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Budget Deficit

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How Banks Are "Crowding Out" the U.S. Rebound

By , Global Investing Specialist, Money Morning -

When U.S. President Barack Obama unveiled the $787 billion "stimulus" bill of extra spending and modest tax cuts last year, it became clear that the U.S. budget deficit was going to eclipse the 10% of gross domestic product (GDP) level for at least one year (and, as we now know, probably three years).

On those grounds, I opposed the "stimulus" - a position that was a lot less popular then than it has since become. However, as I'll show you below, it now looks as if I was right - and the implications for the U.S. economy are highly worrisome.

You see, the theory postulated by economist John Maynard Keynes holds that the extra spending stimulates additional output fails to address the question of where the money comes from.

Government cannot create wealth - it has to borrow it. If, before the stimulus, government finances were in good shape, as was the case in China, then stimulus does indeed stimulate: The modest budget deficit that it causes is easily financed, and the extra spending creates some jobs and maybe some useful infrastructure, depending on how well targeted it is.

In the United States, however, government finances were in a mess before the stimulus began.

To find out how banks are blunting the recovery, read on ....

Obama Deficit Brings Us Closer to the Brink of National Bankruptcy

By , Global Investing Specialist, Money Morning -

U.S. President Barack Obama's budget for 2011, presented on Monday, shows a deficit of $1.3 trillion for the fiscal year that ends that September. That shortfall is actually $287 billion more than the Congressional Budget Office (CBO) had projected less than a week earlier, when it had released a budget forecast of its own for that same fiscal year.

Granted, we're getting used to seeing budget deficits expand at a pretty quick pace these days. But even by government standards an increase of nearly $290 billion in less than a week is almost too much to bear!

All kidding aside, $105 billion of this $287 billion increase came about mostly because of a change in "assumptions." The CBO budget assumed that all the 2001 Bush tax cuts would be reversed, whereas the Obama budget reverses only those that applied to the rich (those with incomes above $250,000).

The CBO budget also made the ridiculous assumption that the Alternative Minimum Tax (AMT) would be allowed to revert to its 2001 level, forcing 25 million taxpayers to calculate their taxes twice - and to then pay the higher of the two estimates. That was never going to happen, and the Obama budget finally abandons that idiotic piece of fiction.

The disparity in deficit projections between the CBO and the Obama administration weren't limited just to fiscal 2011. For the period from 2011 to 2020, the CBO forecasted a budget deficit of $6.047 trillion, while the Obama budget released just days later projected a shortfall of $8.532 trillion - a difference of $2.485 trillion.

The difference in assumptions between the CBO and Obama projections explains nearly half of that difference. Of course, that still leaves the other half.

And a troublesome half it is.

To find out how these numbers may forecast a U.S. bankruptcy, read on...

Read More…

Obama Aims to Spur Small Business Hiring With $30 Billion Lending Program

By , Contributing Writer, Money Morning -

In the latest in a series of efforts to spur American businesses to hire more workers, President Barack Obama today (Tuesday) issued a proposal to provide community banks with $30 billion to increase lending to small businesses.

The new lending program aims to invest $30 billion in 8,000 banks to provide loans to businesses ready to hire new workers.  Funding for the program would come from money returned by large banks to the government's Troubled Asset Relief Program (TARP), and would require Congressional approval.

"Small businesses...have created roughly 65% of all new jobs over the past decade and a half. And I think we should make it easier for them," Mr. Obama said in a statement obtained by The Wall Street Journal. "This will help small banks do even more of what our economy needs: ensure that small businesses are once again the engine of job growth in America."

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Obama's Budget Adds $1 Trillion in Taxes, Balloons Federal Deficit

By , Contributing Writer, Money Morning -

President Barack Obama yesterday (Monday) unveiled a $3.8 trillion budget proposal that includes big tax increases on individuals and businesses, and expands the federal deficit by more than $5.5 trillion by the end of the decade, including a record $1.6 trillion next year.

The budget blueprint for the fiscal year that begins Oct. 1 reflects the administration's struggle to find a balance between containing the spiraling federal deficit with the need to boost the economy and create jobs - both of which figure to be political bombshells in the upcoming 2010 elections.

"We're trying to accomplish a soft landing in terms of our fiscal trajectory," Peter Orszag, director of the White House Office of Management and Budget, said at a press briefing.

But the budget is certain to add fuel to the debate over the size and scope of government. As expected, Republicans railed against the administration's big spending programs and tax increases.

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Why the Government Wants to Hijack Your 401(k)

By , Chief Investment Strategist, Money Map Report • @kfgtotalwealth -

It's bad enough that we've been forced to bail out Wall Street. But now the Obama administration is hatching plans to raid our retirement savings, too.

To say that I'm "outraged" doesn't come close to describing the emotions I experience every time I think about the government's latest hare-brained scheme.

According to widespread media reports, both the U.S. Treasury Department and the Department of Labor plan are planning to stage a public-comment period before implementing regulations that would require U.S. savers to invest portions of their 401(k) savings plans and Individual Retirement Accounts (IRAs) into annuities or other "steady" payment streams backed by U.S. government bonds.

Folks, there's only one reason these agencies would do such a thing - the nation's creditors think that U.S. government bonds are a bad bet and don't want to buy them anymore. So like a grifter who's down to his last dollar, the administration is hoping to get its hands on our hard-earned savings before the American people realize they've had the wool pulled over their eyes ... once again.

For the full details on the government's newest financial gambit, read on...

Coming Soon: The Bill for the Massive U.S. Debt

By , Contributing Writer, Money Morning -

Americans could be in for a rude awakening in coming months when they discover the true scope of the massive national debt racked up by the U.S. government.

In fact, the $1.6 trillion deficit expected for 2010, which is above 10% of gross domestic product (GDP), is only the beginning.

Since the current economic crisis began in late 2007, the U.S. Federal Reserve has tripled the size of its balance sheet, creating enormous amounts of new money by lending to hundreds of ailing banks and buying up more than $1 trillion of questionable asset-backed securities.

But that's only a small part of the story. Since the beginning of the crisis, the Fed has lent, spent, or guaranteed $11.6 trillion, including underwriting the entire system of mortgage finance in the United States, a system that currently shows a nearly $1 trillion loss.

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New Stimulus Won't Save Japan From Deflation, Soaring Deficit

By , Managing Editor, Money Morning -

Japan today (Tuesday) unveiled an $80.6 billion (7.2 trillion yen) stimulus package to bolster the economy and promote employment. But a sharp drop in exports, declining prices and rising joblessness should continue to plague the world's second-largest economy.

Japan's stimulus package will put $39 billion (3.5 trillion yen) toward supporting regional growth. Some $9 billion (800 billion yen) will go to environmental programs and $6.8 billion (600 billion yen) will be used to promote job growth. Much of the remainder will be used to offer loan guarantees for small companies to ease a credit crunch.

Japan's third-quarter gross domestic product GDP rose at a 4.8% annual rate, after revised growth of 2.7% in the second quarter. But the nation's currency, which is hovering around a 14-year high against the dollar, is jeopardizing the recovery by making Japanese exports more expensive for other countries.

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Prepare to Profit From the Trillion Dollar U.S. Budget Deficit

By , Global Investing Specialist, Money Morning -

By Martin HutchinsonContributing Editor The federal budget deficit hasn't received a lot of press lately, what with all the worries about the U.S. financial system, the home mortgage market, and the rescues that might be necessary to save both.  In fact, it's a bad sign, since the Bush administration and the Democrats in Congress have […]

Read More…

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