Tackle U.S. deficit: Bernanke
Last Updated: Monday, October 19, 2009
CBC News

The United States must get its trillion-dollar deficit under control or face the consequences, Federal Reserve chairman Ben Bernanke warned Monday.

In remarks to a Federal Reserve conference in California, Bernanke called for the U.S. to whittle down its record budget deficits or risk seeing its economy collapse from unsustainable government spending.

He also called for countries such as China to get their consumers to spend more, another move that would help combat skewed global trade and investment flows that contributed to the financial crisis.

On Friday, Washington reported a $1.42 trillion US deficit for the 2009 budget year that ended Sept. 30. The figure is more than triple the previous year's $459 billion deficit.

In September alone, the United States posted a budget deficit of $46.6 billion. By contrast, the Canadian government posted a deficit of $5.8 billion for the year ended March 31, 2009, and is forecasting a $56 billion shortfall in the current fiscal year.

Obama aiming to halve U.S. deficit by 2013
Last Updated: Saturday, February 21, 2009 |
The Associated Press

U. S. President Barack Obama wants to cut the federal deficit in half by the end of his first term, mostly by scaling back Iraq war spending, raising taxes on the wealthiest and streamlining government, an administration official said Saturday.

Obama's proposal for the 2010 fiscal year that begins Oct. 1 projects that the estimated $1.3 trillion US deficit he has inherited from former President George W. Bush will be nearly halved to $533 billion by 2013.

He's expected to outline some broad themes of his budget request Monday at a White House summit on fiscal policy and touch on it during his first speech to Congress on Tuesday evening.

Obama is slated to officially send at least a summary of it to Congress on Thursday, barely a week after his $787 billion US economic stimulus plan became law.

The official, who spoke on the condition of anonymity because the president has not yet released his budget, said Obama hopes to achieve his deficit-reduction goal by generating savings as he follows through on three core campaign promises over the next four years.

He has pledged to wind down the Iraq war by withdrawing most combat troops within 16 months of taking office.

He also has said he would let the temporary Bush tax cuts for people making more than $250,000 a year expire in 2011, effectively raising taxes on those people.

And he has vowed to scale back spending and improve government efficiency by eliminating programs that don't work.

Obama has pledged to make deficit-reduction a priority both as a candidate and as president. But he also has said economic recovery must come first.

In his first month in office, he has overseen enormous amounts of spending aimed at stabilizing the economy.

© The Canadian Press, 2009

according to the august budget update prepared by the congressional budget office, the US national debt will be $15.7 trillion by the end of the 2013 fiscal year (the year in which obama halves the annual deficit to $530 billion)...that will be 92% of the US GDP in 2013

what obama doesn't say is that his budget deficits will increase from 2013 through 2019, adding another $3.1 trillion to the national debt *AFTER* 2013...the 2019 deficit is projected to be $722 billion, and that will take at least another 10 years to eliminate, assuming there isn't another invasion or war or economic crisis in the next 20 years

congressional budgeet office august 2009 update:
http://www.cbo.gov/ftpdocs/105xx/doc10521/2009BudgetUpdate_Summary.pdf

Bank failures hit 106 for year; many more are weak
Published: Saturday, October 24, 2009 | 6:08 AM ET
Canadian Press Daniel Wagner, THE ASSOCIATED PRESS

WASHINGTON - It's a big number that only tells part of the story.

The number of banks that have failed so far this year topped 100 on Friday - hitting 106 by the end of the day - the most in nearly two decades. But the trouble in the banking system from bad loans and the recession goes even deeper.

Dozens, perhaps hundreds, of other banks remain open even though they are as weak as many that have been shuttered. Regulators are seizing banks slowly and selectively - partly to avoid inciting panic and partly because buyers for bad banks are hard to find.

Going slow buys time. An economic recovery could save some banks that would otherwise go under. But if the recovery is slow and smaller banks' finances get even worse, it could wind up costing even more.

This year's 106 bank failures are the most in any year since 181 collapsed in 1992 at the end of the savings-and-loan crisis. On Friday, regulators took over three small Florida banks - Partners Bank and Hillcrest Bank Florida, both of Naples, and Flagship National Bank in Bradenton - along with four elsewhere: American United Bank of Lawrenceville, Ga., Bank of Elmwood in Racine, Wis., Riverview Community Bank in Otsego, Minn., and First Dupage Bank in Westmont, Ill.

When a bank fails, the Federal Deposit Insurance Corp. swoops in, usually on a Friday afternoon. It tries to sell off the bank's assets to buyers and cover its liabilities, primarily customer deposits. It taps the insurance fund to cover the rest.

Bank failures have cost the FDIC's fund that insures deposits an estimated $25 billion this year and are expected to cost $100 billion through 2013. To replenish the fund, the agency wants banks to pay in advance $45 billion in premiums that would have been due over the next three years.

The FDIC won't say how deep a hole its deposit insurance fund is in. It can tap a credit line from the Treasury of up to a half-trillion dollars to cover the gap.

The list of banks in trouble is getting longer. At the end of June, the FDIC had flagged 416 as being at risk of failure, up from 305 at the end of March and 252 at the beginning of the year.

Debt next challenge for world economies: IMF
Last Updated: Tuesday, November 03, 2009 | 01:02 PM EST
Financial Post

OTTAWA -- Credible exit strategies for industrialized countries will need to go well beyond unwinding stimulus programs, and could include measures such as a freeze on government program spending, tax increases, and hikes in interest rates of at least two percentage points, the International Monetary Fund said in a report Tuesday.

“Many advanced economies entered the crisis with relatively weak structural fiscal positions, and these have been eroded further, not only by [stimulus] measures but also by underlying spending pressures,” the IMF said in a report on the state of global public finances. “This will raise the bar on fiscal adjustment.

Government debt in advanced Group of 20 economies is projected to reach 118% of GDP in 2014, even assuming some tightening next year, the report said. Getting debt below 60% by 2030 will require a number of initiatives among governments, among them: non-renewal of stimulus measures; a freeze in real per capita spending excluding pensions and health; reforms to keep the growth of pension and health spending in line with that of GDP; and tax increases averaging about three percentage points of GDP.

Further, stabilizing debt levels would imply higher interest rates, the IMF said, by an amount equalling at least two percentage points. The IMF said research suggested the 40-percentage-point increase in government debt ratios projected for advanced countries during 2008–14 could raise interest rates by two percentage points.

“The effects are even larger for countries that start from high debt ratios or deficit levels, or that confront faster population ageing,” it said.

Canada is in better shape than most, the IMF said, noting its debt-to-GDP ratio by 2014 will be “well below” the 90% level, compared with the projected 118% the U.S. is expected to record.

But don't worry. Everything's fine. The economy is meant to work like this and be functional. honest...really!

EHEM...

Move along.

Cheers

according to the US treasury website, the us national debt exceeded $12 trillion yesterday

canada's national debt ballooned to almost half a trillion dollars

I think it's (debt) the most worrisome aspect of the economic agenda in the United States...It's very obvious that the amount of debt service -- or, more specifically, let's just talk in terms of interest, as the aggregate size of the outstanding debt times the average interest on the debt. And clearly, as the debt increases in size -- doubles, triples -- interest payments go up proportionately. And you will soon find that, under the type of forecast we're making, they become the very largest part of outlays.

And there are simple mathematical calculations which can demonstrate to you that there are occasions in which certain relationships become progressively explosive. In other words, the large increase in interest payments increases the deficit and increases the debt, which in turn increases the interest payments, which increases the deficit and the debt, and that does not converge.

And I don't say we're there at this particular stage, but we're approaching it. And I must say that throughout my lifetime, I've always been aware of the fact that we never allowed federal debt in this country, going all the way back to Alexander Hamilton, to come anywhere close to our capacity to fund it. And that cushion that we always kept out there was one of the reasons why the dollar was such an important currency in the world and why we eventually became -- we displaced sterling in the latter part of the 19th century and have held to that position every since.

We're getting to the point where we're getting ever closer to where the capacity to fund that debt is. I don't know where that level is. Nobody knows. But there is no question that the cushion is going down. And we will learn very quickly when we're getting close, which is when long-term rates begin to move, inflationary pressures begin to build, and that's very late in the game to turn it around.

- Allan Greenspan, October 15, 2009

Interesting words from Greenspan. It's really offensive that most of these proclamations of his come only after he stopped working as the fed's chair.

I honestly think that the US has to be very very close to its capacity to fund the debt. At the very best, the nation is already in a position where stabilizing the dollar and returning to non-deficit spending would cause very real and easily seen damage to the economy. In fact, that's possibly (and likely) what's already happening.

Cheers

greenspan was critical of expanding the national debt while he was in charge of the fed, but he supported bush's expensive tax cuts, and looked the other way when bush allowed federal spending to increase by 50%

the usa spent over $450 billion on interest payments on the national debt in 2008 (fiscal year ending sept 30) when the national debt was around $9 trillion...then the economic crisis hit and interest rates collapsed to near zero which reduced the interest expense to $380 billion in 2009...there is significant upward pressure on interest rates because the usa is printing money...the bank of canada predicts interest rates will rise sharply beginning in june 2010, perhaps rising an additional 2% by year end

2% of $12 trillion is an additional $240 billion in interest per year...the usa can support that for a while, but the national debt is predicted to be close to $20 trillion in ten years...if the average interest on the national debt is 5%, that will cost taxpayers $1 trillion per year

the us treasury was paying about 16% on it's debt when ronald reagan was president...i dunno how long this party is going to last...i expect it's going to hurt a lot by the time it's over

the shame of it all was that the debt was supposed to be paid off completely by 2011...greenspan and bush made a $14 trillion accounting error:



"The most recent projections from the OMB indicate that, if current policies remain in place, the total unified surplus will reach $800 billion in fiscal year 2011, including an on-budget surplus of $500 billion. The CBO reportedly will be showing even larger surpluses. Moreover, the admittedly quite uncertain long-term budget exercises released by the CBO last October maintain an implicit on-budget surplus under baseline assumptions well past 2030 despite the budgetary pressures from the aging of the baby-boom generation, especially on the major health programs. The most recent projections, granted their tentativeness, nonetheless make clear that the highly desirable goal of paying off the federal debt is in reach before the end of the decade. This is in marked contrast to the perspective of a year ago when the elimination of the debt did not appear likely until the next decade."
- Allan Greenspan, January 25, 2001
http://www.federalreserve.gov/BOARDDOCS/TESTIMONY/2001/20010125/default.htm