News & Analysis
U.S. Red Ink Climbs Even Higher, to $1.8 Trillion
The government will have to borrow nearly 50 cents for every dollar it spends this year, exploding the record federal deficit past $1.8 trillion under new White House estimates. Budget office figures released Monday would add $89 billion to the 2009 red ink -- increasing it to more than four times last year's all-time high as the government hands out billions more than expected for people who have lost jobs and takes in less tax revenue from people and companies making less money. The unprecedented deficit figures flow from the deep recession, the Wall Street bailout and the cost of President Barack Obama's economic stimulus bill -- as well as a seemingly embedded structural imbalance between what the government spends and what it takes in. As the economy performs worse than expected, the deficit for the 2010 budget year beginning in October will worsen by $87 billion to $1.3 trillion, the White House says. The deterioration reflects lower tax revenues and higher costs for bank failures, unemployment benefits and food stamps. ... "The deficits ... are driven in large part by the economic crisis inherited by this administration," budget director Peter Orszag wrote in a blog entry on Monday. – AP
Dominant Social Theme: Let the red ink flow.
Free-Market Analysis: No, no ... the staggering deficits developed by the Obama administration are NOT driven by the economic crisis inherited by this American president. In fact, prudent free-market economics dictates that the deficit should be pruned as aggressively as possible. But that's not the case of course when it comes to this budget-making, one that includes some US$700 billion for economic stimulation and another US$700 billion to stabilize various financial firms and other kinds of companies that are apparently too big too fail.
Here is testimony by budget director Peter Orzsag in March to Congress, announcing budget numbers:
Deficit $2 trillion higher for this year and next because of crisis we inherited.
The economic crisis we've inherited raises the deficit by roughly $2 trillion (for this year and next year combined). The crisis raises the deficit by:
• Adding more than $600 billion of deficit spending ($300 billion a year) because a weak economy reduces revenue and increases spending on automatic stabilizers (like unemployment insurance)
• Requiring $650 billion or more to stabilize financial markets (including placeholder):
-$171 billion for stock purchases in Fannie Mae and Freddie Mac
-$247 billion in federal costs for TARP
-$250 billion placeholder in case additional actions are necessary
• Creating the need for the $787 billion Recovery Act to jumpstart the economy
Deficit would be another $2 trillion higher over the next 10 years without our policies – and we wouldn't have cleaner energy, better education, or more efficient health care.
The final statement on the deficit being US$2 trillion over the next 10 years "without our policies" strikes one as fairly naive if not defiantly defensive. Just asserting that clean energy, better education and more efficient healthcare will cut the budget in the next decade by that amount is puzzling to those who believe in the efficiency of markets (versus governments).
What Orzsag is saying is that government can "save" money (presumably taxpayers') by coming up with innovative "new" programs. This runs counter to everything that many government observers believe about programs at the federal level. In fact, how many average citizens really think that the Obama administration will generate and implement programs that will save money because they are "better and more efficient"? Do Obama's administrators really believe in the efficiency of the federal government? Can they point to programs that have made the country "better and more efficient" at the federal level?
We suppose it all has to do with how you define the words. If you believe that the FDA ought to be regulating the air while the EPA should be regulating all the water (an upcoming bill, believe it or not) then perhaps a case can be made that government must be in control of all critical areas of the economy.
But please deal, then, with this critical question: Why has sweeping government control never worked anywhere it has been tried? Both Russia and China have backed away from government command-and-control because such formulations promised only bankruptcy and rebellion. Yet the Western axis, notably Britain and America in the past decade, rush pell-mell toward additional government control despite all the historical precedents that teach otherwise.
In any event, the budget Obama has released, borrowing 50 cents on every dollar is NOT the result of problems left over from the Bush administration. Probably at least half of it is dedicated either to economic stimulation (which is destructive to the real economy in the long run) or focused on propping up otherwise bankrupt companies. Get rid of these two areas and current and future budgets would seem to be nearly in balance.
Which brings us to another point: Is the administration actively seeking the destruction of the America economy? We have heard this point raised on several "conservative," national talk shows recently, the idea being that more badly the economy functions, the more widely the welfare state (and thus the government) casts its net. While there is probably some truth to this, there is little if any evidence that President Obama fully understands free-markets or is pursuing his anti-market policies despite knowing better. He seems quite sincere in his prejudices – which can be explained by his background; he is a product of a government-activist education and has almost always toiled either in academic or political settings. He knows a good deal about policy to be sure, but little about free-market economics.
At some level within the admin there is certainly the idea that the kind of pump-priming going on nowadays will only, in the best scenario, put off the day of reckoning -- perhaps until Obama is ready to leave office. But if a full measure of rebalancing is not taken now, then the quasi-depression of the later 2000s will doubtless return with even more force in the not too distant future. These timelines are thus subject to uncertainty and it is therefore safe to say that while the US administration (and administrations in Europe as well) may want the crisis to stick around, they certainly don't want it to deepen to the point where there's blood on the streets. Even the Chinese retreated from overt violence after Tiananmen Square. It's simply not healthy in this day and age for government leaders to be perceived as keeping citizens in line through force.
Conclusion: The Obama administration does not need to launch a budget of this size with this much red ink. It could apparently lop off deficits simply by removing stimulus and too-big-to-fail appropriations. By not doing so, it is doing its part to increase inflation, leading eventually to price inflation and the resultant impacts on the economy – high interest, a slower economy and, of course, rising precious metals' prices.
Over the next months and years, one might wish to scrutinize the administration carefully to see if there is any moderation of its anti-market stance or rhetoric. The dye may already be cast, but one can usually make things even worse. If the administration continues to go down the road of "even worse" than what is possible becomes probable for the economy – a delayed recovery, a further slump or even a deepening depression.
Posted by Joseph on 05/12/09 04:36 AM
I have an inportant question regarding the relentless money printing (so as destroying the value of the dollar, which in reality is already zero since cutting loose from the Goldstandard). It seems that Europe AND China are printing at the same pace (aprox 20% annually). Is it possible that the dollar will hold its own against Euro and Yuan and Yen, interest-rates worldwide continue to be almost near zero (needed to pay for the interest bills) and live through times of massive price inflation!! So no interestrate hikes, that would bankrupt the US and Europe. Furthermore unite a destabilized Europe (too many people and cultures) and destabilize the USA, a new worldcurrency in which the FED descendants will controll in fact the new worldeconomy (Worldcontroll that is to say)The economic questions have become quite clear to me and "see"what is happening (to the disadvantage of the hardworking masses and profiting masses from social benefits) but NOT the outcome of the MONEY PRINTING (Of course I know the outcome as to the Zimbabwian moneyprinting outcome, but my question is related to a worldwide consensus amongst Central banks, the Europeans "lowered "their interest rates from 1,25 to 1% whilst evrybody knows and sees the falling longterm bondprices). Very interested to hear your insight.
Reply from The Daily Bell
Theoretically it is a race to the bottom for paper money. The only kind of money that will not compete to be first in such a race are money metals, gold and silver. They will go up, if history is any indication, relative to fall of paper currencies.
Posted by Roberto Carlos Alvarez-Galloso on 05/12/09 07:40 AM
Thanks for this news.
Reply from The Daily Bell
Posted by Dave on 05/12/09 09:53 AM
Al Jazeera can be thought of presenting the news in an unbiased manner about as far as I can throw a feather NOT TO FAR! How absurd for the Daily Bell to write such garbage. Al Jazeera equates to FOX NEWS??? Talk about outrageous!
Conservative as Fox is can you imagine an Israeli news cast bringing us the news? Well, if you react and say that it would be absurd to think an Israeli news corp could bring us unbiased news than how under God's sun can you have tell me Al Jazeera would be anything but radicals gaining a toe hold in American media.
You folks have no appreciation of the CONSTITUTION or America's unique experience and dismiss any attempt to acknowlege such as us having some superiority complex.
The Daily Bell writes a shallow analysis with the stroke of a pen referring to Jazeera as merely presenting an Arab point of view.
For those of you who take such pride in your intellect, we need more AMERICAN points of view and less capitulation to PC garbage.
Europe is falling apart with it's openness to 'OTHER OPINIONS' to the point where your culture is LESS able to indentify itself from the increasing onslaught of foreign influence.
Openness is one thing, but creeping into the sphere of becoming INFLUENCE in another!
You have neighborhoods where police fear to tread because of Muslim influence and this is in your own press! America does not need this!
Some care not a wit about their own cultures and think nothing of one sided exchanges.
Your intillectually luke warm temperature in your ever decreasing ability to use discretion is sinking your culture into oblivion. Keep your generosity.
Whoever wrote this in obviously writing from a fairytale perspective and not in the real world.
England bans a conservative talk show host while allowing a celebration of Che G. via his daughter and we need to hear more of this so called 'intellectual' opinion based gibberish about Al Jazeera.
It is downright dangerous to open your culture to biased opinion calling itself news. You weaken your nation not strengthen it by having no rules.
Maybe you ignorant, pompous fools at he Daily Bell should have had a GERMAN perspective during WWII! MAYBE A RUSSIAN PERSPECTIVE as well BROADCASTING THEIR BRAND OF 'NEWS' TO YOUR POPULATION!
You call Fox conservative but in relation to what...CNN, MSNBC?
Why waste your time calling Fox conservative when you could be calling CNN and MSNBC so intensly biased so as to be bold face liars!
Are these the new standards.
PBS is anything but unbiased. We don't need to be dumbed down because some foreign intillect calls it merely a point of view.
History shows us what mere points of view can Click to view linkeat harm!
Care to debate what PBS has left out of it's whitewashed 'NEWS'!
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