Posts Tagged ‘u.s. budget deficit’

U.S. Economy At Stall Speed: Q2 GDP Figures Revised Downward

September 28th, 2012 Comments off

In its third revision of GDP data for the second quarter of 2012, the Bureau of Economic Analysis  has posted a dismal set of numbers. The U.S. economy “grew” at a tepid rate of 1.3 percent in Q2 in 2012, versus a slightly higher but still weak rate of 2 percent in Q1. A rate of 1.3 percent growth, which is virtually stall speed, was only made possible by America’s massive structural mega-deficits. In FY 2012, the U.S. federal government deficit is projected to run at $1.3 trillion, representing more than 40 percent of the entire federal budget.

The anemic GDP figures for Q2 reflect an economy that remains in deep crisis. The only factor preventing a compete free fall of the U.S. economy are the massive deficits, which are unsustainable. Even a modest reduction of the deficit, however, would plunge the United States into a deep recession.






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Obama Proposing Record Budget Deficits; Is America Doomed To Follow Greece?

February 15th, 2011 Comments off

As the United States national debt reaches parity with total annual GDP, President Barack Obama continues to preside over a record level of deficit spending by the federal government. He has just sent to Congress a proposed $3.73 trillion budget for FY 2012, while forecasting a record $1.65 trillion deficit for the current fiscal year. Earlier, the Congressional Budget Office projected that the current deficit would reach at least $1.5 trillion. These figures mean that America remains trapped with unsustainable structural mega-deficits,  and that more than 40 percent of everything the U.S. federal government spends is financed with borrowed money.

As I have commented on before, this level of government indebtedness just cannot be sustained, and will lead to catastrophic repercussions. While the politicians in Washington, particularly in the Obama administration, pay lip service to the need to “rein in” this profligate public spending, nobody believes that they are serious. The president’s claim that he “plans” to reduce the deficit cumulatively over ten years by just over a trillion dollars is an utter farce, since even by the most optimistic forecasts this would leave a combined deficit over the decade of more than ten trillion dollars.

The problem, however, is not uniquely one of the Obama administration and the Democratic Party. The Republicans, who left for Obama as an inaugural present in 2009 a first-ever annual deficit to exceed a trillion dollars, are as intellectually bankrupt as are their adversaries on the other side of the aisle. The GOP is equally bereft of ideas on how to control this raging fiscal train wreck, offering little more than worn-out cliches such as reducing taxes, as though that would not further exacerbate the federal government’s structural mega-deficit.

What we are witnessing is not only an economic and fiscal calamity in the making. It is as much a display of political dysfunctionality and moral cowardice as it is of inept fiscal policy. Which leads to the melancholy conclusion that it will not be the political echelon in Washington that ultimately  imposes budgetary discipline on public spending. Increasingly likely is a doomsday scenario, in which the bond vigilantes, well practiced already with their punishing assaults on the credit ratings of Greece, Ireland and now Portugal, unleash the full fury of the market place on Uncle Sam. When that fiscally apocalyptic moment arrives, not even the impressive weight of political inertia that resides in Washington DC will be able to impede a sovereign debt crisis in the United States that will not only cripple the nation’s economy with devastating effect; it will likely dispossess the next generation of Americans  of their future.

















Dr. Nouriel Roubini Warns of Fiscal “Train Wreck” for U.S. Over Deficit and National Debt

February 8th, 2011 Comments off

In a recent interview with Bloomberg TV, Dr. Nouriel Roubini, one of the foremost economists monitoring the global financial and economic crisis, warns of  grave dangers facing the public budgetary imbalance of the United States. “The fiscal problem is very serious. The bond vigilantes have not yet woken up in the U.S. in the way they have in the Eurozone. Unless the U.S. addresses this fiscal problem, we’re going to see a train wreck.”

Roubini in the past has supported the vast budget deficits of governments and monetary loosening of central banks as a painful but necessary measure by advanced economies to redress the damage resulting form the financial and economic collapse of 2008. Even then, he warned that there was no free lunch, and that policymakers would have to present a credible plan for withdrawing stimulus and monetary easing and curtailing their levels of public debt. Now, with a full-fledged sovereign debt crisis raging in Europe and the U.S. trapped with a structural mega-deficit, Roubini and other perceptive economists are clearly worried about the unsustainable budgetary imbalance of the U.S. federal government. Indeed, a day of reckoning is coming closer, with no cogent remedies on the horizon. It is becoming far more likely that a fiscal train wreck is a future destination for the U.S. economy, and that future may not be long delayed.

Will Political Violence In America Facilitate a Sovereign Debt Crisis in the United States?

January 11th, 2011 Comments off

The savage shooting incident in Arizona over the weekend, in which six people were murdered and many others injured, including a U.S. congresswoman, has brought forth all sorts of political commentary and PR spin in the American media. I don’t wish to add to the partisan debate going on in America over the Tuscon shooting. Instead, I want to point out that the perception of political stability in the U.S. has been the primary factor in enabling Washington to borrow unlimited amounts of credit to finance its profligate budget deficits. It is also a vital factor in enabling the American dollar to hold its value relative to other currencies, despite very weak economic fundamentals.


If the assassination attempt targeting an American politician at a campaign meeting in Tucson, Arizona is the start of a wave of politically motivated violence throughout the United States, that veneer of perceived political stability will evaporate, leaving in its wake a floodtide of investors and bondholders stampeding for the exists. The Arizona shooting incident may, on top of its political significance,  also be a harbinger of economic and financial aftershocks that could prove a final nail on the coffin of America’s so far unhindered ability to borrow money on the global sovereign debt market.  Those who know the American political scene well realize how polarized the U.S. currently is. That, and the easy access to firearms has always made the potential for politically motivated violence a serious possibility. After this weekend’s tragic melee in Arizona, America’s creditors and purchasers of Treasuries can no longer assume  that America’s political stability will prove impervious to a worsening trend of political polarization.

Ben Bernanke and the U.S. Budget Deficit: More Verbal Nonsense From the Federal Reserve

April 15th, 2010 Comments off

In his historic contribution to America’s fiscal imbalance, current Federal Reserve chairman Ben Bernanke has even surpassed the corrosive reputation of his predecessor, Alan Greenspan. It has been on Bernanke’s watch that the previous structural deficits of the U.S. federal government have been transformed into even more alarming structural mega-deficits. Bernanke knows that a fiscal firestorm is brewing. So how do you continue with policies that encourage annual deficits measured in trillions of dollars while looking responsible on the deficit issue? Why, just testify before Congress and speak eloquently of your serious concern about the deficit.

This is what the most powerful man in America, an individual who can make fiscal and monetary decisions that will bankrupt your children and grandchildren without interference from legislative or executive or judicial branches of government, had to say to the august members of Congress:

“Although sizable deficits are unavoidable in the near term, maintaining the confidence of the public and financial markets requires that policymakers move decisively to set the federal budget on a trajectory toward sustainable fiscal balance.”

Trajectory toward sustainable fiscal balance? The only clear trajectory I see is an irreversible rendezvous with national insolvency, sparking a catastrophic global economic depression.

U.S. Federal Budget Deficit Spiralling Towards Doomsday: Is the Mother of All Sovereign Debt Crisis Nightmares Just Ahead?

March 11th, 2010 Comments off

According to the U.S. Treasury Department, America’s federal government set a record for red ink in February 2010, accumulating a deficit in just that one month of  $221 billion. In comparison, the deficit for February 2009 was $194 billion.  Year on year, the February deficit grew by 14%. No doubt, the Obama administration is spending and borrowing at a record pace, in order to put as much of a dent as possible in America’s staggering unemployment number before the midterm election in November. Thus, short term political expediency is given a higher priority than the long term fiscal health of the nation.

The massive U.S. government deficits are not only a function of rapacious federal spending, but also a reflection of plummeting revenues. In the year to date corporate tax receipts were $45.4 billion, compared to $52.8 billion during  the same period in FY 2009, while individual income tax receipts declined by 14%. Where does this end? Bar an economic miracle leading to instant double-digit real growth, fiscal doomsday lies before us, as policymakers in the United States and other advanced economies sail on at flank speed towards the mother of all sovereign debt crises.

U.S. Government Spending is Out of Control: America Enters the Fiscal Twilight Zone

February 2nd, 2010 Comments off

Ten years ago, the Clinton administration submitted to Congress a proposed federal government budget of $1.9 trillion. Now, the Obama administration has released  a proposed budget for the upcoming fiscal year. It is a whopper: more than $3.8 trillion. As inflation has been low over the past decade, if official U.S. government statistics are to be believed, the great majority of this doubling  in federal spending over the past decade has been actual increases in real terms.

More disturbing than this explosion in federal outlays has been the record deficit that is being projected, following on the heels of previous record deficits. The red ink being forecast for FY 2011 is an eye-popping  $1.56 trillion. Yet, President Barack Obama claims that this is a first step towards deficit reduction.
I beg to differ with the president. Far from being a move towards fiscal responsibility, this massive spending fest, with a projected deficit that is the equivalent of more than three quarters of total federal government spending a mere ten years ago, is the clearest indication yet that U.S. government spending is out of control, and has entered the fiscal twilight zone. As I project in my new book, “Global Economic Forecast 2010-2015: Recession Into Depression,” this dangerous path is unsustainable. The ultimate consequences will be frightful.

Global Recession Shreds Chinese Exports; Dangerous Implications For U.S. Budget Deficits

March 12th, 2009 Comments off

As a synchronized global recession hammers the economies of Europe, Japan and North America, the last refuge of those who still believe in a short-lived economic downturn, with no danger of a worldwide depression, has been China. Everyone and their cousin, it seems, are banking on China to lift the entire planet out of the clutches of the Global Economic Crisis. The latest export figures issued by the Chinese authorities, however, demolish any rational expectation that the world’s third largest economy will reverse the ferocity of the synchronized global recession.

Exports from China in February declined 25.7 % from one year ago, a staggering rate of contraction that is far worse than the expectations of analysts. The clear message is that the Chinese economy is being fully impacted by the Global Economic Crisis, despite the forlorn hopes of some that Beijing would successfully decouple its economy from the global recession.

The entire center of gravity of the Chinese economic machine is export trade. No matter how one may try to formulate some new theory of Chinese economic development based on the mythology of “domestic demand,” it is China’s transition into the factory of the world that transformed the formally stagnant economy of Mao’s Cultural Revolution into a 21st century behemoth. It is for that reason that a decline of one quarter in China’s exports must be seen for the economic catastrophe that it is, both for China and the world.

Along with the plunging in exports has been the narrowing of China’s once vast trade surplus. Until recently, China typically experienced a monthly current account surplus of $40 billion. In February, this figure shrank to less than $5 billion. This diminution in the current account surplus is significant, for it was through large trade surpluses that China was able to accumulate large foreign exchange reserves, currently in the range of $2 trillion dollars. This reserve enabled the Chinese government to purchase nearly a trillion dollars in U.S. Treasuries, a critical factor in providing credit to cover the staggering budgetary deficits incurred by the United States. A continuing trend downward in both overall Chinese exports and her current account surplus, combined with the need to now fund Chinese deficit spending for that nation’s own economic stimulus program, translates into less capacity for Beijing to loan the U.S. Treasury money. This dismal convergence occurs precisely when the projected U.S. government deficits are expected to increase exponentially.

China’s export contraction is bad news for many reasons. Domestically, the Chinese authorities worry, with good reason, that social stability and cohesion will be at risk due to increasing levels of unemployment. Fewer Chinese exports also means that Beijing imports less from the rest of the planet, further exacerbating the Global Economic Crisis. Most vexatious of all, however, is the diminished ability of China to be the banker of last resort to the debt-ridden U.S. Treasury. Not enough attention has been devoted to the contradiction of America planning multi-trillion dollar deficits annually for years to come at exactly the time when China’s now sputtering export machine likely means that the number one source of credit for the United States will no longer be able to satisfy the credit needs of the American government.

The latest export data from China, when placed in the context of the factors listed above, points to a perfect fiscal storm brewing that will prove shattering to the U.S. economy and a volatile accelerant in the mad rush towards a global economic depression.