Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19
It’s Not Technology but the Fed That Is Taking Away Jobs - 16th May 19
Learn to Protect your Forex Trading Capital - 16th May 19
Gold Ratio Charts Offer The Keys to the Bull Market - 16th May 19
Is Someone Secretly Smashing the Stock Market at Night? - 16th May 19
Crude Oil Price Fails At Critical Fibonacci Level - 15th May 19
Strong Stock Market Rally Expected - 15th May 19
US China Trade Impasse Threatens US Lithium, Rare Earth Imports - 15th May 19
Gold Mind Reader's Guide to the Global Markets Galaxy: 'Surreal' - 15th May 19
Trade Wars and Other Black Swan Threats to Your Investments - 15th May 19
Our Long-Anticipated Gold Momentum Rally Begins - 15th May 19
Defense Spending Is Recession Proof - Defense Dividend Stocks - 15th May 19
US China Trade Issues Will Drive Market Trends – PART II - 14th May 19
The Exter Inverted Pyramid of Global Liquidity Credit risk, Liquidity and Gold - 14th May 19
Can You Afford To Ignore These Two Flawless Gold Slide Indicators? - 14th May 19
As cryptocurrency wallets become more popular, will cryptocurrencies replace traditional payments? - 14th May 19
How US Debt Will Reach $40 Trillion by 2025 - 14th May 19
Dangers Beyond a Trade War with China - 14th May 19
eBook - Greatest Tool for Trading? - 14th May 19
Classic Pitfalls for Inexperienced Traders - 14th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

When Will the U.S. Budgetary Debate Turn into the Budgetary Diktat?

Politics / Economic Stimulus Apr 29, 2009 - 02:14 PM GMT

By: Brady_Willett

Politics

Best Financial Markets Analysis ArticleEarlier this year, and based upon the observation that his administration had inherited a $1.3 trillion budget deficit, President Obama pledged to cut the budget deficit in half. Mr. Obama also talked tough about reining in the deficit longer-term:


“We are paying the price for these deficits right now," Mr. Obama said, estimating the country spends $250 billion - one in every ten dollars of taxpayer money - in interest on the national debt. “I refuse to leave our children with a debt that they cannot repay.” CBS News

While none of Mr. Obama’s bailout/stimulus policies have been focused on budget deficit containment, this appeared to be changing last week when Obama called for budget cuts and pledged that his actions would "start setting a tone" in Washington. However, when the President unveiled that he was initially gunning for a mere $100 million in cuts it was difficult not to laugh.  After all, and as Bloomberg recently noted, $100 million “would cut this year’s projected deficit by about 0.006 percent”.  Since taking office the deficit has jumped by more than $500 billion, and President Obama feels it necessary to publicly state that he has asked his Cabinet chiefs to take the next 90-days to claw-out $100 million in cuts? 

While Obama has not been eager to reiterate the ridiculous $100 million figure, he has, to his credit, continued to discuss budgetary restraint.  On the surface Obama appears to genuinely care about the future of the U.S., and he understands that he must eventually take drastic measures to curtail what many prominent economists are concluding will be ‘trillion dollar annual deficits’ (on average) over the next decade (PDF File).

“All across America, families are tightening their belts and making hard choices.  Now, Washington must show that same sense of responsibility….We cannot sustain deficits that mortgage our children’s future, nor tolerate wasteful inefficiency…Government has a responsibility to spend the peoples’ money wisely, and to serve the people effectively.” Bloomberg

But below the surface there could be other forces compelling Obama to focus on the ballooning deficit. To be sure, by loosely pledging to abide by a ‘pay-go’ doctrine and cutting a little fat off his originally very fat budgetary plans, Obama could simply be attempting to appease the budget hawks and get his budget passed. Also, and more ominously, with China and others – those that support the U.S. debt machine – now openly suggesting that a new global currency (other than just USD) is required, Obama may be reacting to the fact that decades of fiscal carelessness is not likely be met with blind obedience in the future.

Whatever his compulsion for focusing on the budget deficit, it is clear that President Obama is faced with the seemingly impossible task of trying to stimulate economic activity and make good on an array of campaign pledges, while at the same time curtailing government excess.  Quite frankly, whether it is healthcare reform, or the creation (or stopping the destruction) of jobs, many promises put forth by President Obama threaten to seriously contradict any further budget deficit pledges.  In other words, continue to expect vague deficit promises and – eventually – some creative government accounting if the future turns out to be less optimistic than the Obama administration believes (See CBO versus Obama Administration fiscal projections).

In short, if current trends persist in the coming decades, Social Security and Medicare will consume the entire U.S. budget and, according to the CBO, the cost of simply servicing U.S. debt (if interest rates remain low) will hit almost $500 billion as early as 2019. While many other ominous statistics can be highlighted these two will suffice because they clearly demonstrate how unsustainable and dire the U.S. debt churn could become. Needless to say, the investor would do well to remember that many of the parties that continue to fund the U.S. debt party are openly starting to cheer ‘yes we can’ when it comes to getting off the dollar.  These cheers are mounting because the consequences of staying with the dollar are beginning to overshadow the consequences of abandoning it - although exports would likely be trounced if a country like China stopped buying U.S. Treasuries, current trends suggest that there are as many dangers associated with holding large piles of a potentially depreciating reserve asset.

While no one can be sure exactly when the era of U.S. dollar hegemony will end, rest assured that when it does the budget choices in front of President Obama or his successor will have been made for them.  When and if this day arrives the budgetary debate will turn into a budgetary diktat.

By Brady Willett and Dr. Todd Alway
FallStreet.com

FallStreet.com was launched in January of 2000 with the mandate of providing an alternative opinion on the U.S. equity markets.  In the context of an uncritical herd euphoria that characterizes the mainstream media, Fallstreet strives to provide investors with the information they need to make informed investment decisions. To that end, we provide a clearinghouse for bearish and value-oriented investment information, independent research, and an investment newsletter containing specific company selections.

Brady Willett Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules