Archive for the 'Deficit' Category

In our old Brit Londoner’s famous rhyming-slang, cockney-speak, it’s called “boracic lint”. To the rest of we Brits it signifies absolutely “skint”.

Translated into American, it says “stony broke”.

U.S. economy is in worst decline for more than a quarter century

The U.S. economy suffered a huge nosedive in the final three months of last year, shrinking by a staggering 6.2 per cent.

The figures released by the U.S. department of commerce yesterday far outstripped the worst fears of the government and the gloomiest predictions by financial analysts.

The contraction is the worst decline in America’s gross national product for more than a quarter of a century.

So see the rest of this sad story for yourself.

Shocking? For sure.

Surprising? You’ve got to be joking

Surely only the extremely stupidest of suckers couldn’t see it coming.

Boy, oh boy, oh boy.

What BushCo & their various criminal, greedy and corrupt cronies broke, Barak Obama has got one hell of a job to fix. Temporarily to repair, even.

Well, we sure wish him lots & lots of luck, since he’s certainly going to need some.

It’s long been said that whenever the US sneezes, the rest of the world catches a cold.

The terrible truth of today is that America has actually already succumbed to one sodding serious case of the ‘flu. And as almost all of us have already learned by past personal experience, the flaming ‘flu sure is one infamously contagious critter.

Sad to say, we strongly suspect that things are set to get a lot worse before they start to get better.

But what should silly old sods such as ourselves know?

Eh?

After all, this is the 21st century. Things are so much different these days.

So long as one stays silent regarding mere trifles such as wanton warfare, woeful welfare and (still) hardly any real health care.

(Cross posted from across at How This Old Brit Sees It)

Here it is, folks!

What we’ve all been waiting for.

The joke of the day - week - month - year - decade - century - millennium!

(Cross posted from How This Old Brit Sees It)

Uh, oh!

Morgan Stanley has issued a full recession alert for the US economy, warning of a sharp slowdown in business investment and a “perfect storm” for consumers as the housing slump spreads.

In a report “Recession Coming” released today, the bank’s US team said the credit crunch had started to inflict serious damage on US companies

(snip)

Like Goldman Sachs, and Lehman Brothers, the bank no longer believes Asia and Europe will come to the rescue as America slows.

(snip)

Morgan Stanley is the first major Wall Street bank to warn that it is may now be too late to stop a recession, though most have shifted to an ultra-cautious stance in recent weeks.

The bank at first treated the August crunch as a “mid-cycle correction”, much like the financial storm after Russia’s default in 1998. But the collapse of the US commercial paper market has now continued for seventeen weeks, suggesting a “fundamental deleveraging of the banking system.”

See today’s scary story in full.

And if that isn’t enough to make you see red … we strongly suggest you see what way the markets went today.

*(Cross posted at How This Old Brit Sees It)

Crow Creek Tribal High School in Stephan, S.D.

As the cost of the Iraq war mounts, the federal government cuts back on funding for education, health, and transportation. That forces states and cities to take up the slack. In Colorado, state officials say that they’ll get $200 million less from the federal government next year as a result:

Read the rest of this entry »

Does this steel mill qualify for a farm subsidy?

Since 2000, the federal government has paid over $1 billion in farm subsidies to people who don’t farm. The way the program works, owners of land that used to grow grain are paid whether they continue to grow the grain, switch to a different crop, or turn their land into a subdivision.

Of course, only those few crops that are favored by the agriculture department are eligible for the program. If you grow beans, apples, or potatoes, you’re out of luck. But if you buy land that once had rice growing on it, and plant a stand of timber, you’ll continue to receive the subsidy for the rice. You’ll also get the subsidy if you continue to grow the rice, and if you sell the land to a foreign speculator who allows the land to go fallow, that speculator will get the subsidy.

This ridiculous situation was created by the 1996 Freedom to Farm Act, which was touted as a free-market alternative to New Deal-era subsidies. Those New Deal subsidies were paid only to farmers who agreed to abide by restrictions on which crops they could grow, and the amount that they could grow. The idea was to keep crop yields and prices from fluctuating wildly from year to year:

Read the rest of this entry »

From CNN comes the cheery news that Republicans in congress are set to give yet another round of tax breaks to the wealthiest Americans. On offer is a $70 billion package that would cut taxes on dividends and capital gains. The overwhelming majority of these taxes are paid by people who make at least $200,000 per year, and most are paid by people who have more than $10 million in personal assets.

Also, 15 million families who take in more than $150,000 per year will get a break from the Alternative Minimum Tax. As I pointed out yesterday, such tax breaks tend to lead to spending increases, so we can expect this action to result in a large expansion of the bloated federal deficit.

Apparently, the Republicans in the House are not content with the level that the dollar is trading at now, so they want to drive it lower. This is the inevitable result of expanding the deficit in the current financial climate, and it can have disasterous effects on the economy.

UPDATE: Over at Liberal Avenger, sgo provides a breakdown of who will benefit from the tax cuts, and how much the benefits will be.

The Bush administration finds that using credit leads to overspending

Conservative economist Sebastian Mallaby took a look at the relationship between tax cuts and government spending, and found that the Bush strategy of cutting taxes is likely to lead to steadily increasing deficits.

Mallaby begins by dispelling the myth that tax cuts can be used to increase government revenues:

Read the rest of this entry »

The future of the American economy looks rough

An alert reader named Stewart spotted this story about the effect that a falling dollar could have on interest rates and the national debt:

Foreign banks are starting to hike their rates - which puts foreign currencies in higher demand, thus making the dollar less attractive.

(snip)

In addition, the central banks of some foreign countries, which are key in financing the US deficit by buying US Treasury bills, are now less willing to do so. Instead, they’re diversifying their reserve holdings with euros and yen.

“We seem to have reached a crossroads,” says Anthony Chan, chief economist at JPMorgan Private Client Services in Columbus, Ohio. With foreign interest rates on the rise, he says, it will become harder to finance the US current account deficit.

(snip)

Financing the current US trade deficit is requiring increasing agility. “Every business day requires $3.5 billion of net new money entering the country to finance the current account deficit,” says Jay Bryson, an international economist at Wachovia Securities in Charlotte, N.C.

Most of that money comes from foreign central banks, which own large amounts of dollars. Recently, however, the central banks of Sweden, Finland, and Russia have said they will diversify their foreign reserve holdings and reduce their US dollars.

Read the rest of this entry »

Sometimes, you can see disaster coming a mile away (drawing by Chuck Jones)

The dollar fell to a three-month low on Friday, as G-7 officials highlighted the US trade gap during their recent meeting in Washington. Signals from the Federal Reserve board indicating that the Fed would not raise interest rates also contributed to the decline.

Of course, a drop in the value of the dollar was entirely predictable, given the policies of the Bush administration. By refusing to take any action to bring the trade deficit into better balance, the administration has made it inevitable that the dollar will decline somewhat. And their refusal to bring the budget deficit under control has exacerbated the problem, and forced the Fed to push up interest rates in order to entice foreign banks to buy up American debt.

Now that the Fed is holding interest rates steady, foreign banks and governments have little incentive to buy American bonds. Instead, they’ll use the fire sale prices created by a falling dollar to buy up hard assets in the United States.

The Economist cautioned back in 2004 that the dollar might drop catastrophically between 2009 and 2020, depending on American willingness to remedy the situation. The result, according to the Economist, would be a financial crisis similar to that experienced in the early 1970s. If the Bush administration continues its refusal to change course, such a crisis would become inevitable, and would come sooner rather than later.

U.S. housing market implodes

Sales of new homes dropped more than 10% in February, leading some to fear a collapse in housing prices and a decline in the home building sector. While the size of the dropoff in sales came as some surprise, rising interest rates have been depressing sales for almost a year.

Currently, the inventory of unsold new homes is over 500,000, more than a 6 month supply at the current price. Median sale prices for homes fell to $230,000.

As the federal deficit grows and the personal savings rate shrinks, interest rates can be expected to continue their rise. If accompanied by a general economic slowdown, these rising interest rates could lead to a general collapse of the homebuilding industry.