Showing posts with label Gov Debt. Show all posts
Showing posts with label Gov Debt. Show all posts
Monday, December 24, 2012
Monday, August 29, 2011
Monday, August 8, 2011
No Chance of Default, US Can Print Money: Greenspan - CNBC
EXCERPTS:
"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default" said Greenspan on NBC's Meet the Press. "What I think the S&P thing did was to hit a nerve that there's something basically bad going on, and it's hit the self-esteem of the United States, the psyche" said Greenspan."
"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default" said Greenspan on NBC's Meet the Press. "What I think the S&P thing did was to hit a nerve that there's something basically bad going on, and it's hit the self-esteem of the United States, the psyche" said Greenspan."
Thursday, July 14, 2011
With no debt deal, Obama would face tough choices Aug. 3 about what bills to pay - The Washington Post
By Zachary A. Goldfarb,
EXCERPTS:
What happens if President Obama and Congress don’t strike a debt deal?
On Aug. 3, the nation would find out, with Obama forced to make a set of extraordinarily difficult choices about what to pay or not pay. By then, the government’s savings account would be nearly empty and the president would be relying on daily tax revenue to pay the nation’s bills.
There wouldn’t be enough — in fact, there would be a $134 billion shortfall in August alone.
As Obama decided what to pay, he would choose among Social Security checks, salaries for members of the military and veterans, unemployment benefits, student loans, and many other government programs, according to administration officials and an independent analysis by a former senior Treasury Department official in the George H.W. Bush administration.
To protect the nation’s creditworthiness, Obama would have to balance those priorities with the imperative of making payments to investors in U.S. government bonds — ranging from domestic pension funds to the Chinese government.
“You can move the chess pieces around all you want,” said Jay Powell, a visiting scholar at the Bipartisan Policy Center and an author of the analysis. “You’re going to lose.”
For months, the president has been pressing Congress to raise the federal limit on borrowing, now at $14.3 trillion. Members of both parties have balked, saying they first want a plan to tame the growth of the debt.
On Wednesday, with negotiations over raising the debt ceiling hung up, Moody’s said it might downgrade the U.S. government’s top-of-the-line credit rating, which helps keep U.S. bonds the global gold standard, “given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default.”
***
Some skeptics in Congress and conservative economists say that Obama has overstated the risk of not raising the debt ceiling and that tax revenue could pay for up to 60 percent of government operations.
“You do not have to default and you don’t have to shut down the government if you choose not to,” said Peter Morici, an economist at the University of Maryland. If Congress raises the debt ceiling without a long-term plan for reducing the federal deficit, he added, “they’ll never solve the problem, and we’ll end up like Greece.”
Obama’s advisers have said that prioritizing some payments over others is impractical and would be chaotic. Money comes in and flows out at an inconsistent rate.
“You would have to make heinous choices about which bills you would pay,” White House press secretary Jay Carney said Wednesday.
***
According to the center’s analysis, the government would have to cut 44 percent of spending immediately. Through August, the government could afford Social Security, Medicare, Medicaid, defense contracts, unemployment insurance and payments to bondholders.
But then it would have to eliminate all other federal spending, including pay for veterans, members of the armed services and civil servants, as well as funding for Pell grants, special-education programs, the federal courts, law enforcement, national nuclear programs and housing assistance.
After the debt ceiling was breached, there would be no delay in the tough decisions.
On Aug. 3, the Treasury is set to receive about $12 billion in tax revenue — mainly from people paying their taxes late — and is slated to spend $32 billion, including sending out more than 25 million Social Security and disability checks at a cost of $23 billion, according to Powell’s analysis.
Obama could decide to pay half of the Social Security checks and ignore other bills coming due that day, which include $500 million in federal salaries and $1.4 billion in payments to defense contractors.
Or he could decide not to make any Social Security payments and instead hoard tax revenues to pay investors in U.S. bonds. A failure to pay those investors would severely destabilize the financial system, analysts say.
***
More worrisome for government officials is the $100 billion in Treasury bonds that come due on Aug. 4 and must be paid off. Ordinarily, Treasury would pay off those bonds and issue new bonds.
But if the debt ceiling isn’t increased, Treasury could run into trouble “rolling over” this debt. Ratings agencies are threatening to downgrade U.S. bonds if the debt ceiling isn’t raised. If the bonds are downgraded, many investors — such as retirement funds — can’t buy them.
As a result, there could be far fewer buyers of Treasury bonds and the U.S. government would have to pay much higher interest rates.
Government officials and analysts say a spike in rates would dramatically increase the cost of funding the government and lead to far higher interest rates on mortgages, credit cards and other types of debt.
EXCERPTS:
What happens if President Obama and Congress don’t strike a debt deal?
On Aug. 3, the nation would find out, with Obama forced to make a set of extraordinarily difficult choices about what to pay or not pay. By then, the government’s savings account would be nearly empty and the president would be relying on daily tax revenue to pay the nation’s bills.
There wouldn’t be enough — in fact, there would be a $134 billion shortfall in August alone.
As Obama decided what to pay, he would choose among Social Security checks, salaries for members of the military and veterans, unemployment benefits, student loans, and many other government programs, according to administration officials and an independent analysis by a former senior Treasury Department official in the George H.W. Bush administration.
To protect the nation’s creditworthiness, Obama would have to balance those priorities with the imperative of making payments to investors in U.S. government bonds — ranging from domestic pension funds to the Chinese government.
“You can move the chess pieces around all you want,” said Jay Powell, a visiting scholar at the Bipartisan Policy Center and an author of the analysis. “You’re going to lose.”
For months, the president has been pressing Congress to raise the federal limit on borrowing, now at $14.3 trillion. Members of both parties have balked, saying they first want a plan to tame the growth of the debt.
On Wednesday, with negotiations over raising the debt ceiling hung up, Moody’s said it might downgrade the U.S. government’s top-of-the-line credit rating, which helps keep U.S. bonds the global gold standard, “given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default.”
***
Some skeptics in Congress and conservative economists say that Obama has overstated the risk of not raising the debt ceiling and that tax revenue could pay for up to 60 percent of government operations.
“You do not have to default and you don’t have to shut down the government if you choose not to,” said Peter Morici, an economist at the University of Maryland. If Congress raises the debt ceiling without a long-term plan for reducing the federal deficit, he added, “they’ll never solve the problem, and we’ll end up like Greece.”
Obama’s advisers have said that prioritizing some payments over others is impractical and would be chaotic. Money comes in and flows out at an inconsistent rate.
“You would have to make heinous choices about which bills you would pay,” White House press secretary Jay Carney said Wednesday.
***
According to the center’s analysis, the government would have to cut 44 percent of spending immediately. Through August, the government could afford Social Security, Medicare, Medicaid, defense contracts, unemployment insurance and payments to bondholders.
But then it would have to eliminate all other federal spending, including pay for veterans, members of the armed services and civil servants, as well as funding for Pell grants, special-education programs, the federal courts, law enforcement, national nuclear programs and housing assistance.
After the debt ceiling was breached, there would be no delay in the tough decisions.
On Aug. 3, the Treasury is set to receive about $12 billion in tax revenue — mainly from people paying their taxes late — and is slated to spend $32 billion, including sending out more than 25 million Social Security and disability checks at a cost of $23 billion, according to Powell’s analysis.
Obama could decide to pay half of the Social Security checks and ignore other bills coming due that day, which include $500 million in federal salaries and $1.4 billion in payments to defense contractors.
Or he could decide not to make any Social Security payments and instead hoard tax revenues to pay investors in U.S. bonds. A failure to pay those investors would severely destabilize the financial system, analysts say.
***
More worrisome for government officials is the $100 billion in Treasury bonds that come due on Aug. 4 and must be paid off. Ordinarily, Treasury would pay off those bonds and issue new bonds.
But if the debt ceiling isn’t increased, Treasury could run into trouble “rolling over” this debt. Ratings agencies are threatening to downgrade U.S. bonds if the debt ceiling isn’t raised. If the bonds are downgraded, many investors — such as retirement funds — can’t buy them.
As a result, there could be far fewer buyers of Treasury bonds and the U.S. government would have to pay much higher interest rates.
Government officials and analysts say a spike in rates would dramatically increase the cost of funding the government and lead to far higher interest rates on mortgages, credit cards and other types of debt.
Tuesday, May 10, 2011
PIMCO raises bet against U.S. government debt | Reuters
EXCERPTS:
"PIMCO's Bill Gross, the manager of the world's largest bond fund, raised his bet against U.S. government-related debt in April to 4 percent from 3 percent, according to the company's website on Monday.
/
Last Friday, Gross told Reuters that the only way he would purchase Treasuries again is if the United States heads into another recession.
Since the news that Gross had turned more bearish on government debt, reflecting his growing worries over the country's fiscal deficit and debt burden, Treasury prices have been soaring.
Gross told Reuters on Friday: "Treasury yields are currently yielding substantially less than historical averages when compared with inflation. Perhaps the only justification for a further rally would be weak economic growth or a future recession that substantially lowered inflation and inflationary expectations."
"PIMCO's Bill Gross, the manager of the world's largest bond fund, raised his bet against U.S. government-related debt in April to 4 percent from 3 percent, according to the company's website on Monday.
/
Last Friday, Gross told Reuters that the only way he would purchase Treasuries again is if the United States heads into another recession.
Since the news that Gross had turned more bearish on government debt, reflecting his growing worries over the country's fiscal deficit and debt burden, Treasury prices have been soaring.
Gross told Reuters on Friday: "Treasury yields are currently yielding substantially less than historical averages when compared with inflation. Perhaps the only justification for a further rally would be weak economic growth or a future recession that substantially lowered inflation and inflationary expectations."
Saturday, April 30, 2011
How Would Raising Debt Ceiling Impact U.S. Bond Market?
Watch the full episode. See more PBS NewsHour.
Saturday, January 15, 2011
The Market Flashes 'Caution' on U.S. Treasurys - WSJ.com
By NEEL KASHKARI AND STEVE RODOSKY
January 14, 2011Many politicians talk about America's large and growing federal debt, but they've taken little corrective action. We know that our political system responds to a crisis, but it would be very costly to Americans to wait for an acute fiscal crisis similar to the one currently facing Europe. Our leaders must act while the U.S. continues to enjoy the benefits of a strong Treasury market.
Policy makers often ask how much time we have before markets lose confidence in Treasurys. No one knows for sure: It could be many years from now, but confidence could also fall rapidly.
Confidence is not determined only by absolute economic strength, but also by relative strength. If our major trading partners improve their fiscal position more quickly than we do, which appears to be happening, investors could change their preferences and invest elsewhere. While an explicit default is in theory possible, it is highly unlikely given that the U.S. can always print more dollars. Investors should be more concerned about losses through dollar devaluation and inflation—an implicit default.
In hindsight, we know that weakening underwriting standards and increasing prices relative to income were early signals of problems in the housing sector. Although we can't specify exactly how much time we have, we can suggest market indicators that leaders should watch for warning signs:
• Increasing U.S. government debt-to-GDP ratio. From 1960 to 2007, that ratio averaged 36%. At the end of 2010, it was 62%. The Congressional Budget Office forecasts that it will climb to 100% by 2020 unless current tax and spending policies change. Research by economists Carmen Reinhart and Ken Rogoff indicates that sovereign debt begins to stifle economies' productive capacity when it passes 90% of GDP. Japan has had a ratio of greater than 150% for several years, and it has contributed to anemic growth.
• Increasing inflation expectations. The U.S. has enjoyed low inflation for two decades due to the Federal Reserve's commitment to stable prices. But if that resolve were perceived to weaken, confidence in Treasurys would decline, pushing both nominal and real yields higher. Since Fed Chairman Ben Bernanke's Jackson Hole speech in August 2010, the forward five-year annual inflation rate has increased 94 basis points to 2.90%, which is now above policy makers' unofficial target of 2%.
• Reduced Treasury demand from abroad. Foreign ownership of Treasurys has increased to 55% in 2008, from 34% in 2000, providing the U.S. with cheap funding. As the U.S. continues to issue record levels of Treasurys, it will grow increasingly difficult for foreign buyers, both private and sovereign, to maintain their share. For example, foreign ownership of Treasurys has fallen to about 50% today. As foreign buyers increasingly look elsewhere, U.S. funding costs could increase, creating a drag on economic growth.
• Rapid dollar depreciation. A large and rapid drop in the value of the dollar would indicate concerns among investors in Treasurys and across the U.S. economy. Although currencies are volatile, the dollar index (DXY) has fallen by 5% or more in one month only 16 times since the index began 44 years ago. It has done so four times in the past two years. This suggests increased concern about the stability of the dollar.
• Dramatic steepening of the yield curve. A steepening yield curve—signifying that long-term rates are climbing more quickly than short-term ones—is usually a positive indicator that reflects increased optimism for future economic growth. However, if the yield curve were to steepen while economic growth expectations remained modest, such as during a period of prolonged private deleveraging, it could indicate that investors were demanding higher rates to compensate them for increased risk over time. Today's yield curve has 10-year rates about 315 basis points above overnight rates. A spread of greater than 400 basis points would be rare and potentially concerning.
None of these indicators is perfect, but it is important to monitor them because the market is flashing "caution." If investors lose confidence in the U.S., it could take years or decades to be restored.
Mr. Kashkari, managing director and head of new investment initiatives at PIMCO, was assistant secretary of the Treasury under George W. Bush, where he ran the Troubled Asset Relief Program. Mr. Rodosky is managing director and head of U.S. government bond trading at PIMCO.
Wednesday, October 6, 2010
Politics, Gold, and Inflation - Thomas Sowell
EXCERPTS:
"Inflation is a quiet but effective way for the government to transfer resources from the people to itself, without raising taxes. A hundred dollar bill would buy less in 1998 than a $20 bill would buy in the 1960s. This means that anyone who kept his money in a safe over those years would have lost 80 percent of its value, because no safe can keep your money safe from politicians who control the printing presses.
That is why some people buy gold when they lose confidence in the government's managing of its money. Usually that is when inflation is either under way or looming on the horizon. When many people start transferring their wealth from dollars into gold, that restricts the ability of politicians to steal from them through inflation.
Even though there is currently very little inflation, purchases of gold have nevertheless skyrocketed. Ordinarily, most gold is bought for producing jewelry or for various industrial purposes, more so than as an investment. But, at times within the past two years, most gold has been bought by investors.
What that suggests is that increasing numbers of people don't trust this administration's economic policies, especially their huge and growing deficits, which add up to a record-breaking national debt.
When a national debt reaches an unsustainable amount, there is always a temptation to pay it off with inflated dollars. There is the same temptation when the Social Security system starts paying out more money to baby boom retirees than it is taking in from current workers.
"Inflation is a quiet but effective way for the government to transfer resources from the people to itself, without raising taxes. A hundred dollar bill would buy less in 1998 than a $20 bill would buy in the 1960s. This means that anyone who kept his money in a safe over those years would have lost 80 percent of its value, because no safe can keep your money safe from politicians who control the printing presses.
That is why some people buy gold when they lose confidence in the government's managing of its money. Usually that is when inflation is either under way or looming on the horizon. When many people start transferring their wealth from dollars into gold, that restricts the ability of politicians to steal from them through inflation.
Even though there is currently very little inflation, purchases of gold have nevertheless skyrocketed. Ordinarily, most gold is bought for producing jewelry or for various industrial purposes, more so than as an investment. But, at times within the past two years, most gold has been bought by investors.
What that suggests is that increasing numbers of people don't trust this administration's economic policies, especially their huge and growing deficits, which add up to a record-breaking national debt.
When a national debt reaches an unsustainable amount, there is always a temptation to pay it off with inflated dollars. There is the same temptation when the Social Security system starts paying out more money to baby boom retirees than it is taking in from current workers.
Saturday, August 21, 2010
Summer of Greece's Discontent - WSJ.com
EXCERPTS:
"ATHENS—Greece's deepening recession is driving joblessness steadily higher, feeding discontent with the government's austerity program and dragging on the broader economy.
Greece's gross domestic product contracted by 3.5% in the second quarter from a year earlier, hitting retailers hard and sending unemployment rates to above 12% of the work force, according to data released last week.
***
"We expect real unemployment to top one million workers by the year's end, which is a rate of 20%....
"ATHENS—Greece's deepening recession is driving joblessness steadily higher, feeding discontent with the government's austerity program and dragging on the broader economy.
Greece's gross domestic product contracted by 3.5% in the second quarter from a year earlier, hitting retailers hard and sending unemployment rates to above 12% of the work force, according to data released last week.
***
"We expect real unemployment to top one million workers by the year's end, which is a rate of 20%....
Wednesday, August 11, 2010
U.S. Is Bankrupt and We Don't Even Know: Laurence Kotlikoff - Bloomberg
EXCERPTS:
"Uncle Sam’s Ponzi scheme will stop. But it will stop too late. And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.
Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.
"Uncle Sam’s Ponzi scheme will stop. But it will stop too late. And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.
Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.
Wednesday, July 21, 2010
Saturday, June 19, 2010
Alan Greenspan: U.S. Debt and the Greece Analogy - WSJ.com
EXCERPTS:
"Despite the surge in federal debt to the public during the past 18 months—to $8.6 trillion from $5.5 trillion—inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued. This is regrettable, because it is fostering a sense of complacency that can have dire consequences.
The roots of the apparent debt market calm are clear enough. The financial crisis, triggered by the unexpected default of Lehman Brothers in September 2008, created a collapse in global demand that engendered a high degree of deflationary slack in our economy. The very large contraction of private financing demand freed private saving to finance the explosion of federal debt. Although our financial institutions have recovered perceptibly and returned to a degree of solvency, banks, pending a significant increase in capital, remain reluctant to lend.
Beneath the calm, there are market signals that do not bode well for the future. For generations there had been a large buffer between the borrowing capacity of the U.S. government and the level of its debt to the public. But in the aftermath of the Lehman Brothers collapse, that gap began to narrow rapidly. Federal debt to the public rose to 59% of GDP by mid-June 2010 from 38% in September 2008. How much borrowing leeway at current interest rates remains for U.S. Treasury financing is highly uncertain.
The U.S. government can create dollars at will to meet any obligation, and it will doubtless continue to do so. U.S. Treasurys are thus free of credit risk. But they are not free of interest rate risk. If Treasury net debt issuance were to double overnight, for example, newly issued Treasury securities would continue free of credit risk, but the Treasury would have to pay much higher interest rates to market its newly issued securities.
***
I grant that low long-term interest rates could continue for months, or even well into next year. But just as easily, long-term rate increases can emerge with unexpected suddenness. Between early October 1979 and late February 1980, for example, the yield on the 10-year note rose almost four percentage points.
"Despite the surge in federal debt to the public during the past 18 months—to $8.6 trillion from $5.5 trillion—inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued. This is regrettable, because it is fostering a sense of complacency that can have dire consequences.
The roots of the apparent debt market calm are clear enough. The financial crisis, triggered by the unexpected default of Lehman Brothers in September 2008, created a collapse in global demand that engendered a high degree of deflationary slack in our economy. The very large contraction of private financing demand freed private saving to finance the explosion of federal debt. Although our financial institutions have recovered perceptibly and returned to a degree of solvency, banks, pending a significant increase in capital, remain reluctant to lend.
Beneath the calm, there are market signals that do not bode well for the future. For generations there had been a large buffer between the borrowing capacity of the U.S. government and the level of its debt to the public. But in the aftermath of the Lehman Brothers collapse, that gap began to narrow rapidly. Federal debt to the public rose to 59% of GDP by mid-June 2010 from 38% in September 2008. How much borrowing leeway at current interest rates remains for U.S. Treasury financing is highly uncertain.
The U.S. government can create dollars at will to meet any obligation, and it will doubtless continue to do so. U.S. Treasurys are thus free of credit risk. But they are not free of interest rate risk. If Treasury net debt issuance were to double overnight, for example, newly issued Treasury securities would continue free of credit risk, but the Treasury would have to pay much higher interest rates to market its newly issued securities.
***
I grant that low long-term interest rates could continue for months, or even well into next year. But just as easily, long-term rate increases can emerge with unexpected suddenness. Between early October 1979 and late February 1980, for example, the yield on the 10-year note rose almost four percentage points.
Thursday, May 27, 2010
Wednesday, May 19, 2010
Volcker Says Time Is Running Out for U.S. to Tackle Fiscal Woes - Bloomberg.com
EXCERPTS:
May 19 (Bloomberg) -- Former Federal Reserve Chairman Paul Volcker, a top outside adviser to President Barack Obama, said time is “growing short” for the U.S. to address problems ranging from its budget deficit to Social Security obligations.
“We better get started,” the 82-year-old former central banker said in a speech yesterday in Stanford, California. “Today’s concerns may soon become tomorrow’s existential crises.”
Volcker, speaking hours after the euro fell to a four-year low against the dollar, said Europe demonstrates for the U.S. the hazards of “uncontrolled borrowing....”
“Little has happened to allay my concerns” raised five years ago that “dangerous and intractable” problems were rising in the U.S., said Volcker, chairman of the president’s Economic Recovery Advisory Board.
“Intractable not just because of the combination of complicated issues, but because there seemed to be so little willingness or capacity to do much about it,” he said during a dinner at the Stanford Institute for Economic Policy Research.
May 19 (Bloomberg) -- Former Federal Reserve Chairman Paul Volcker, a top outside adviser to President Barack Obama, said time is “growing short” for the U.S. to address problems ranging from its budget deficit to Social Security obligations.
“We better get started,” the 82-year-old former central banker said in a speech yesterday in Stanford, California. “Today’s concerns may soon become tomorrow’s existential crises.”
Volcker, speaking hours after the euro fell to a four-year low against the dollar, said Europe demonstrates for the U.S. the hazards of “uncontrolled borrowing....”
“Little has happened to allay my concerns” raised five years ago that “dangerous and intractable” problems were rising in the U.S., said Volcker, chairman of the president’s Economic Recovery Advisory Board.
“Intractable not just because of the combination of complicated issues, but because there seemed to be so little willingness or capacity to do much about it,” he said during a dinner at the Stanford Institute for Economic Policy Research.
Wednesday, May 12, 2010
The Welfare State's Death Spiral - Robert Samuelson
EXCERPTS:
"What we're seeing in Greece is the death spiral of the welfare state. This isn't Greece's problem alone, and that's why its crisis has rattled global stock markets and threatens economic recovery. Virtually every advanced nation, including the United States, faces the same prospect. Aging populations have been promised huge health and retirement benefits, which countries haven't fully covered with taxes. The reckoning has arrived in Greece, but it awaits most wealthy societies.
"What we're seeing in Greece is the death spiral of the welfare state. This isn't Greece's problem alone, and that's why its crisis has rattled global stock markets and threatens economic recovery. Virtually every advanced nation, including the United States, faces the same prospect. Aging populations have been promised huge health and retirement benefits, which countries haven't fully covered with taxes. The reckoning has arrived in Greece, but it awaits most wealthy societies.
Saturday, May 8, 2010
Greek protesters: Ready to face reality about the debt crisis? - CSMonitor.com
I encourage you to read this entire article on the situation Greece has gotten itself into. Then, read it again but replace "Greece" with "United States."
EXCERPTS:
"Dear Angry Greek Protesters:
Screaming in the streets, waving banners, and tossing homemade explosive devices at the police do absolutely nothing to address the very real problem your country faces. That problem is that your country is not as wealthy as you would like it to be. Nor is it as wealthy as your government led you (and others) to believe it was.
In short, your economic pie is too small to satisfy all of your demands. Railing madly against this reality, however, does nothing to increase that pie’s size. Resources and wealth are produced neither by angry sloganeering nor by simplistic denials of the facts. Quite the contrary.
For decades your country has lived well beyond its means. Thirty years ago, your government’s debt-to-GDP ratio was 34.5 percent. Today that figure stands at 115 percent. In other words, for decades your government borrowed money to provide you with goods and services that you couldn’t afford.
Living on credit is fun while it lasts. But reason tells us that it cannot last forever. Now that the bills are coming due, you must somehow pay them. This requirement is unavoidable.
... Your only reasonable course of action, then, is to work harder, save more, and adopt wiser public policies that promote wealth creation. Chief among these policy changes is to reject the socialism that you have been infatuated with for too long now. You need greater respect for private property. You need entrepreneurship. You need competition. In short, you need free markets. Without these, you will never become more prosperous.
EXCERPTS:
"Dear Angry Greek Protesters:
Screaming in the streets, waving banners, and tossing homemade explosive devices at the police do absolutely nothing to address the very real problem your country faces. That problem is that your country is not as wealthy as you would like it to be. Nor is it as wealthy as your government led you (and others) to believe it was.
In short, your economic pie is too small to satisfy all of your demands. Railing madly against this reality, however, does nothing to increase that pie’s size. Resources and wealth are produced neither by angry sloganeering nor by simplistic denials of the facts. Quite the contrary.
For decades your country has lived well beyond its means. Thirty years ago, your government’s debt-to-GDP ratio was 34.5 percent. Today that figure stands at 115 percent. In other words, for decades your government borrowed money to provide you with goods and services that you couldn’t afford.
Living on credit is fun while it lasts. But reason tells us that it cannot last forever. Now that the bills are coming due, you must somehow pay them. This requirement is unavoidable.
... Your only reasonable course of action, then, is to work harder, save more, and adopt wiser public policies that promote wealth creation. Chief among these policy changes is to reject the socialism that you have been infatuated with for too long now. You need greater respect for private property. You need entrepreneurship. You need competition. In short, you need free markets. Without these, you will never become more prosperous.
Wednesday, April 28, 2010
Bernanke says prompt action needed on deficit - Yahoo! News
EXCERPTS:
WASHINGTON (Reuters) – Federal Reserve Chairman Ben Bernanke said on Tuesday the country's budget deficit is on an unsustainable path and requires near-term action from policymakers to avoid dangerous outcomes.... "In the absence of further policy actions, the federal budget appears set to remain on an unsustainable path," Bernanke told the 18-member National Commission on Fiscal Responsibility and Reform.
Bernanke said the nation's heavy debt load risked putting upward pressure on interest rates.
"Given the significant costs and risks associated with a rapidly rising federal debt, our nation should soon put in place a credible plan for reducing deficits to sustainable levels over time," Bernanke said.
His remarks come as investors around the world fret over a worsening debt crisis in Greece, which forced the country last week to ask for financial aid from fellow European Union nations and the International Monetary Fund.
Not all economists agree the U.S. deficit is too large given the size of the economy and given the need for continued stimulus in the wake of the worst recession since the Great Depression.
COMMENT: Just to be sure you're clear on this: not all economists agree that there is "need for continued stimulus," or that there was a need for any stimulus to deal with the recession.
WASHINGTON (Reuters) – Federal Reserve Chairman Ben Bernanke said on Tuesday the country's budget deficit is on an unsustainable path and requires near-term action from policymakers to avoid dangerous outcomes.... "In the absence of further policy actions, the federal budget appears set to remain on an unsustainable path," Bernanke told the 18-member National Commission on Fiscal Responsibility and Reform.
Bernanke said the nation's heavy debt load risked putting upward pressure on interest rates.
"Given the significant costs and risks associated with a rapidly rising federal debt, our nation should soon put in place a credible plan for reducing deficits to sustainable levels over time," Bernanke said.
His remarks come as investors around the world fret over a worsening debt crisis in Greece, which forced the country last week to ask for financial aid from fellow European Union nations and the International Monetary Fund.
Not all economists agree the U.S. deficit is too large given the size of the economy and given the need for continued stimulus in the wake of the worst recession since the Great Depression.
COMMENT: Just to be sure you're clear on this: not all economists agree that there is "need for continued stimulus," or that there was a need for any stimulus to deal with the recession.
Tuesday, March 2, 2010
Our own Greek tragedy - Washington Times - STEYN:
EXCERPT:
"While President Obama was making his latest pitch for a brand new, even more unsustainable entitlement at the health care "summit," thousands of Greeks took to the streets to riot. An enterprising cable network might have shown the two scenes on a continuous split screen - because they're part of the same story. It's just that Greece is a little further along in the plot: They're at the point where the canoe is about to plunge over the falls. America is further upstream and can still pull for shore, but has decided instead that what it needs to do is catch up with the Greek canoe.
"While President Obama was making his latest pitch for a brand new, even more unsustainable entitlement at the health care "summit," thousands of Greeks took to the streets to riot. An enterprising cable network might have shown the two scenes on a continuous split screen - because they're part of the same story. It's just that Greece is a little further along in the plot: They're at the point where the canoe is about to plunge over the falls. America is further upstream and can still pull for shore, but has decided instead that what it needs to do is catch up with the Greek canoe.
Wednesday, February 17, 2010
Lone voice warns of debt threat to Fed
EXCERPTS:
"The US must fix its growing debt problems or risk a new financial crisis, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, warned on Tuesday, adding a mounting deficit could spur inflation.
Mr Hoenig said that rising debt was infringing on the central bank’s ability to fulfil its goals of maintaining price stability and long-term economic growth. “Stunning” deficit projections were putting political pressure on the Fed to keep interest rates low, infringing on its independence at the risk of inflation, he said."
"...he said that the worst option for the US was a scenario where the government “knocks on the central bank’s door” and asks it to print more money. Instead, the administration must find ways to cut spending and generate revenue. He called for a “reallocation of resources” and noted that the process would be painful and politically inconvenient.
"If the Fed succumbed to pressure to increase the money supply, Mr Hoenig said, inflation would lead to a loss of confidence in the dollar and in the economy. Meanwhile, a potential stalemate between the fiscal and monetary authorities that govern the economy could allow growing imbalances to go unchecked, thus raising the costs of borrowing and of capital for the US.
NOTE: "When Thomas Hoenig became president of the Kansas City Fed in 1991, he received a 500,000 German mark note from an 85-year-old neighbor—reminding him of his duty "to protect the value of the currency." The neighbor told him the note would have bought a house in 1921. By 1923, it wouldn't buy a loaf of bread. Hoenig, lone dissenter at the last FOMC meeting, said Tuesday: "That note is framed and hanging in my office."
"The US must fix its growing debt problems or risk a new financial crisis, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, warned on Tuesday, adding a mounting deficit could spur inflation.
Mr Hoenig said that rising debt was infringing on the central bank’s ability to fulfil its goals of maintaining price stability and long-term economic growth. “Stunning” deficit projections were putting political pressure on the Fed to keep interest rates low, infringing on its independence at the risk of inflation, he said."
"...he said that the worst option for the US was a scenario where the government “knocks on the central bank’s door” and asks it to print more money. Instead, the administration must find ways to cut spending and generate revenue. He called for a “reallocation of resources” and noted that the process would be painful and politically inconvenient.
"If the Fed succumbed to pressure to increase the money supply, Mr Hoenig said, inflation would lead to a loss of confidence in the dollar and in the economy. Meanwhile, a potential stalemate between the fiscal and monetary authorities that govern the economy could allow growing imbalances to go unchecked, thus raising the costs of borrowing and of capital for the US.
NOTE: "When Thomas Hoenig became president of the Kansas City Fed in 1991, he received a 500,000 German mark note from an 85-year-old neighbor—reminding him of his duty "to protect the value of the currency." The neighbor told him the note would have bought a house in 1921. By 1923, it wouldn't buy a loaf of bread. Hoenig, lone dissenter at the last FOMC meeting, said Tuesday: "That note is framed and hanging in my office."
Saturday, February 13, 2010
When Deficits Become Dangerous - Michael J. Boskin: WSJ.com
EXCERPT:
"On average, in the first three years of the 10-year budget plan, federal spending rises by 4.4% of GDP. That's more than during President Lyndon Johnson's Great Society and Vietnam War buildup and President Ronald Reagan's defense buildup combined. In those same three years, spending on average hits the highest level in American history (25.1% of GDP), save the peak of World War II. The average deficit of $1.4 trillion (9.6% of GDP) is over three times the previous 2008 record."
"The Obama 10-year budget—unprecedented in its spending, taxes, deficits and accumulation of debt—is by a large margin the most risky fiscal strategy in American history. In his Feb. 1 budget message, Mr. Obama said, "We cannot continue to borrow against our children's future." But that is exactly what he proposes to do."
"On average, in the first three years of the 10-year budget plan, federal spending rises by 4.4% of GDP. That's more than during President Lyndon Johnson's Great Society and Vietnam War buildup and President Ronald Reagan's defense buildup combined. In those same three years, spending on average hits the highest level in American history (25.1% of GDP), save the peak of World War II. The average deficit of $1.4 trillion (9.6% of GDP) is over three times the previous 2008 record."
"The Obama 10-year budget—unprecedented in its spending, taxes, deficits and accumulation of debt—is by a large margin the most risky fiscal strategy in American history. In his Feb. 1 budget message, Mr. Obama said, "We cannot continue to borrow against our children's future." But that is exactly what he proposes to do."
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