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
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 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