Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
S&P SEASONAL ANALYSIS - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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

© 2005-2022 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