Budget Deficit
The 10 Most Pressing Questions About the U.S. Economy – And Their Answers
Will the economy lapse into a double-dip recession? What can be done about the soaring U.S. budget deficit? What's next for the stock market?
These are just a few of the tough questions facing investors. And there may be no one better to offer answers, insight, and advice than Money Morning Contributing Editor Shah Gilani.
A retired hedge-fund manger, Gilani has routinely been there to shepherd investors through blinding market uncertainty. He's used his contacts on Wall Street to give Money Morning readers the inside scoop on the collapse of American International Group Inc. (NYSE: AIG), the May 6 "Flash Crash," and most recently the "Mortgagegate" scandal that currently threatens to undermine the fragile U.S. recovery.
Indeed, Gilani has been a tireless advocate for investors and a prescient market maven. That's why Money Morning's editors recently sat down with Gilani to talk about today's most pressing issues and discover what he expects for financial markets in the months and years ahead.
In the partial transcript of that interview below, Gilani discusses why it's a good time to invest in stocks, what steps should be taken to fix the U.S. economy, and whether or not gold prices have peaked.
In short, the U.S. government has failed the public as a matter of course, but there is still a way out of our current economic malaise and ample opportunity for investors to profit.
To find out the answers to the ten most pressing questions facing the economy, read on…
Question of the Week: Investors Prepare for State and Local Governments' Tight Budgets
[Editor's Note: Last week we asked readers how vulnerable they were to the budgetary issues of their state and local governments. Some of our readers' responses are listed below - along with next week's question, "Will Mortgagegate Affect You?"]
It's been 25 years since state and local governments across the United States were in such bad shape – and the budgetary pain is far from over.
The state-funding gap is growing, local governments lost 76,000 jobs last month, and property tax receipts are slated to fall for years.
"While the recession might have officially ended on the national level, cities are in the eye of the storm and the problems are intensifying," Christopher Hoene, a director at the National League of Cities, told The Financial Times.
A study released last week showed that big U.S. cities could face a painful financial squeeze: Their pension plans are under-funded to the tune of $547 billion.
We Want to Hear From You: Are You Vulnerable to the Budgetary Woes of Your State and Local Governments?
It's been 25 years since state and local governments across the United States were in such bad shape – and the budgetary pain is far from over.
The state-funding gap is growing, local governments lost 76,000 jobs last month, and property tax receipts are slated to fall for years.
"While the recession might have officially ended on the national level, cities are in the eye of the storm and the problems are intensifying," Christopher Hoene, a director at the National League of Cities, told The Financial Times.
A study released this week showed that big U.S. cities could face a painful financial squeeze: Their pension plans are under-funded to the tune of $547 billion.
Money Morning Mailbag: Ending Bush Tax Cuts Not a Cure-All for U.S. Financial Woes
[Editor's Note: We want to hear from you! Do you have a comment, a suggestion or story idea, or a question? Let us know at mailbag@moneymappress.com. (**) And be sure to check back for responses to reader questions and comments.]
The question of whether or not to extend the Bush tax cuts will be a pivotal issue as Washington prepares for this year's midterm election.
The Congressional Budget Office yesterday (Thursday) reported that extending the tax cuts would result in only short-lived economic benefits.
"[It would provide] a considerable boost to economic activity in 2011 and beyond for a few years," CBO Director Douglas Elmendorf told CNN. "Over time, [however,] the negative consequences of very high federal borrowing build up."
The CBO reported that if the cuts for most U.S. taxpayers were made permanent – as proposed by U.S. President Barack Obama – the nation's accrued debt (not including money owed to Social Security and other government trust funds) could climb to 100% of gross domestic product by 2020, up from 62% this year.
Battle Over Expiring Bush Tax Cuts Likely to Shape Fall Elections
A colossal battle is shaping up in Congress over what to do about the Bush-era tax cuts that are set to expire at the end of this year. It's an issue that entails sufficient economic and political consequences that could shape the fall elections and fiscal policy for years to come.
The expiring tax breaks received little public attention this year as Congress tussled with heavyweight issues like healthcare reform and financial regulation. But the fate of the tax cuts will be a major focus of debate in September when lawmakers return to Washington from their summer recess and the midterm campaign gets rolling.
"It has enormous ramifications for the fall and clearly will be one of the dominant issues," Sen. Ron Wyden, D-OR, told The New York Times. "This is code for the role of the federal government, the debate over the size of government and the priorities of the nation."
Democratic party leaders, including President Barack Obama, have said they want to extend the tax cuts for individuals earning less than $200,000 and families earning less than $250,000, while letting the cuts expire as scheduled for those exceeding those thresholds.
Most Republicans, and some Democrats, want to extend the tax cuts for everyone, characterizing any tax increases on anyone in this fragile economy as unwise. If no action is taken, taxes on income, dividends, capital gains and estates will all rise.
State Budget Crises Threaten U.S. Economic Recovery
Across the country state budget crises are threatening to undermine the U.S. economic recovery.
Some 48 states are emerging from a round of painful budget cuts for their 2010 fiscal budgets, and at least 46 states face shortfalls for the upcoming 2011 fiscal year, which in most states began July 1.
The recession has caused the steepest decline in state tax receipts on record – and states will continue to struggle to find the revenue needed to support critical public services for a number of years as a result.
Since virtually all states are required to balance their operating budgets each year they cannot maintain services during an economic downturn by running a deficit, as the federal government does.
G20 Summit Bogged Down by a Shaky Global Recovery
The Group of 20 (G20) countries concluded their weekend summit with an outline for reducing budget deficits and a delay in global banking reform, but failed to create a unified policy as nations find themselves in different phases of economic recovery.
Leaders pushed decisions on global banking regulations to the agenda of the November session in Seoul, South Korea. The meeting's concluding statement expressed unity in countries' desires to reduce debt, but did little to alter austerity plans and stimulus measures countries have already created.
"With the common efforts of G20 members and the international community, the world economy is gradually recovering, but the foundations of the recovery are still not solid, the process is not balanced and there are still many uncertainties," said Chinese President Hu Jintao. "All this shows that the deeper impacts of the financial crisis have still not been surmounted, and systemic and structural risks to the world economy remain very grave."
The G20 communique underscored the countries' focus on achieving "growth friendly" fiscal policies while acknowledging that leaders must reduce the budget deficits, although policies and budget cuts should be tailored to suit each individual nation.
"The path of adjustment must be carefully calibrated to sustain the recovery in private demand," the G20 nations wrote. "There is a risk that synchronized fiscal adjustment across several major economies could adversely impact the recovery. There is also a risk that the failure to implement consolidation where necessary would undermine confidence and hamper growth."
Analysts said the divergent views on how to sustain economic recovery marked the lack of effectiveness of the G20 forum.
How to Profit From Europe's Stealthy Resurgence
[Editor's Note: As a British expatriate and former international merchant banker, Money Morning's Martin Hutchinson brings readers a true "insider's" view of the sovereign-debt crisis now plaguing Europe. And the insights that he presents in this column may surprise you.]
European countries – both inside and outside the Eurozone – are slashing their budget deficits.
Greece, Portugal and Spain – three of the so-called "PIGS" – have to do so, of course. But Germany – generally reckoned to be in excellent shape – is also cutting its deficit, as is France, which hasn't run a budget surplus in 40 years. Britain, too, with no need to protect the euro (it's not a Eurozone member) just introduced a budget that cut the deficit by $140 billion over four years.
U.S. President Barack Obama and other Keynesians warn that Europe may push its own economy – or even the global economy – back into recession.
But here's the surprising reality: Europe may gain from its fiscal pain – and its deficit-trimming actions offer the best hope for a lengthy recovery.
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