Bonds


The Fed’s plan of attack

By Kelli Galippo • Jul 21st, 2011 • Category: real estate newsflash

The Federal Reserve (Fed) is ready to dole out additional stimulus if need be ― that includes another round of Treasury bond buying (quantitative easing) or lowering interest rates. In the Fed’s biannual economic report to Congress, they indicated such measures will only be taken if the economy does not significantly improve or if deflation becomes a danger.

Fed representatives believe the second half of 2011 will show signs of an improving economy – more jobs and more sales. In the event they are wrong, stimulus measures are ready to be employed.

first tuesday take: The Fed’s responsibilities are threefold: dispense enough money into circulation, keep the labor market stable and maintain inflation at 2-3%. The efforts thus far to produce a growing jobs market (and thus improve real estate sales of all types) by injecting funds into the banking system through Treasury bond (T-bond) buying have proven less effective than they anticipated.

To complicate matters, 2008 legislation authorized the Fed to pay interest on bank reserves and that return has given lenders incentive to hoard their funds by placing them with the Fed rather than make loans. [For more information regarding the Fed’s purchase of Treasury bonds, see the October 2010 first tuesday article, The Fed purchases Treasuries, fends off deflation and the July 2011 first tuesday article, The Fed’s monetary policy, straight from the horse’s mouth.]

Will another round of Fed T-bond buying get lenders moving? It depends on how confident lenders feel about their pool of potential borrowers compared to the Fed. In the meantime, the Fed must continue monitoring the economy and be prepared to adjust their battle plan accordingly. Dropping interest payments on those 1.8 trillion in bank reserves on deposit with the Fed would quickly get lenders lending. [For more information regarding the Fed’s policies, see the June 2011 first tuesday article, Suspect behavior, why and how the Fed creates a recession.]

Re: “Federal Reserve chief hints at stimulus plan” from Mercury News

– ft

Deficits

There never was a surplus

Jul 27th 2011

YESTERDAY the White House published a chart that explains how we got from the Clinton administration projection that the government would pay off its entire debt and then build up $2.3 trillion in savings by 2011, to the $10.4 trillion in debt we actually wound up with. Of that $12.7 trillion shift, the Bush tax cuts account for $3 trillion. James Fallows explains: “As the figures demonstrated, the Bush-era tax cuts, extended last year under Obama, were the biggest single policy source of deficit increase over the past ten years. Therefore you can be for reducing deficits, or you can be for preserving the tax cuts, but you cannot rationally be for both.”

I think there’s something else we need to look at in this chart. It’s the very first item at the top of the chart’s right-hand column: the shift in the debt profile that resulted from no policy change at all, but from “Economic and technical changes (eg, lower tax revenues due to recession)”. It’s $3.6 trillion.

In other words, that massive surplus pile of government savings, or sovereign wealth, or whatever you want to call it, simply never existed.* The Clinton administration’s calculations in 2000 that the government would pay off its debt and accumulate savings of $2.3 trillion over the following ten years were wrong. And they were wrong not because of any stupid error or dramatically incorrect theory about the economic world, but simply because they failed to predict that the American economy would experience a financial crisis in 2008, followed by the worst recession since the Great Depression and a historically anaemic recovery. (I assume they failed to predict the 2001 tech-crash recession as well.) The Clinton administration delivered a couple of years of real verifiable budget surpluses in the late 1990s, and if Clintonian levels of taxation and spending had continued, they likely would have generated annual surpluses that would have shrunk the debt by over $2 billion over the decade thereafter. But the forecast that they would have eliminated the debt entirely and replaced it with trillions of dollars in sovereign wealth was a mirage.

This isn’t particularly surprising; we simply don’t know how to make long-term projections about the economy or government revenues that don’t have trillions of dollars worth of error margin on either side. Which is why we need to be careful about budgeting and get our tax rates and our spending more or less in balance over the long term, running surpluses in good years and deficits in bad ones. The Bush tax cuts did the opposite: $3 trillion worth of tax cuts were predicated on the premise that we were returning the people “their” money. As it turned out, the money wasn’t there to return. Even without the tax cuts, the wars, or anything else, the government would have entered 2011 with $1.3 trillion in debt, not $2.3 trillion in savings. Basically, in the grip of careless enthusiasm about the economic future, we borrowed $3 trillion from bond markets and handed it out to citizens in rough proportion to how rich they already were. In the middle of a recovery. This is not a useful thing for the government to do.

* I’ve changed the wording in this paragraph to avoid any potential reader confusion between annual budget surpluses, which Clinton-style budgets would have generated, versus an overall buildup of sovereign wealth rather than debt, which they wouldn’t have. (Incidentally, the fact that we don’t even have a readily available word for a buildup of sovereign wealth in the vocabulary we normally use to talk about the American government seems kind of worth noting.) Additionally, I realise that if we hadn’t had the Bush tax cuts, the entire economic story of the past decade could be different; perhaps we wouldn’t have had the financial crisis. Or maybe we would have anyway. I don’t know, and I think that takes things too far. What I’m trying to say in this post is that when you get a budget forecast that says, hey, over the next ten years we’re going to pay off our entire debt and then some, you shouldn’t go rushing out to spend the money on massive decade-long multi-trillion-dollar tax cuts. Ten-year economic forecasts are not very accurate. Not to mention the fact that your decade-long tax cut will be very hard to repeal at the end of the decade.

Debt Fears Send Mortgage Rates Inching Up

Daily Real Estate News | Friday, July 29, 2011

 

The 30-year fixed-rate mortgage, a popular choice among home buyers, was up slightly this week amid growing concerns over a possible U.S. debt default next week, which has already been casting fears across financial markets. If the U.S. debt does default on its obligations, analysts say it could send mortgage rates soaring.

“Industry analysts have made it clear that if the United States defaults and the national debt is downgraded, mortgage rates could spike immediately,” Bankrate said in a mortgage rate report. “But the uncertainty over what Congress will decide over the next few days has already started to shake the mortgage world, as investors question if it’s still safe to invest in U.S. bonds.”

Bankrate.com reported the 30-year fixed-rate mortgage rising to 4.74 percent this week from 4.68 percent the previous week. The 15-year fixed-rate mortgage increased only slightly to 3.83 percent from 3.82 percent last week.

However, Freddie Mac reported less change among mortgage rates in its weekly report. Freddie Mac reported the following rates for the week ending July 28:

  • 30-year fixed-rate mortgages: averaged 4.55 percent, up from last week’s 4.52 percent. Last year at this time, 30-year rates averaged 4.54 percent.
  • 15-year fixed-rate mortgages:averaged 3.66 percent, which is the same as last. A year ago, the 15-year rate mortgage averaged 4 percent.
  • 5-year adjustable-rate mortgages:averaged 3.25 percent this week, down slightly from last week’s 3.27 percent average. Last year at this time, the 5-year ARM averaged 3.76 percent.
  • 1-year ARM: averaged 2.95 percent, which is down from last week’s 2.97 percent average. A year ago, the 1-year ARM averaged 3.64 percent.

Source: “Fixed-Rate Mortgages Edge Up on Debt Ceiling Fears,” HousingWire (July 28, 2011) and “30-Year Fixed-Rate Mortgage Follows Treasury Yields Higher,” Freddie Mac (July 28, 2011)

Economy Grew Only 1.3% in Spring After Nearly Stalling in Winter

 

Friday, 29 Jul 2011 08:37 AM

 
The U.S. economy grew less than forecast in the second quarter, after almost coming to a halt at the start of the year, as consumers retrenched.

Gross domestic product rose at a 1.3 percent annual rate following a 0.4 percent gain in the prior quarter that was less than previously estimated, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 1.8 percent increase. Household purchases, about 70 percent of the economy, climbed 0.1 percent.

Slower job and income gains raise the risk that a pickup in purchases during the remainder of 2011 will fail to materialize. The faltering economy will probably complicate the debt-ceiling negotiations in Congress and is one reason why Federal Reserve Chairman Ben S. Bernanke has said policy makers need to keep all options open.

“The transition into the second half is on rocky footing,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the report. “Consumers are just refusing to increase their spending, which sets the stage for a stagnant economy. We’re in economic doldrums right now.”

Forecasts of 85 economists in the survey ranged from 0.9 percent to 2.9 percent. At $13.27 trillion in the second quarter, GDP has yet to surpass the pre-recession peak.
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Advance Estimate

The GDP estimate is the first of three for the quarter, with the other releases scheduled for August and September when more information becomes available.

The Commerce Department today issued GDP revisions going back to 2003.

The 2007-2009 recession took a bigger bite out of the world’s largest economy than previously estimated and the recovery lost momentum throughout 2010, the report showed. GDP shrank 5.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the previously reported 4.1 percent drop. The second-worst contraction in the post-World War II era was a 3.7 percent decline in 1957-58.

Consumer spending from April through June showed the smallest gain since the second quarter of 2009, when the economy was in recession. The slump reflected a 4.4 percent plunge in purchases of durable goods like automobiles.

Higher expenses for necessities like food and energy may have curtailed spending on less essential items. The cost of a gallon of regular gasoline climbed in May to about $4 a gallon, the highest in almost three years, according to AAA, the nation’s biggest auto group.

Mounting Joblessness

The absence of faster job growth is also discouraging shoppers. The unemployment rate climbed to 9.2 percent in June while payrolls grew by 18,000, the fewest in nine months, Labor Department figures showed on July 8.

Purchase, New York-based PepsiCo Inc., the world’s largest snack-food maker, said profit this year will increase more slowly than it previously projected because of rising commodity costs and cooling customer demand.

“It’s the consumer and competitive picture that has become more difficult than we expected,” Chief Executive Officer Indra Nooyi said on a July 21 conference call.

Much of the growth in the second quarter came from business investment and trade. Spending on commercial structures, including factories and office building, and equipment contributed 0.6 percentage point to growth. The improvement in the difference between imports and exports added another 0.6 point.

Trade Gains

Overseas sales will remain a backstop for factories. Dow Chemical Co. (DOW), the largest U.S. chemical maker, said demand is “strong” in markets abroad.

“We captured strong growth in Latin America, and the emerging geographies more broadly, while North America experienced moderate growth,” Andrew Liveris, chief executive officer, said on a July 27 conference call with analysts.

Inventories grew in the second quarter at about the same pace as in the prior three months, adding 0.2 percentage point to GDP.

A slump in government spending added to the economy’s woes last quarter. Outlays by state and local agencies dropped at a 3.4 percent annual pace, and non-military spending by the federal government slumped 7.3 percent, the most since 2006.

Bernanke’s View

“In the very near term, the recovery is rather fragile,” Fed Chairman Bernanke told lawmakers on July 14. “We just want to make sure that we have the options when they become necessary” to stimulate the economy.

One area of weakness last quarter was auto purchases. Cars and light trucks sold at an average 12.1 annual rate in the April to June period, down from a 13 million pace in the first three months of the year, according to industry data.

A shortage of Japanese-made parts after the earthquake and tsunami in March slowed production at U.S. manufacturers. The shortage of components is projected to ease this quarter.

At the same time, the government’s inability to agree on a budget and debt-limit increase may be making companies reluctant to order new equipment and hire in the second half.

The employment outlook remains dim, based on company announcements this month. San Jose, California-based Cisco Systems Inc. (CSCO), the world’s largest networking-equipment maker, plans to cut about 6,500 jobs worldwide. Goldman Sachs Group Inc. will reduce staff by about 1,000, and Lockheed Martin Corp. (LMT) will offer a voluntary separation plan to 6,500 employees.

‘Still Struggling’

“Recent economic data are clear — the U.S. economy is still struggling to emerge from the Great Recession and unable to move to a path of vibrant and sustainable growth,” Dan DiMicco, chairman and chief executive officer at steelmaker Nucor Corp., said on a July 21 teleconference with analysts.

The Fed’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, climbed at a 2.1 percent annual pace, the most since the last three months of 2009, compared with a 1.6 percent in the first quarter, as higher oil and food costs pushed up the prices of other goods and services. The central bank’s longer term projection is a range of 1.7 percent to 2 percent.
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Disturbing Charts Show Possible Economic Meltdown in 2012. See Them.

Read more: Economy Grew Only 1.3% in Spring After Nearly Stalling in Winter
Important: Can you afford to Retire? Shocking Poll Results

Dow Plunges Nearly 200 Points as Lawmakers Remain at Odds Over Debt Deal

 

Wednesday, 27 Jul 2011 04:13 PM

 

 
Anxiety about a deadline to raise the nation’s debt ceiling swept across Wall Street on Wednesday and drove the Dow Jones Industrial Average down almost 200 points. With Washington showing no sign it will find a solution, financial planners around the country said their clients were increasingly worried.

The Dow took a sharp drop during the last two hours of trading and closed down for the fourth session in a row. The declines have grown each day. The market turmoil was a sign that consequences of the debt fight were beginning to materialize in earnest.

With six days to go until the Treasury Department’s Tuesday deadline — raise the national borrowing limit or face an unprecedented federal default and unpredictable fallout in the economy — analysts suggested the market would only grow more volatile.

“The longer we go without any type of hope or concrete plans for resolution, the more concerned investors are going to become,” said Channing Smith, a managing director at the financial firm Capital Advisors Inc.
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While no one was panicking, financial professionals who handle the investment accounts of everyday Americans — college funds, retirement accounts and other nest-eggs — said their customers were growing more worried by the day. One said he had not seen this level of anxiety since the 2008 financial crisis.

“We’re getting a ton of calls,” said Bob Glovsky, president of Mintz Levin Financial Advisors in Boston. “It’s all `What happens if the U.S. defaults? What’s going to happen to me?'”

The Dow finished the day down 198.75 points, at 12,302.55. About half of the decline came between 2 and 4 p.m., when the market closes for the day. It was the worst fall for the Dow since June 1, with 28 of the 30 component stocks losing value.

While the decline was not close to the stomach-churning days of the fall of 2008, when the Dow lurched lower and higher by 700 points some days, there were signs that fear on Wall Street was growing. The Dow fell 43 points Friday, 88 points Monday and 91 points Tuesday, then more than twice that on Wednesday.

“Right now the clouds are gathering,” said Chris Long, a financial planner in Chicago.

Without a deal by Tuesday, the Obama administration has said the government will be unable to pay all its bills, and could miss checks to Social Security recipients, veterans and others who depend on public help. In addition, credit rating agencies could downgrade their assessment of the government’s finances, further unnerving financial markets and perhaps causing interest rates to rise for everyone.

Already, some investors are taking precautions. Richard Shortt, 66, of Somerville, Mass., worries that a default, or even just a downgrade of U.S. debt, could cause bond and stock markets to tumble. Last week he sold about 10 percent of his stock holdings and put the proceeds into a money-market mutual fund.

“It might just be a short-term decline in the markets, but it could last a week or two while this gets resolved,” said Shortt, a semi-retired small business consultant. “If we do get any sort of debt downgrade, even if we avoid a default, that will change the game a bit.”

Financial advisers typically tell their clients not to tinker with their portfolios or try to play a short-term move in the market to their advantage. Of course, leaving investments alone could be a test of patience for the rest of this week.

On Friday afternoon, for example, it’s plausible that Congress could reach a deal in mid-afternoon and send the Dow soaring 300 points in the final hour of trading. It’s also plausible that there’s still no deal and traders decide staying in the market over the weekend is too risky, and send the Dow plunging.

Investors who rode out the financial turbulence in 2008 without rejiggering their portfolios have made up most of their losses. The stock market has almost doubled since its post-meltdown low in March 2009. Many people who withdrew their money from the stock market during the worst haven’t come close to breaking even.

“Trying to adjust to something on a day-to-day basis is how you get hurt,” Glovsky said. “You’ve got to take a long-term approach.”

The memory of the fall of 2008 remains vivid. The Dow plunged 778 points in a single day when Congress surprised investors by rejecting an early version of $700 billion legislation to bail out the nation’s biggest banks.

“We’ve been through this, or something like it,” said Leisa Aiken, a financial planner in Chicago. “I think what we went through in 2008 has toughened clients up a little. They realize that they will get through it if they don’t give in to a knee-jerk reaction.”

This time around, analysts say, the chances of similar turmoil are small but growing. Standard & Poor’s, one of the rating services, has said that “the reverberations of the showdown may be deep and wide — particularly if Washington does not come to a timely agreement on the debt ceiling.”

Bond traders were still betting on a last-minute deal on the debt. The yield on the 10-year Treasury note, which should rise when investors believe there is a greater risk they won’t get their money back, has stayed near 3 percent all month.

Even if Washington sails past the deadline without raising the debt limit, bond traders believe the Obama administration will keep up its interest payments and cut spending on everything else. The resulting shock to the economy and other financial markets would make Treasury bonds a safe place for investors to hide, which could result in lower yields.

For individual investors, experts are cautioning against overreaction.

Financial planner Jim Pearman, a principal in Partners in Financial Planning in Roanoke, Va., said he was telling clients his firm isn’t changing its investments based on a “game of chicken” in Congress.

“You have to make two decisions right when you try to time this thing. One is when you get out, and the other is when you get back in,” he said. “It’s hard to make that. We don’t try.”

One measure of investor concern, the Vix, or volatility index, shot up 14 percent on Wednesday. The tone of the market changed this week, as nervous investors began moving money out of stocks, said Howard Ward, a chief investment officer at asset manager GAMCO.

He said the stock market will likely become more volatile as the weekend nears, and while he said he was not repositioning his portfolio, he admitted: “Right now I’m pretty worried.”

Read more: Dow Plunges Nearly 200 Points as Lawmakers Remain at Odds Over Debt Deal
Important: Can you afford to Retire? Shocking Poll Results

America’s public debt

Down to the wire

Jul 18th 2011, 16:04 by The Economist online

Lawmakers in America are running out of time to raise the debt limit

WHILE Congressmen trade over concessions and budget cuts, the clock continues to tick on America’s debt. Barack Obama has set a deadline of July 22nd for Congress to agree on a deal. On August 2nd, the $14.294 trillion threshold at which by law America can no longer borrow money, will be reached. If that happens, America will default on its debt, triggering “a huge financial calamity” according to Ben Bernanke, the Federal Reserve chairman. On June 30th, there remained just $25m left in the kitty. Congress has acted a total of 91 times since June 1940 to either raise, extend or alter the definition of the debt limit—36 times under Democratic presidents. And they have done so with some 300 days to spare on average.  

Readers’ comments

The Economist welcomes your views. Please stay on topic and be respectful of other readers.

 

the right scale should be in logarit

 

Note that the 1945 national debt was paid by progressive taxation of up to 92% income tax rate on the wealthiest Americans under the Eisenhower and Kennedy administrations.

The current rise in national debt shows up when progressive taxation is weakened and largely eliminated in the period from 1980 to 2011.

Since a large part of today’s debt is due to two unfunded wars, it is worth considering paying off this debt in the same way that the WWII debt was paid—by progressive taxation. Evidently, progressive taxation did not curtail the prosperity of the 1950’s.

 

The entire planet, including emerging markets, is currently on an obscene borrowing and lending spree. Taking money from tomorrow so they can seemingly outperform rivals today. It is crazy and it will end in tears. Global debt is almost out of control.

 

Since those of us that are mere mortals have difficulty actually understanding just how massive America’s $14.343 trillion debt is, here’s an article that puts the number into terms that are more understandable:

This chart makes it clear for all to see that America’s government has allowed itself a level of debt/GDP similar to that America had when it was last engaged in a World War, which war was a threat to its very existence.

Perhaps Washington correctly recognizes that America is truly enmeshed in an incestuous private interest war zone running from Manhattan to Washington DC, and with complex other tenacles emanating from there. In this war, America’s subversive and greed-driven banking industry combine with other greed-imbued and power-seeking special interest groups into a writhing and poisonous snake-ball, enveloping Washington’s elected and appointed members of government.

A very curious situation.

Civilization has advanced to the point that its major wars are not hot wars, but instead played out like video games, with the point score denominated in money terms among the warring nations, and many of the “nations” not being nations at all but rather private companies with agendas which clearly outrank America’s national interests.

Impressive that America’s banks and other self-interest-seekers, could so successfully combine in such a ruinous alliance with its legislatures, the latter dominated by members of that highly privileged, never-had-a-real-job profession called “lawyers”, and thereby cause such chaos as to drive America into taking world-wartime economic measures.

 

Did you even look at the chart before you wrote your comment? The two “unfunded” wars were hardly a bump in the chart. The last time that the public debt (as a percent of GDP) decreased was the result of a Republican Congress.

There is plenty of bipartisan blame to go around, but you all need to quit your tired, incorrect dogma trying to blame this all on Bush, his tax cuts, and the last two wars. After several years of a Democratic Congress passing no budget, the current House is at least trying to impose some financial discipline.

 

I’ll say it again, let it blow.

The Republicans are demanding drastic cuts in investment in infrastructure, and old age benefits — but only for those under age 55. And they want this agreed before they will accept additional borrowing.

Stop the borrowing and cut senior benefits right now, unless they agree to increase taxes to pay for it. This 30 year something for nothing binge by Generation Greed needs to stop.

 

From about 1945 to 2010 the Democrats ended their reign with LESS debt as a percentage of GDP than they began with EVER SINGLE TIME. At the present end of the graph you can also see a point of inflection indicating the same will happen again.

Hmm, the so-called careless spenders have historically been more responsible.

 

Empire is expensive, as Great Britain found out at the end of the 19th Century and America is finding out at the end of the 20th Century.

Keeping an Empire is in the long term unsustainable. There will be a successor. The key is to manage a transition, build partnerships and forge peaceful alliances to the Next.

America is now managing its debt only by the grace of China. The two economies are linked closer than teeth and lips. I would hope these two powers grow closer and more integrated for the sake of the world. Any type of peaceful transition is better than war.

From about 1945 to 2010 the Democrats ended their reign with LESS debt as a percentage of GDP than they began with EVER SINGLE TIME. At the present end of the graph you can also see a point of inflection indicating the same will happen again.

Yes, Jimmy Carter was a great success.

Every president before 1980 had less debt as GDP%. Obama might be lucky enough to get a Republican Congress to save him from himself like Clinton did.

Graph should delete the $ line and add GDP line for Govt spending and Tax Reciepts as percentage of GDP.

$14,293,975,000 is the largest debt in the history of the world.
It is an astounding number that few can comprehend.
Interest payments alone exceeds the annual GDP of all but a handful of countries.

How do you make a fortune today? Have a gold mine(dirty), control an oil field(contend with world’s hotspots) , be a dominant industrial power(hard work) or the easiest of all, service the largest debt in the world.

If America defaults what will financial mathematicians use for their “risk free rate” parameter when they value all kinds of instruments?
 

First it doesn’t matter which president is in power it is congress that has to negotiate and sign off on a budget. To balance the budget with no spending cuts and no spending increases either, all taxes would have to increase 161%, or slightly less than double. To account for the 50% of US taxpayers that don’t effectively pay income taxes, the real taxpayers in this country would have to pay a tax rate which is 3X larger than current. Keep in mind that is just to balance the budget and would not reduce the deficit. Also remember that many “rich” households have two incomes not just one anymore. When the tax rate becomes too onerous you will likely see one of the household incomes quit their job. In my case that would be my wife who is a surgeon. Think about that the next time you need an emergency appendectomy and your new green surgeon has only seen an appendix in his text books. Good luck with that.

The mathematicians will use as basis the other sovereingn debts whose rating is AAA.
However, I think that the idea of a “zero risk” bond should be eliminated.
 

@mike – did you look at the chart before you commented to @qwerty? The amount of public debt clearly went up from $6 trn to almost $12 trn under #43. The debt to GDP ratio increased slightly simply because we were in the middle of housing and consumption bubbles. One cannot cut taxes, wage two wars and spend like a drunken sailor without increasing the overall public debt (which it very obviously did).

Thus, to begin to turn this ship around, there needs to be a grown-up who understands it will take both tax hikes and spending cuts. We didn’t get in this mess purely because of spending or solely because of tax cuts. The children in Congress need to put on their big-kid pants, quit kicking the ball down the road, and act like responsible grown ups and stop posturing for sound bites for 2012

will we need to consider foreign exchange risks?

“I think that the idea of a “zero risk” bond should be eliminated.”

I tend to agree with that. I’ve had problems with that idea since the first day of class in finance 101.

 

Hmm..It looks like the GOP contributed more than their fair share to the national debt. Why do the Republicans make this out to be a problem of Democrats and Obama spending too much when Bush and other Republican Presidents have increased the debt more than the Democrats have? Why do the American voters keep believing the GOP rhetoric that Democrats caused this deficit? It is as if the Republicans set this up – raise the public debt and destroy the economy then blame it on the next elected President who would surely be a Democrat.

The debt ceiling needs to be raised so we can move on. Taxes need to be increased for corporations and people making $250K or more a year, and spending needs to be cut, but we need to start but cutting military spending before social security and medicaid.

 Politicians beholden to him are simpletons who like to make public policies with sound-byte sized ideas.

Less tax is probably stimulative up to a point. But when debt creeps up on you, you need every tool in the shed to deal with it. Cutting spending is one. Raising revenues is another. Closing tax loopholes and not extending temporary tax cuts isn’t raising taxes. Those weren’t meant to be permanent. They were meant to give politicians election boosts. Besides there is soemthing very wrong about people who find spending trillions in Iraq a good thing and cannot find cents to spend on schools or healthcare at home. Where do they get off saying things like “throwing money” at education? And they find it necessary to remind everyone again and again of how patriotic they are. Somethng tells me that they are very insecure about their positions.

 
Jul 18th 2011 8:22 GMT

@Mike The Red – I couldn’t disagree with you more. How do you explain the huge increase in public debt that coincides perfectly with the Iraq and Afghnanistan wars? There is factual evidence that a huge portion of the public debt was caused by Bush’s tax breaks for the wealthy and their recent extension.

The current House is not trying to impose fiscal discipline at all. They are putting on a political show to try to regain the White House and trying to blame the deficit on pensioners, poor children and the disable while refusing to admit that most of the debt was caused by the last two wars and bad policies of the Bush administration.

I would strongly support true responsible fiscal discipline which begins with cutting military spending and eliminating tax breaks and loop holes for corporations and the wealthy. I do not buy the GOP propaganda and hope most Americans will see through it too before the GOP House destroys the US with its bad policies.

Jul 18th 2011 8:22 GMT

The number does not matter. It is the underlying value of the dollar that matters. As a printer of its own currency the USA can print 15 Trillion dollars to pay everyone owed. Of course the dollars will have no value in the world market but everyone can be paid without raising taxes or cutting spending.

See how a little truth (we can pay everyone without…) gets misinterpreted by the lame politicians that keep getting elected. Everyone remember that Congress, not the President, controls the purse, read the Constitution. So, if your elected ol’ boy or ol’ girl congressman runs the country into the dirt, good for you, it is what you voted for.

This is not a financial issue it is a voter

Fannie, Freddie May Lose Top Credit Rating

Daily Real Estate News | Monday, July 18, 2011

 

Standard & Poor’s cautioned Fannie Mae and Freddie Mac that they may lose their top credit ratings if lawmakers don’t soon raise the government’s borrowing limit to avoid default. 

The S&P also said that the government-sponsored enterprises could potentially default on their debts since they are so reliant on the U.S. government for funding. Fannie and Freddie own or guarantee about half of all U.S. mortgages.

Congress is frantically trying to come up with a solution to raise the $14.3 trillion borrowing limit to avoid a default by an Aug. 2 deadline. If they are unable to come up with a compromise, analysts say it could have a devastating effect on the U.S. economy, particularly the already fragile housing market.

If the government defaulted on its bonds, the government likely would have to raise interest rates dramatically, which in turn would hamper home ownership, analysts say.

Source: “S&P Warns it May Downgrade Fannie, Freddie Credit,” Associated Press (July 15, 2011)

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