Lawmakers Taking United States Down The Road To Financial Ruin – Federal Debt To Double In 15 Years Unless Congress Changes Course On Spending And Taxes

June 5, 2012

WASHINGTON, DC – The federal government is staring at a disastrous fiscal picture with debt approaching 200 percent of GDP within two decades if Congress doesn’t change course on spending and taxes, according to the latest analysis by the Congressional Budget Office released Tuesday.

The CBO said it’s the worst picture since a brief period during World War II when spending ballooned to fund the military campaign.

“In the past few years, the federal government has been recording the largest budget deficits since 1945, both in dollar terms and as a share of the economy. Consequently, the amount of federal debt held by the public has surged,” the CBO report said in a long-term budget outlook that paints a shockingly dark picture of government finances.

CBO analysts said the downturn and Congress’s response have been devastating for the government. Federal debt as a percentage of GDP — a standard measure of a government’s debt burden — stood at 40 percent at the end of 2008. But it will top 70 percent by the end of this year, and is only headed higher unless Congress changes course. The ratio could double by the middle of the next decade and will have topped 200 percent of GDP — twice the size of the projected U.S. economy — by 2037.

At that level, fiscal catastrophes are more likely, and the government’s ability to respond becomes far more constrained.

The increases in federal spending will come chiefly from higher interest payments and health care costs. Federal spending on health will nearly double from about 5.4 percent of GDP to 10.4 percent by 2037, according to Tuesday’s report.

Ironically, the nonpartisan budget agency said the deep deficits and debt are not inevitable. If Congress would step out of the way and allow the laws currently on the books — including ever-deeper spending cuts and potentially devastating tax increases — to go into effect, federal debt would begin to shrink almost immediately as a percentage of the economy, as measured by GDP.

But President Obama and lawmakers on Capitol Hill have been reluctant to let the law take its course. Instead, the GOP has fought to permanently extend lower tax rates due to expire, and Democrats have defended existing spending and in many instances called for new spending.

That’s left the country bumping along with deficits of $1 trillion or more each of the last three years. Yet with the economy still weak, lawmakers remain paralyzed as they try to figure out how to act over the long term without harming the economy now.

The budget agency said that may not be possible.

“On the one hand, cutting spending or increasing taxes slowly would lead to a greater accumulation of government debt and might raise doubts about whether longer-term deficit reduction would ultimately take effect,” the CBO report said. “On the other hand, abruptly implementing spending cuts or tax increases would give families, businesses, and state and local governments little time to plan and adjust, and would require more sacrifices sooner from current older workers and retirees for the benefit of younger workers and future generations.”

The report produced hand-wringing and finger-pointing on Capitol Hill.

“The president’s policies are not working,” said House Budget Committee Chairman Paul D. Ryan, Wisconsin Republican. “The sobering reality of our economic challenges require leadership and action. The president and his party’s leaders have failed on both counts.”

But House Minority Whip Steny H. Hoyer, Maryland Democrat, said the primary hurdle is the GOP’s demand that spending cuts fuel any debt solution.

“CBO’s report is a warning that we must get our fiscal house in order by achieving big and balanced deficit reduction that includes both spending and revenues,” he said. “Cutting domestic spending alone won’t work, and it will require both parties working together.”

The CBO’s analysis is a look at long-term budget and economic factors, and gives some interesting snapshots about how both the budget and the economy will change.

Among the agency’s assumptions is that the U.S. population will reach 389 million in 2037 and top 500 million in 2087, with the population skewing ever older.

And older workers tend to work fewer hours, meaning that by 2087 the average number of hours worked per employee in the workforce will be about 2 percent less than in 2022.

The report also projected that the growth in the labor force will slow, keeping economic growth to an average of 2.2 percent over the long-term. But the interest rate on debt will be higher, at an average of 2.7 percent — a reversal from recent years, when economic growth and interest rates were about the same.

The non-partisan scorekeeping agency also put an exact price on the deficit when it comes to savings, saying that for each dollar the deficit rises, national savings is reduced by between 32 cents and 72 cents, and domestic investment is reduced by between 10 cents and 50 cents.

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Time Bomb: US And UK Banking Regulators Force Banks To Purchase Government Debt

May 31, 2012

WASHINGTON, DC – US and European regulators are essentially forcing banks to buy up their own government’s debt—a move that could end up making the debt crisis even worse, a Citigroup analysis says.

Regulators are allowing banks to escape counting their country’s debt against capital requirements and loosening other rules to create a steady market for government bonds, the study says.

While that helps governments issue more and more debt, the strategy could ultimately explode if the governments are unable to make the bond payments, leaving the banks with billions of toxic debt, says Citigroup strategist Hans Lorenzen.

“Captive bank demand can buy time and can help keep domestic yields low,” Lorenzen wrote in an analysis for clients. “However, the distortions that build up over time can sow the seeds of an even bigger crisis, if the time bought isn’t used very prudently.”

“Specifically,” Lorenzen adds, “having banks loaded up with domestic sovereign debt will only increase the domestic fallout if the sovereign ultimately reneges on its obligations.”

The banks, though, are caught in a “great repression” trap from which they cannot escape.

“When subjected to the mix of carrot and stick by policymakers…then everything else equal, we believe banks will keep buying,” Lorenzen said.

Institutions both in the U.S. and abroad have been busy buying up their national sovereign debt for years, he found.

Spanish banks bought 90 billion euros worth while Italian firms picked up 86 billion euros just between November and March. Even in the UK, which has avoided a debt crisis as it is outside the euro zone and able to set its own monetary policy, banks have increased holdings of gilts by 100 billion pounds over the past few years.

And in the U.S., banks, though having “comparatively low holdings” of Treasurys, have bought $700 billion of American debt since 2008.

“Ask the simple question: Why are banks buying sovereign debt when yields are either near record lows, or perhaps more interestingly, when foreign investors are pulling out?” Lorenzen wrote.

He thinks he has the answer.

For one, the European Central Bank’s [cnbc explains] Long-Term Refinance Operations provided guarantees for the debt, which Lorenzen deems a “heavily sweetened form of financial repression given the pressure banks were under” to buy.

“Banks have ended up buying bonds at yields where they would happily have sold them only a few months prior,” he said.

Moreover, banks are allowed to not count the sovereign debt against their Basel capital requirements. Also, Lorenzen argued, European banks have escaped the onus of stress tests this year, a less-than-subtle hint that authorities are willing to tolerate a bit of looseness in banks so long as they are helping to stave off a full-blown debt crisis.

“One doesn’t have to be too cynical to hypothesize that all the disclosures on sovereign exposure have become a bit of a political liability at a point in time where the only buyers in size of periphery sovereign debt are periphery banks funded by the ECB,” he said.

“As long as funding for sovereigns in markets remains in jeopardy, and as long as there is no clear move towards proper fiscal solidarity in Europe, we reckon there will be a strong political incentive to make banks captive buyers. That implies a move away from marking sovereign debt to market, away from raising risk weights, away from capital ratios that don’t risk weight assets and away from stress tests incorporating government bonds.”

For investors in bank bonds, the news is good — for now.

“As long as policy remains to sustain the status quo, bondholders should come out fine. Conversely, if the burden becomes too great, then the alternative will most probably involve a radical departure from current convention — to the detriment of bondholders,” Lorenzen said.

“We suspect this binary outcome requires a political judgement that many funds are not particularly well placed to make.” he added. “Instead of those economics, accounting and finance degrees perhaps you should have done political science after all.”

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Incompetent President Bankrupting The United States – Federal Debt Has Increased 4.3 BILLION Dollars Per Day Under Obama – Now Totals Over 5 TRILLION – $5,027,761,476,484.56

April 18, 2012

WASHINGTON, DC – In the 39 months since Barack Obama took the oath of office as president of the United States, the federal government’s debt has increased by $5,027,761,476,484.56.

Although he has served less than a term, Obama is now the first American president to see the federal government’s debt increase by more than $5 trillion during his time in office.

During the full eight years that George W. Bush served as president, the federal government’s debt increased by $4,899,100,310,608.44. (Rising from $5,727,776,738,304.64 to $10,626,877,048,913.08.)

The $5,027,761,476,484.56 that the debt has increased during Obama’s presidency equals $16,043.39 for every one of the 313,385,295 people the Census Bureau now estimates live in the United States.

At the close of business on Jan. 20, 2009, the day Obama was inaugurated, the federal government’s debt was $10,626,877,048,913.08, according to the U.S. Treasury. By the close of business on April 16, 2012—as many Americans were working to finalize their 2011 tax returns to meet an April 17 filing deadline—the debt had reached $15,654,638,525,397.64.

The $5,027,761,476,484.56 in additional debt that the U.S. government has taken on during the 39 months that Obama has been president is more debt than the federal government accumulated in the first 219 years of the Republic.

The total federal debt did not exceed $5,027,761,476,484.56 until March 14, 1996, when President Bill Clinton was in the last year of his first term in office. On that day, the national debt rose from $5,025,887,531,178.79 to 5,035,165,720,616.33.

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Lies: White House Website Still Advertising Broken Obama Promise To Cut Deficit In Half

February 17, 2012

WASHINGTON, DC – When President Obama unveiled his budget on Monday, it became clear that he would break his pledge to cut the deficit in half in his first term in office. But the White House website is still prominently touting the promise.

When visitors to the White House website click on “Fiscal Responsibility” under the “Issues” section, they are directed to a page that includes the following:

Cut the deficit in half by the end of the President’s first term. On January 20, 2009, the President inherited a $1.3 trillion budget deficit. The President has put forth a budget that will halve this deficit by the end of his first term, bring non-defense discretionary spending to its lowest level as a share of GDP since 1962.

Though that would mean cutting the deficit to $650 billion, Obama’s budget projects deficits of $1.3 trillion in fiscal year 2012 (ending this September) and $901 billion for fiscal year 2013. Non-defense discretionary spending is not at the lowest level since 1962, either (more like 2008 or 2001, depending on whether you’re comparing it to this year or next).

This was brought to my attention by blogger Pundit Pete, who also notes that when pressed on this broken promise on Fox News Sunday, White House Chief of Staff Jack Lew tried to chalk it up to the economic picture having deteriorated after Obama made the initial pledge, stating, “as the 2009 and 2010 went on, we all learned more about the deep of the recession we inherited, which we have very — worked very hard to dig out of.”

Of course, this doesn’t explain why the White House website continues to promote the pledge, knowing what we know now.

Ironically, the White House website also includes this vow:

Return to honest budgeting. Too often in the past several years, budget tricks were used to make the government’s books seem stronger than they actually were. The President put forward a budget that rejects many of these gimmicks, most notably, the exclusion of war costs.

But in reality, one of the biggest gimmicks in Obama’s budget is that it relies on phony “war savings,” which pretends that the conflicts in Iraq and Afghanistan would be fought at full force in perpetuity and counts money that would have never been spent anyway as deficit reduction.

Looks like the White House website could use some updating.

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White House Hides Obama’s Involvement And/Or Ties To Bankrupt Solyndra Company – $535 Million Loan From Feds

October 15, 2011

WASHINGTON, DC – Congress isn’t getting a glimpse of what’s on President Barack Obama’s Blackberry – or any more internal White House communications related to the bankrupt solar company Solyndra, which received a $535 million loan guarantee from the federal government.

House Republicans investigating the loan controversy had requested all internal White House documents about the issue. House Energy and Commerce subcommittee chair Rep. Cliff Stearns said that includes emails on the President’s Blackberry.

On Friday the White House Counsel sent a letter to the House Energy and Commerce Committee explaining they won’t comply with the request because it “implicates longstanding and significant institutional Executive Branch confidentiality interests.”

The response is hardly a surprise given past administrations’ refusal to comply with similar congressional requests. The difference here? President Obama is the first Chief Executive to carry a Blackberry, so it’s the first time a White House counsel has – even indirectly – turned down an attempt to peek at his email. Neither the Blackberry nor his personal email is explicitly mentioned in the letter.

On October 5, Republican Chairmen Fred Upton and Cliff Stearns requested “all communications among White House staff and officials related to the $535 million loan guarantee to Solyndra” because they believed “the White House was closely involved in the monitoring of the Solyndra loan guarantee after it was issued.”

They said these documents are necessary “to better understand the involvement of the White house in the review of the Solyndra loan guarantee and the Administration’s support of this guarantee.’

In her letter Friday, White House Counsel Kathryn Ruemmler said, “the three federal agencies most directly involved in the Solyndra loan guarantee, the Department of Energy, the Office of Management and Budget and the Department of the Treasury, are all cooperating with the Committee’s investigation into the Solyndra loan guarantee.”

Together she says the three agencies have turned over 70,000 pages of documents and are continuing to do so “on a rolling basis.” The letter states the White House has turned over another 900 pages related to communications between the White House and Solyndra, its representatives and investors. She offers to cooperate further with the investigators.

CNN has attempted to reach the Chairs of the Energy and Commerce Committee for comment. Expect some kind of political fallout.

Solyndra is a California solar panel manufacturer that had received $535 million in federal loan guarantees before it was forced to halt operations and file for bankruptcy at the end of August, putting more than 1,000 workers out of work.

Before its failure, the company had been touted as an example of the benefits of creating green jobs by the Obama administration. But since then, it has become the center of congressional criticism and a probe by the FBI.

Brian Harrison, the CEO of Solyndra, resigned Wednesday amidst the scandal.

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