster of consumer loans, including those for autos, home improvement and certain home-equity loans, climbed in the summer to their highest point since the country's last recession in 2001. The American Bankers Association said Thursday the delinquency rate on a composite of consumer loans increased to 2.44 percent in the July-to-September quarter. That was up sharply from 2.27 percent in the previous quarter and was the highest late-payment rate since the second quarter of 2001. Payments are considered delinquent if they are 30 or more days past due. The survey is based on information supplied by more than 300 banks nationwide. Late payments on credit cards, meanwhile, dipped during summer. The delinquency rate on credit cards dropped to 4.18 percent in the third quarter, down from 4.39 percent in the second quarter.
Bankruptcy filings back on the rise
Bankruptcy filings back on the rise
St. Paul Pioneer Press
Friday January 4, 2008 Pg 1C
U.S. personal bankruptcy filings jumped 40 percent in 2007 because of rising mortgage payments, job losses and other financial pressures. The increase followed a sharp decline from a year earlier, when a new law made it more difficult for consumers to seek bankruptcy-court protection from creditors.
More than 800,000 personal bankruptcy filings were made in 2007, compared with more than 573,000 in 2006 - the lowest level since 1998, according to data collected by the National Bankruptcy Research Center and published by the American Bankruptcy Institute, a research group in Alexandria, Va.
Personal bankruptcy filings soared to more than 2 million in 2005 for the nation, with more than 600,000 filings made in October, when the law took effect.
Minnesota bankruptcies through November totaled 10,834, compared with 7,729 filings for all of 2006. The 11-month 2007 total is well below 2005's 25,420 for the same period. From 1999 through 2004, Minnesota saw between 14,510 and 19,416 filings during hte first 11 months.
St. Paul Pioneer Press
Friday January 4, 2008 Pg 1C
U.S. personal bankruptcy filings jumped 40 percent in 2007 because of rising mortgage payments, job losses and other financial pressures. The increase followed a sharp decline from a year earlier, when a new law made it more difficult for consumers to seek bankruptcy-court protection from creditors.
More than 800,000 personal bankruptcy filings were made in 2007, compared with more than 573,000 in 2006 - the lowest level since 1998, according to data collected by the National Bankruptcy Research Center and published by the American Bankruptcy Institute, a research group in Alexandria, Va.
Personal bankruptcy filings soared to more than 2 million in 2005 for the nation, with more than 600,000 filings made in October, when the law took effect.
Minnesota bankruptcies through November totaled 10,834, compared with 7,729 filings for all of 2006. The 11-month 2007 total is well below 2005's 25,420 for the same period. From 1999 through 2004, Minnesota saw between 14,510 and 19,416 filings during hte first 11 months.
Financial Times: Recession Risks
This article appeared in the Wed. Jan. 2, 2008 issue of the Financial Times:
Whatever the inflationary risks lurking in the US economy, recession is the fear that is keeping policymakers up at night. Rightly so. The long-resilient US faces a series of blows that will cut into growth. The residential housing market is dealing with an almost unprecedented nationwide fall in prices. Meanwhile, unstable credit markets, roiled by the subprime crisis, could have a significant impact on the availability, and price, of credit.
How big will the impact be? US growth will certainly slow. But a house price correction in itself should be manageable, unless it turns into a freefall. After all, the pain so far has been concentrated among poorer, subprime borrowers, whose spending is very small in the context of the overall economy.
The trouble is, we are heading into largely uncharted territory on housing when it comes to guessing whether consumers, already heavily burdened with debt, will lose confidence. That is a significant risk. And it could feed back into credit market problems.
Banks are already building up their own liquidity and are worried about lending to each other because of the credit market crisis. Now they also have to factor in the risk of a recession. If they are bearish, they are likely to ratchet up credit standards and reduce lending somewhat to prepare for loan losses. There is the risk of a downward spiral, where such a credit contraction in itself increases recession risk.
As the property and credit markets undergo a slow and ugly repricing, it would be little surprise if the US slipped at least briefly into recession. Stronger export growth, on the back of a weak dollar and healthy demand from the rest of the world, will struggle to offset the domestic forces at work.
Whatever the inflationary risks lurking in the US economy, recession is the fear that is keeping policymakers up at night. Rightly so. The long-resilient US faces a series of blows that will cut into growth. The residential housing market is dealing with an almost unprecedented nationwide fall in prices. Meanwhile, unstable credit markets, roiled by the subprime crisis, could have a significant impact on the availability, and price, of credit.
How big will the impact be? US growth will certainly slow. But a house price correction in itself should be manageable, unless it turns into a freefall. After all, the pain so far has been concentrated among poorer, subprime borrowers, whose spending is very small in the context of the overall economy.
The trouble is, we are heading into largely uncharted territory on housing when it comes to guessing whether consumers, already heavily burdened with debt, will lose confidence. That is a significant risk. And it could feed back into credit market problems.
Banks are already building up their own liquidity and are worried about lending to each other because of the credit market crisis. Now they also have to factor in the risk of a recession. If they are bearish, they are likely to ratchet up credit standards and reduce lending somewhat to prepare for loan losses. There is the risk of a downward spiral, where such a credit contraction in itself increases recession risk.
As the property and credit markets undergo a slow and ugly repricing, it would be little surprise if the US slipped at least briefly into recession. Stronger export growth, on the back of a weak dollar and healthy demand from the rest of the world, will struggle to offset the domestic forces at work.
Saturday, February 16, 2008
Newest National Debt Statistics posted
Here are the most recent figures related to the size our our National Debt, per www.treasurydirect.gov
As of Feb. 14, 2008 (Happy Valentine's Day):
Publicly Held: $5,195,943,354,136.82
Intragovernmental holdings: $4,095,955,735,115.73
Total: $9,291,899,089,252.55
Interest payments for FY08:
October 2007 - $22,310,362,733.54
November 2007 - $25,344,987,578.31
December 2007 -$106,138,177,851.45
January 2008 - $24,686,746,422.35
FY08 to date: $178,480,274,585.65
Public Contributions:
December 2007: $113,092.26
FY08 to date: $330,616.89
FY07 totals: $2,624,862.42
Per the IRS, Gifts to reduce the Public Debt ARE tax deductible for income tax purposes. For more information, see www.irs.gov
As of Feb. 14, 2008 (Happy Valentine's Day):
Publicly Held: $5,195,943,354,136.82
Intragovernmental holdings: $4,095,955,735,115.73
Total: $9,291,899,089,252.55
Interest payments for FY08:
October 2007 - $22,310,362,733.54
November 2007 - $25,344,987,578.31
December 2007 -$106,138,177,851.45
January 2008 - $24,686,746,422.35
FY08 to date: $178,480,274,585.65
Public Contributions:
December 2007: $113,092.26
FY08 to date: $330,616.89
FY07 totals: $2,624,862.42
Per the IRS, Gifts to reduce the Public Debt ARE tax deductible for income tax purposes. For more information, see www.irs.gov
Friday, February 15, 2008
Dave's Thoughts on the Stimulus Tax Rebate
Dave's Thoughts on the Stimulus Tax Rebate
by Dave Ramsey
www.daveramsey.com
Most of you are jumping with joy that you're probably going to be getting a big, fat check from the government. You may be thinking, "FREE MONEY, BABY!!!"
Well, I'm not here to totally rain on your parade, but plain and simple, I'm not lovin' this plan. This government plan to try to stimulate the economy and pull us away from a possible recession is actually straight-up socialism - just the opposite of capitalism! I don't want my money to help you (if you haven't paid federal income taxes) buy an iPhone or whatever else you have your eye set on.
"Letting Americans keep more of their own money should increase consumer spending, and lift our economy at a time when people otherwise might spend less," President Bush said. The idea in theory sounds like it will work smoothly, but I have a much better idea that will eventually increase consumer spending, and in turn, cause the economy to flourish: encourage freedom from debt!
The last time a stimulus rebate like this was issued was in 2001. A recent study revealed consumers spent two-thirds of those rebates within 6 months of receiving them. Do you have a game plan already for what you'll do with your rebate this time around?
Make the Money Work For You
Don't wait until it comes in the mail to formulate a plan, and whatever you do, do NOT spend this money before it gets to your hands! Those are just formal invitations for Murphy to unpack his suitcases in your spare bedroom! Here are a handful of ways I recommend making your tax rebate work for you, depending on where you are in the Baby Steps:
Pay off debt. This may sound like a no-brainer, but I already expect that few people will actually do it! There's really no reason NOT to throw this "free" money toward your debt snowball. It will get you one step (or maybe quite a few) closer to being debt free, and THEN you will have the freedom to buy that toy or take that vacation you've had your heart set on for quite a while! Learn how
Invest it. If you put this big chunk of change into a mutual fund for a few years, you'll actually receive TONS more money than just the initial $600 or $1,200 check this summer.
Say you get back $600 and put it automatically into a mutual fund averaging 12%. In 2018, that one-time investment will grow to approximately $2,000! If left in for 20 years, it will be worth about $6,500! For the married folks, this free money can grow up to $13,000 over 20 years - WOW! Calculate your earnings!
Have some fun. I'm not a total meanie. I actually do like to have some fun with my money, and I encourage you to do the same! There's nothing wrong with taking your spouse out for a nice dinner or buying that new pair of jeans with some of this money you could be getting. Just stick within your boundaries, and remember that the quicker you get out of debt, the more fun things you can do and the more money you can give away to bless others.
Source: CNNMoney.com
by Dave Ramsey
www.daveramsey.com
Most of you are jumping with joy that you're probably going to be getting a big, fat check from the government. You may be thinking, "FREE MONEY, BABY!!!"
Well, I'm not here to totally rain on your parade, but plain and simple, I'm not lovin' this plan. This government plan to try to stimulate the economy and pull us away from a possible recession is actually straight-up socialism - just the opposite of capitalism! I don't want my money to help you (if you haven't paid federal income taxes) buy an iPhone or whatever else you have your eye set on.
"Letting Americans keep more of their own money should increase consumer spending, and lift our economy at a time when people otherwise might spend less," President Bush said. The idea in theory sounds like it will work smoothly, but I have a much better idea that will eventually increase consumer spending, and in turn, cause the economy to flourish: encourage freedom from debt!
The last time a stimulus rebate like this was issued was in 2001. A recent study revealed consumers spent two-thirds of those rebates within 6 months of receiving them. Do you have a game plan already for what you'll do with your rebate this time around?
Make the Money Work For You
Don't wait until it comes in the mail to formulate a plan, and whatever you do, do NOT spend this money before it gets to your hands! Those are just formal invitations for Murphy to unpack his suitcases in your spare bedroom! Here are a handful of ways I recommend making your tax rebate work for you, depending on where you are in the Baby Steps:
Pay off debt. This may sound like a no-brainer, but I already expect that few people will actually do it! There's really no reason NOT to throw this "free" money toward your debt snowball. It will get you one step (or maybe quite a few) closer to being debt free, and THEN you will have the freedom to buy that toy or take that vacation you've had your heart set on for quite a while! Learn how
Invest it. If you put this big chunk of change into a mutual fund for a few years, you'll actually receive TONS more money than just the initial $600 or $1,200 check this summer.
Say you get back $600 and put it automatically into a mutual fund averaging 12%. In 2018, that one-time investment will grow to approximately $2,000! If left in for 20 years, it will be worth about $6,500! For the married folks, this free money can grow up to $13,000 over 20 years - WOW! Calculate your earnings!
Have some fun. I'm not a total meanie. I actually do like to have some fun with my money, and I encourage you to do the same! There's nothing wrong with taking your spouse out for a nice dinner or buying that new pair of jeans with some of this money you could be getting. Just stick within your boundaries, and remember that the quicker you get out of debt, the more fun things you can do and the more money you can give away to bless others.
Source: CNNMoney.com
Wednesday, January 23, 2008
CBO Sees $250 Billion Deficit
CBO Sees $250 Billion Deficit
Associated Press Wednesday January 23, 10:33 am ET
By Andrew Taylor, Associated Press Writer
CBO Predicts Rising Federal Budget Deficit As Economy Weakens
WASHINGTON (AP) -- The deficit for the current budget year will jump to about $250 billion, the Congressional Budget Office estimated Wednesday, citing the weakening economy. And that figure does not reflect at least $100 billion in red ink from an economic stimulus measure in the works.
"After three years of declining budget deficits, a slowing economy this year will contribute to an increase in the deficit," the CBO report said.
The figure greatly exceeds the $163 billion in red ink registered last year. Adding likely but still unapproved outlays for the wars in Iraq and Afghanistan brings its "baseline" deficit estimate of $219 billion to about $250 billion, the nonpartisan CBO said.
Senate Budget Committee Chairman Kent Conrad, D-N.D., said the 2008 deficit would reach more than $350 billion once the costs of an upcoming economic stimulus measure under negotiation between the Bush administration and Congress are factored in.
The CBO crunches economic and budget data for lawmakers.
Unlike an increasing number of economists, CBO does not forecast a recession this year. It instead forecasts a growth rate of 1.7 percent, down from 2.2 percent real growth in the gross domestic product (GDP) last year.
"Although recent data suggest that the probability of a recession in 2008 has increased, CBO does not expect the slowdown in economic growth to be large enough to register as a recession," CBO said. The CBO economic forecast was completed last month, before a recent spike in unemployment and the release of disappointing holiday retail sales figures.
"A number of ominous economic signs have emerged since CBO finalized last month the forecast underlying today's report," said House Budget Committee Chairman John Spratt Jr., D-S.C. "Today's new economic forecast thus adds to the growing evidence that the economy has weakened, and that policymakers in Washington must take action."
CBO Director Peter Orszag testified before the House Budget Committee. He warned them again that regardless of the short-term fluctuations in the deficit, the longer-term picture remains bleak due to expected spiraling costs of Medicare, Medicaid and Social Security as the Baby Boom generation retires.
"A substantial reduction in the growth of spending, a significant increase in tax revenues relative to the size of the economy, or some combination of the two will be necessary to maintain the nation's long-term fiscal stability," Orszag said.
Officially, CBO predicts the 2008 deficit at $219 billion, but that figure fails to account for at least an additional $30 billion in war costs and the likely infusion of deficit-financed economic stimulus measures such as income tax rebates, business tax breaks and help for the unemployed now under discussion on Capitol Hill and at the White House.
The deficit seems to be an afterthought as lawmakers race toward agreement with President Bush on a plan to pump perhaps $150 billion worth of deficit spending into the economy. The bulk of the plan would come as tax cuts, though Democrats are pressing for additional help for the unemployed and people on food stamps. Constituency groups in both political parties are pressing for even more, such as Democratic-sought aid to cash-strapped states and people with high heating bills.
Most of any economic stimulus bill would be released before the Oct. 1 start of the 2009 budget year, with any benefits to the economy -- and therefore federal revenues -- lagging behind.
The White House is set to release its 2009 budget on Feb. 4, and Bush has promised a plan that would erase the deficit by 2012 if his policies are followed.
The 2006 deficit was $248 billion and had closed from a high of $413 billion registered in 2004.
The deficit picture remains worse than it was when Bush took office seven years ago. Then, both White House and congressional forecasters projected cumulative surpluses of $5.6 trillion over the subsequent decade.
But a revenue bubble burst, a recession and the Sept. 11, 2001, terrorist attacks adversely affected the books. Several rounds of tax cuts, including Bush's signature $1.35 trillion 2001 tax cut, also contributed to the return to deficits in 2002 after four years of budget surpluses. The national debt has risen to $9.2 trillion.
"This guy will come close to doubling the debt of the country during his period of presidency," Conrad said.
Congressional Budget Office: http://www.cbo.gov
Associated Press Wednesday January 23, 10:33 am ET
By Andrew Taylor, Associated Press Writer
CBO Predicts Rising Federal Budget Deficit As Economy Weakens
WASHINGTON (AP) -- The deficit for the current budget year will jump to about $250 billion, the Congressional Budget Office estimated Wednesday, citing the weakening economy. And that figure does not reflect at least $100 billion in red ink from an economic stimulus measure in the works.
"After three years of declining budget deficits, a slowing economy this year will contribute to an increase in the deficit," the CBO report said.
The figure greatly exceeds the $163 billion in red ink registered last year. Adding likely but still unapproved outlays for the wars in Iraq and Afghanistan brings its "baseline" deficit estimate of $219 billion to about $250 billion, the nonpartisan CBO said.
Senate Budget Committee Chairman Kent Conrad, D-N.D., said the 2008 deficit would reach more than $350 billion once the costs of an upcoming economic stimulus measure under negotiation between the Bush administration and Congress are factored in.
The CBO crunches economic and budget data for lawmakers.
Unlike an increasing number of economists, CBO does not forecast a recession this year. It instead forecasts a growth rate of 1.7 percent, down from 2.2 percent real growth in the gross domestic product (GDP) last year.
"Although recent data suggest that the probability of a recession in 2008 has increased, CBO does not expect the slowdown in economic growth to be large enough to register as a recession," CBO said. The CBO economic forecast was completed last month, before a recent spike in unemployment and the release of disappointing holiday retail sales figures.
"A number of ominous economic signs have emerged since CBO finalized last month the forecast underlying today's report," said House Budget Committee Chairman John Spratt Jr., D-S.C. "Today's new economic forecast thus adds to the growing evidence that the economy has weakened, and that policymakers in Washington must take action."
CBO Director Peter Orszag testified before the House Budget Committee. He warned them again that regardless of the short-term fluctuations in the deficit, the longer-term picture remains bleak due to expected spiraling costs of Medicare, Medicaid and Social Security as the Baby Boom generation retires.
"A substantial reduction in the growth of spending, a significant increase in tax revenues relative to the size of the economy, or some combination of the two will be necessary to maintain the nation's long-term fiscal stability," Orszag said.
Officially, CBO predicts the 2008 deficit at $219 billion, but that figure fails to account for at least an additional $30 billion in war costs and the likely infusion of deficit-financed economic stimulus measures such as income tax rebates, business tax breaks and help for the unemployed now under discussion on Capitol Hill and at the White House.
The deficit seems to be an afterthought as lawmakers race toward agreement with President Bush on a plan to pump perhaps $150 billion worth of deficit spending into the economy. The bulk of the plan would come as tax cuts, though Democrats are pressing for additional help for the unemployed and people on food stamps. Constituency groups in both political parties are pressing for even more, such as Democratic-sought aid to cash-strapped states and people with high heating bills.
Most of any economic stimulus bill would be released before the Oct. 1 start of the 2009 budget year, with any benefits to the economy -- and therefore federal revenues -- lagging behind.
The White House is set to release its 2009 budget on Feb. 4, and Bush has promised a plan that would erase the deficit by 2012 if his policies are followed.
The 2006 deficit was $248 billion and had closed from a high of $413 billion registered in 2004.
The deficit picture remains worse than it was when Bush took office seven years ago. Then, both White House and congressional forecasters projected cumulative surpluses of $5.6 trillion over the subsequent decade.
But a revenue bubble burst, a recession and the Sept. 11, 2001, terrorist attacks adversely affected the books. Several rounds of tax cuts, including Bush's signature $1.35 trillion 2001 tax cut, also contributed to the return to deficits in 2002 after four years of budget surpluses. The national debt has risen to $9.2 trillion.
"This guy will come close to doubling the debt of the country during his period of presidency," Conrad said.
Congressional Budget Office: http://www.cbo.gov
Friday, January 11, 2008
Fidelity: Debt crowds job-based savings
The following appeared in the January 11, 2008 issue of the St. Paul Pioneer Press business section, page 2C.
Fidelity: Debt crowds job-based savings
High consumer debt is slowing growth in retirement savings accounts, according to a study released Thursday by Fidelity Investments. The mutual fund company, which is based in Boston, found one in three employees of nonprofit organizations increased their contributions to job-based savings plans in 2007. Some 44 percent of participants in the survey also admitted to personal debt exceeding $5,000, not including mortgages, the study found. The impact of debt could be seen in the breakdown of savings by people who considered themselves investors, savers or spenders. The spenders tended to carry higher debt than people in the other categories. Some 42 percent of people who considered themselves investors raised their contributions in 2007, compared with 30 percent of savers and 25 percent of spenders, the study found.
Tuesday, January 8, 2008
Happy New Year
It's pretty sad when one has to celebrate for NOT hitting a milestone. I'm celebrating because we still haven't hit the $10 Trillion National Debt level. Sadly, the way things are going, I'm sure we'll hit it by the end of the year.
Since I've been out of town and have had computer problems, I haven't been able to post for the past two months. Needless to say, despite my inability to monitor our debt for the past two months, it kept creeping up.
Here are the latest statistics from TreasuryDirect.com pertaining to the National Debt (effective Jan. 4, 2008).
Debt Held by Public: $5,116,199,834,200.04
Intragovernmental: $4,081,378,046,617.39
Total Debt (4 Jan): $9,197,577,880,817.43
Interest Payments FY08:
October 2007 - $22,310,362,733.54
November 2007 - $25,344,987,578.31
December 2007 - $106,138,177,851.45
Total 1st Q: $153,793,528,163.30
Gifts to reduce the Public Debt:
November 2007 - $27,617.15
October 2007 - $189,907.48
FY08 to Date: $217,524.63
Gifts to reduce the Public Debt in FY 2007: $2,624,862.42
Now that we are into the Presidential Primary season, it would be nice if the politicians who want to be our next leader would finally address this key issue. The silence is deafening!!
Since I've been out of town and have had computer problems, I haven't been able to post for the past two months. Needless to say, despite my inability to monitor our debt for the past two months, it kept creeping up.
Here are the latest statistics from TreasuryDirect.com pertaining to the National Debt (effective Jan. 4, 2008).
Debt Held by Public: $5,116,199,834,200.04
Intragovernmental: $4,081,378,046,617.39
Total Debt (4 Jan): $9,197,577,880,817.43
Interest Payments FY08:
October 2007 - $22,310,362,733.54
November 2007 - $25,344,987,578.31
December 2007 - $106,138,177,851.45
Total 1st Q: $153,793,528,163.30
Gifts to reduce the Public Debt:
November 2007 - $27,617.15
October 2007 - $189,907.48
FY08 to Date: $217,524.63
Gifts to reduce the Public Debt in FY 2007: $2,624,862.42
Now that we are into the Presidential Primary season, it would be nice if the politicians who want to be our next leader would finally address this key issue. The silence is deafening!!
Thursday, November 8, 2007
New Debt Stats Now Available At TreasuryDirect.gov
Been a busy few weeks with work, campaigns and helping friends move. Yet the Debt continues to grow in my absence.
Here are the figures for the Month of October 2007 courtesy of the U.S. Treasury at TreasuryDirect.gov
Debt Held By The Public (Nov. 7, 2007): $5,082,087,499,065.19
Intragovernmental Holdings (Nov. 7, 2007): $4,002,186,282,492.45
Total National Debt (Nov. 7, 2007): $9,084,273,781,557.64
Gifts to Reduce Public Debt Held By Public (Sept. 2007) $27,460.42
Total Gifts for FY 2007: $2,624,862.42
Interest Payment - October 2007: $22,310,362,733.54
Since October 2007 is the first month in FY 2008, the October amount reflects the cumulative total for the Fiscal Year.
Here are the figures for the Month of October 2007 courtesy of the U.S. Treasury at TreasuryDirect.gov
Debt Held By The Public (Nov. 7, 2007): $5,082,087,499,065.19
Intragovernmental Holdings (Nov. 7, 2007): $4,002,186,282,492.45
Total National Debt (Nov. 7, 2007): $9,084,273,781,557.64
Gifts to Reduce Public Debt Held By Public (Sept. 2007) $27,460.42
Total Gifts for FY 2007: $2,624,862.42
Interest Payment - October 2007: $22,310,362,733.54
Since October 2007 is the first month in FY 2008, the October amount reflects the cumulative total for the Fiscal Year.
Monday, October 15, 2007
Newest Debt figures released
I'm about a week behind the times, but the October monthly statement of the National Debt has been released. Here is a summary:
National Debt Total as of 10/12/2007:
$9,044,256,689,740.39
Of that, the debt held by the public comes to: $5,038,254,667,984.29
and Intragovernmental holdings (trust funds) are: $4,006,002,021,756.10
In September, taxpayers paid $19,186,822,742.64 in interest on our National Debt (19 billion is roughly three quarters of the gap that Congress and the Administration are arguing over for the SCHIPS program funding increase).
During the 2007 fiscal year, taxpayers paid: $429,977,998,108.20 in interest. (Just shy of $430 billion - just think of what we could do with that money if we weren't paying interest - tax cuts anyone?)
For public contributions to reduce the national debt, $10,518.85 was donated to the Treasury Department in August 2007, with $2,597,402.00 given year-to-date. ($2 million donated to the Treasury with $19 billion in interest payments in one month.)
Next report will be out on the 4th business day of November.
These figures are available at Treasury Direct, www.treasurydirect.gov
National Debt Total as of 10/12/2007:
$9,044,256,689,740.39
Of that, the debt held by the public comes to: $5,038,254,667,984.29
and Intragovernmental holdings (trust funds) are: $4,006,002,021,756.10
In September, taxpayers paid $19,186,822,742.64 in interest on our National Debt (19 billion is roughly three quarters of the gap that Congress and the Administration are arguing over for the SCHIPS program funding increase).
During the 2007 fiscal year, taxpayers paid: $429,977,998,108.20 in interest. (Just shy of $430 billion - just think of what we could do with that money if we weren't paying interest - tax cuts anyone?)
For public contributions to reduce the national debt, $10,518.85 was donated to the Treasury Department in August 2007, with $2,597,402.00 given year-to-date. ($2 million donated to the Treasury with $19 billion in interest payments in one month.)
Next report will be out on the 4th business day of November.
These figures are available at Treasury Direct, www.treasurydirect.gov
AP - Deficit falls to lowest level in 5 years
The following article appeared on Oct. 11, 2007, courtesy of the Associated Press.
Deficit falls to lowest level in 5 years
Both spending, revenue at record marks in 2007
BY MARTIN CRUTSINGER
Associated Press
WASHINGTON - The Bush administration reported Thursday that the federal budget deficit fell to $162.8 billion in the just-completed budget year, the lowest amount of red ink in five years.
The administration credited the president's tax cuts for helping generate record-breaking revenues but warned of an approaching "fiscal train wreck" unless Congress deals with unsustainable growth in Social Security, Medicare and Medicaid.
President Bush, appearing with his economic team to trumpet the news, noted that the deficit turned out to be $81 billion lower than it was projected to be in February. He said the deficit represents 1.2 percent of gross domestic product - less than the average of the last 40 years.
"By keeping taxes low we can grow the economy, and by working with Congress to set priorities we can be fiscally responsible and we can head toward balance," Bush said after the meeting across the street from the White House. "And that's exactly where we're headed."
The deficit for the 2007 budget year that ended on Sept. 30 was 34.4 percent lower than the $248.2 billion deficit recorded in 2006, reflecting faster growth in revenues than in government spending.
Administration officials said the government was on track to accomplish Bush's goal of eliminating the deficit by 2012. But Democrats said the improvement in the deficit this year did not mask the fact that Bush's economic policies transformed the budget surpluses of the Clinton years into record deficits and an unprecedented increase in the national debt.
The debate over the president's signature tax cuts and their impact on the economy are certain to be played out in the coming presidential campaign. Republican candidates are vowing to make permanent Bush's tax cuts, which are due to expire at the end of 2010; Democrats want to roll back the tax cuts received by the wealthiest taxpayers.
Both revenues and spending climbed to record levels in 2007. Spending rose by 2.8 percent to $2.73 trillion while revenues rose by a faster 6.7 percent to a record $2.57 trillion, a gain the administration attributed to the economic stimulus from the president's tax cuts.
"This year's budget results further demonstrate how the president's tax relief, combined with spending discipline, has helped promote a sustained economic expansion, which led to revenue growth and resulted in a declining deficit," said White House budget director Jim Nussle.
But administration officials said while the short-term budget deficit was improving, greater efforts were needed to deal with the budgetary pressures that will arise in future years with the approaching retirement of 78 million baby boomers.
"For the sake of our children and grandchildren, Congress should begin to take action to prevent this fiscal train wreck," Nussle said in a statement accompanying the budget figures.
Senate Budget Committee Chairman Kent Conrad, D-N.D., said that Bush would "go down in history as the most fiscally irresponsible president ever. The fact is that the nation's debt has exploded on his watch - rising by $3 trillion since 2001, to $9 trillion today."
Bush recently signed into law a measure increasing the government's borrowing ceiling to $9.815 trillion. It was the fifth debt increase of Bush's presidency. The national debt is the accumulation of the annual deficits.
The deficit hit an all-time high in dollar terms of $413 billion in 2004 and has been coming down since.
The Congressional Budget Office projects the deficit will improve further in the 2008 budget year, which began on Oct. 1, projecting a decline to $155 billion before the imbalance starts to rise again in 2009.
Deficit falls to lowest level in 5 years
Both spending, revenue at record marks in 2007
BY MARTIN CRUTSINGER
Associated Press
WASHINGTON - The Bush administration reported Thursday that the federal budget deficit fell to $162.8 billion in the just-completed budget year, the lowest amount of red ink in five years.
The administration credited the president's tax cuts for helping generate record-breaking revenues but warned of an approaching "fiscal train wreck" unless Congress deals with unsustainable growth in Social Security, Medicare and Medicaid.
President Bush, appearing with his economic team to trumpet the news, noted that the deficit turned out to be $81 billion lower than it was projected to be in February. He said the deficit represents 1.2 percent of gross domestic product - less than the average of the last 40 years.
"By keeping taxes low we can grow the economy, and by working with Congress to set priorities we can be fiscally responsible and we can head toward balance," Bush said after the meeting across the street from the White House. "And that's exactly where we're headed."
The deficit for the 2007 budget year that ended on Sept. 30 was 34.4 percent lower than the $248.2 billion deficit recorded in 2006, reflecting faster growth in revenues than in government spending.
Administration officials said the government was on track to accomplish Bush's goal of eliminating the deficit by 2012. But Democrats said the improvement in the deficit this year did not mask the fact that Bush's economic policies transformed the budget surpluses of the Clinton years into record deficits and an unprecedented increase in the national debt.
The debate over the president's signature tax cuts and their impact on the economy are certain to be played out in the coming presidential campaign. Republican candidates are vowing to make permanent Bush's tax cuts, which are due to expire at the end of 2010; Democrats want to roll back the tax cuts received by the wealthiest taxpayers.
Both revenues and spending climbed to record levels in 2007. Spending rose by 2.8 percent to $2.73 trillion while revenues rose by a faster 6.7 percent to a record $2.57 trillion, a gain the administration attributed to the economic stimulus from the president's tax cuts.
"This year's budget results further demonstrate how the president's tax relief, combined with spending discipline, has helped promote a sustained economic expansion, which led to revenue growth and resulted in a declining deficit," said White House budget director Jim Nussle.
But administration officials said while the short-term budget deficit was improving, greater efforts were needed to deal with the budgetary pressures that will arise in future years with the approaching retirement of 78 million baby boomers.
"For the sake of our children and grandchildren, Congress should begin to take action to prevent this fiscal train wreck," Nussle said in a statement accompanying the budget figures.
Senate Budget Committee Chairman Kent Conrad, D-N.D., said that Bush would "go down in history as the most fiscally irresponsible president ever. The fact is that the nation's debt has exploded on his watch - rising by $3 trillion since 2001, to $9 trillion today."
Bush recently signed into law a measure increasing the government's borrowing ceiling to $9.815 trillion. It was the fifth debt increase of Bush's presidency. The national debt is the accumulation of the annual deficits.
The deficit hit an all-time high in dollar terms of $413 billion in 2004 and has been coming down since.
The Congressional Budget Office projects the deficit will improve further in the 2008 budget year, which began on Oct. 1, projecting a decline to $155 billion before the imbalance starts to rise again in 2009.
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