Ok so its been a while. A lot of things have changed.
The markets seem to have put in a solid bottom in March. I sent out an email to the rest of my office in mid April entitled "The End of the Long Winter."
I believe Obama created this bottom. Smart man. He knows that the driving force in any economy is confidence. Animal spirits if you will. The play a disproportionate role in this economy. And those of you who followed Obama's call to invest in the market are now doing quite well. The S&P bottomed at 666 with a beautiful double bottom and then carved out a beautiful cup and handle formation and has broken out.
Small caps especially Chinese small caps are going absolutely nuts. So are Russian stocks. All are raging buys and are going up as fast and hard as they fell down. Look at the charts of stocks like: SEED, FEED, GRO, SOL, CHU, YTEC, MTL, IGC etc. Look at the macro ETFs of things like RSX, GUR, FXI and INP. Look at TLT crashing and TBT rocking. They all tell a micro and macro story. I am making solid returns in the past month or two on the long side in both stocks and options.
This is a good time to be in the markets. New stocks are powering higher. Look at stocks of companies like AXL, XTXI etc. American Axle a key automotive supplier is now starting to climb. Yes, can you believe it? An automotive supplier. And it has a long way to go as today its only around 2.6 dollars. It could easily be around 15 in the next year. And as it does, I intend on riding it all the way. As always excercise caution and ALWAYS, ALWAYS use a stop loss.
This blog is for informational purposes only for my entertainment and not intended to be investment advice. Follow anything I can and you can and will incur a loss. DO NOT PUT YOUR MONEY TO WORK ON ANYTHING WRITTEN HERE ON THIS BLOG. DONT MAKE ME HURT YOU!
Showing posts with label 2009. Show all posts
Showing posts with label 2009. Show all posts
Friday, June 5, 2009
Friday, February 6, 2009
Gary Schilling's Predictions: 2009
Gary Shilling's 2009 Predictions: We're Still Screwed
Henry Blodget Jan 6, 09 3:58 PM
Last year, economist Gary Shilling humiliated the rest of the economic forecasting industry by going 13 for 13.
As promised, here are Gary's predictions for this year:
Every one of our 13 investment strategies for 2008 worked last year. Some of them have been fully exploited so we dropped them from this year's list. But others are only partially achieved in view of our dire outlook that the worst global financial crisis and deepest worldwide recession since the 1930s will continue throughout 2009.
So we've retained 10 of our 2008 strategies this year, some in modified form, and added two new ones.
1. Sell homebuilder stocks and bonds.
2. If you plan to sell your house, second home or investment houses anytime soon, do so yesterday.
3. Sell some housing-related stocks.
4. Sell some consumer discretionary spending companies.
5. Sell most commercial real estate.
6. Sell some commodities.
7. Sell emerging market equities.
8. Sell emerging market debt.
9. Buy the dollar.
10. Sell stocks in general. (S&P 500 to 600)
11. Sell consumer lenders’ equities.
12. Buy, carefully, high-grade bonds.
from: clusterstock.alleyinsider.com
Henry Blodget Jan 6, 09 3:58 PM
Last year, economist Gary Shilling humiliated the rest of the economic forecasting industry by going 13 for 13.
As promised, here are Gary's predictions for this year:
Every one of our 13 investment strategies for 2008 worked last year. Some of them have been fully exploited so we dropped them from this year's list. But others are only partially achieved in view of our dire outlook that the worst global financial crisis and deepest worldwide recession since the 1930s will continue throughout 2009.
So we've retained 10 of our 2008 strategies this year, some in modified form, and added two new ones.
1. Sell homebuilder stocks and bonds.
2. If you plan to sell your house, second home or investment houses anytime soon, do so yesterday.
3. Sell some housing-related stocks.
4. Sell some consumer discretionary spending companies.
5. Sell most commercial real estate.
6. Sell some commodities.
7. Sell emerging market equities.
8. Sell emerging market debt.
9. Buy the dollar.
10. Sell stocks in general. (S&P 500 to 600)
11. Sell consumer lenders’ equities.
12. Buy, carefully, high-grade bonds.
from: clusterstock.alleyinsider.com
Friday, January 9, 2009
Calculated Risk on Employment Numbers and Part time Employed
Employment Declines Sharply, Unemployment Rises to 7.2 Percent
Click on graph for larger image.
This graph shows the unemployment rate and the year over year change in employment vs. recessions.
Nonfarm payrolls decreased by 524,00 in December, and November payrolls were revised down to a loss of 584,000 jobs. The economy has lost over 1.5 million jobs over the last 3 months alone!
The unemployment rate rose to 7.2 percent; the highest level since January 1993.
Year over year employment is now strongly negative (there were 2.6 million fewer Americans employed in Dec 2008 than in Dec 2007). This is another extremely weak employment report ...
Click on graph for larger image.
Not only has the unemployment rate risen sharply to 7.2%, but the number of workers only able to find part time jobs (or have had their hours cut for economic reasons) is now over 8 million.
Of course the U.S. population is significantly larger today (about 305 million) than in the early '80s (about 228 million) when the number of part time workers almost reached 7 million, but the rapid increase in part time workers is pretty stunning.
by CalculatedRisk on 1/09/2009 08:30:00 AM
From the BLS:
Nonfarm payroll employment declined sharply in December, and the unemployment rate rose from 6.8 to 7.2 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Payroll employment fell by 524,000 over the month and by 1.9 million over the last 4 months of 2008. In December, job losses were large and widespread across most major industry sectors.
Click on graph for larger image.This graph shows the unemployment rate and the year over year change in employment vs. recessions.
Nonfarm payrolls decreased by 524,00 in December, and November payrolls were revised down to a loss of 584,000 jobs. The economy has lost over 1.5 million jobs over the last 3 months alone!
The unemployment rate rose to 7.2 percent; the highest level since January 1993.
Year over year employment is now strongly negative (there were 2.6 million fewer Americans employed in Dec 2008 than in Dec 2007). This is another extremely weak employment report ...
Over 8 Million Part Time Workers
by CalculatedRisk on 1/09/2009 09:01:00 AM
From the BLS report:
In December, the number of persons who worked part time for economic reasons (some-times referred to as involuntary part-time workers) continued to increase, reaching 8.0 million. The number of such workers rose by 3.4 million over the past 12 months. This category includes persons who would like to work full time but were working part time because their hours had been cut back or because they were unable to find full-time jobs.
Click on graph for larger image.Not only has the unemployment rate risen sharply to 7.2%, but the number of workers only able to find part time jobs (or have had their hours cut for economic reasons) is now over 8 million.
Of course the U.S. population is significantly larger today (about 305 million) than in the early '80s (about 228 million) when the number of part time workers almost reached 7 million, but the rapid increase in part time workers is pretty stunning.
Wednesday, January 7, 2009
Calculated Risk on FOMC Statement
Fed Fears Long Recession
by CalculatedRisk on 1/06/2009 02:17:00 PM
The Fed projects GDP to decline in 2009 "as a whole", and unemployment to "rise significantly into 2010". The Fed also expects disinflationary pressures to continue into 2010.
From the FOMC Minutes:
In the forecast prepared for the meeting, the staff revised down sharply its outlook for economic activity in 2009 but continued to project a moderate recovery in 2010. Real GDP appeared likely to decline substantially in the fourth quarter of 2008 as conditions in the labor market deteriorated more steeply than previously anticipated; the decline in industrial production intensified; consumer and business spending appeared to weaken; and financial conditions, on balance, continued to tighten. Rising unemployment, the declines in stock market wealth, low levels of consumer sentiment, weakened household balance sheets, and restrictive credit conditions were likely to continue to hinder household spending over the near term.
Homebuilding was expected to contract further. Business expenditures were also likely to be held back by a weaker sales outlook and tighter credit conditions. Oil prices, which dropped significantly during the intermeeting period, were assumed to rise over the next two years in line with the path indicated by futures market prices, but to remain below the levels of October 2008. All told, real GDP was expected to fall much more sharply in the first half of 2009 than previously anticipated, before slowly recovering over the remainder of the year as the stimulus from monetary and assumed fiscal policy actions gained traction and the turmoil in the financial system began to recede. Real GDP was projected to decline for 2009 as a whole and to rise at a pace slightly above the rate of potential growth in 2010. Amid the weaker outlook for economic activity over the next year, the unemployment rate was likely to rise significantly into 2010, to a level higher than projected at the time of the October 28-29 FOMC meeting. The disinflationary effects of increased slack in resource utilization, diminished pressures from energy and materials prices, declines in import prices, and further moderate reductions in inflation expectations caused the staff to reduce its forecast for both core and overall PCE inflation. Core inflation was projected to slow considerably in 2009 and then to edge down further in 2010.
emphasis added
by CalculatedRisk on 1/06/2009 02:17:00 PM
The Fed projects GDP to decline in 2009 "as a whole", and unemployment to "rise significantly into 2010". The Fed also expects disinflationary pressures to continue into 2010.
From the FOMC Minutes:
In the forecast prepared for the meeting, the staff revised down sharply its outlook for economic activity in 2009 but continued to project a moderate recovery in 2010. Real GDP appeared likely to decline substantially in the fourth quarter of 2008 as conditions in the labor market deteriorated more steeply than previously anticipated; the decline in industrial production intensified; consumer and business spending appeared to weaken; and financial conditions, on balance, continued to tighten. Rising unemployment, the declines in stock market wealth, low levels of consumer sentiment, weakened household balance sheets, and restrictive credit conditions were likely to continue to hinder household spending over the near term.
Homebuilding was expected to contract further. Business expenditures were also likely to be held back by a weaker sales outlook and tighter credit conditions. Oil prices, which dropped significantly during the intermeeting period, were assumed to rise over the next two years in line with the path indicated by futures market prices, but to remain below the levels of October 2008. All told, real GDP was expected to fall much more sharply in the first half of 2009 than previously anticipated, before slowly recovering over the remainder of the year as the stimulus from monetary and assumed fiscal policy actions gained traction and the turmoil in the financial system began to recede. Real GDP was projected to decline for 2009 as a whole and to rise at a pace slightly above the rate of potential growth in 2010. Amid the weaker outlook for economic activity over the next year, the unemployment rate was likely to rise significantly into 2010, to a level higher than projected at the time of the October 28-29 FOMC meeting. The disinflationary effects of increased slack in resource utilization, diminished pressures from energy and materials prices, declines in import prices, and further moderate reductions in inflation expectations caused the staff to reduce its forecast for both core and overall PCE inflation. Core inflation was projected to slow considerably in 2009 and then to edge down further in 2010.
emphasis added
Tuesday, January 6, 2009
Obama's America 2009
from www.nytimes.com
January 6, 2009
Transcript
Obama’s Media Availability
The following is a rush transcript of President-Elect Barack Obama’s media availability as provided by the Obama team.
Obama: When the American people spoke last November, they were demanding change, change in policies that helped deliver the worst economic crisis that we've seen since the Great Depression, but they're also looking for a change in the way that Washington does business. They were demanding that we restore a sense of responsibility and prudence to how we'd run our government.
One of the measures of irresponsibility that we've seen is the enormous federal debt that has accumulated, a number that has doubled in recent years. As we just discussed, my budget team filled me in on - Peter Orszag now forecasts that, at the current course and speed, a trillion-dollar deficit will be here before we even start the next budget, that we've already looked - we're already looking at a trillion-dollar budget deficit or close to a trillion-dollar budget deficit, and that potentially we've got trillion-dollar deficits for years to come, even with the economic recovery that we are working on at this point.
So the reason I raise this is that we're going to have to stop talking about budget reform. We're going to have to totally embrace it. It's an absolute necessity.
And it has to begin with the economic recovery and reinvestment plan that Congress will soon be considering, that we're going to be investing an extraordinary amount of money to jump-start our economy, save or create 3 million new jobs, mostly in the private sector, and lay a solid foundation for future growth.
But we're not going to be able to expect the American people to support this critical effort unless we take extraordinary steps to ensure that the investments are made wisely and managed well. And that's why my recovery and reinvestment plan will have - will set a new higher standard of accountability, transparency, and oversight.
We are going to ban all earmarks, the process by which individual members insert pet projects without review. We will create an economic recovery oversight board made up of key administration officials and independent advisers to identify problems early and make sure we're doing all that we can to solve it. We will put information about where money is being spent online so that the American people know exactly where their precious tax dollars are going and whether we are hitting our marks.
But we're not going to be able to stop there. We're going to have to bring significant reform not just to our recovery and reinvestment plan, but to the overall budget process, to address both the deficit of dollars and the deficit of trust. We'll have to make tough choices, and we're going to have to break old habits. We're going to have to eliminate outmoded programs and make the ones that we do need work better.
That's the challenge that I've handed to Peter, and Rob Nabors, and the rest of my budget team. That's the challenge that the American people have handed me. They know that we're at a perilous crossroad and that tinkering in the margins will not do.
I'm going to have more to say about this subject tomorrow, but today I wanted to lay out an early marker with those that I've entrusted to help bring the changes that the American people voted for. We are going to bring a long-overdue sense of responsibility and accountability to Washington. We are going to stop talking about government reform, and we're actually going to start executing.
That's the charge that I've given the members of the administration. That's the charge that was given to me by the American people. And we are ready for the challenge.
So with that, I'm going to take some questions. And let's start with you.
Question: Thank you, Mr. President-elect. Do you think that you'll be submitting a budget larger than the $3.1 trillion that President Bush submitted for fiscal '09? And, also, what are you doing to address concerns from other Democrats about deficit spending and increasing the deficit with the stimulus package?
Obama: Well, you know, I don't want to get into particular budget numbers, because we're obviously still in the process of reviewing what the existing budget looks like, where we can obtain some savings, what programs we can potentially eliminate. We will be submitting that budget later, after we've submitted the recovery and reinvestment plan.
I can give you a set of general principles, though. We know that we're going to have to spend money to jump-start the economy. I spoke about that yesterday.
We know that even if we did nothing that we have close to a trillion-dollar deficit, even if we were on the current path that we're on. And we know that we have to then implement a set of fiscal measures that deal with the medium and long term so that we have a sustainable path of economic growth.
So what I've assigned Peter to do is - and Rob and others - is to work with my economic team. They are part of the team that is putting together the accountability and oversight measures into the recovery act, but they also have this broader charge, which is, how do we get a fix on this budget so that, as the economy recovers, we start stabilizing the economy and - and getting our budget under control?
It's not just Democrat or Republican colleagues on the Hill that are concerned about this. I'm concerned about this. And so what I've said is, I'm going to be willing to make some very difficult choices in how we get a handle on this deficit. That's what the American people are looking for.
And, you know, what we intend to do this year, next year, and all the years that I'm in office is to demonstrate our seriousness, not by gimmicks, not by punting to future administrations the tough choices, but by making some of those tough choices while I'm in office.
Question: ... Earmarks, you said there will be none that get in there without review. Some people would argue even the so-called bridge to nowhere got review, some level of review ...
Obama: No, no, no. What I'm saying is - let me repeat what I said about that ... We will ban all earmarks in the recovery package. And I describe earmarks as the process by which individual members insert pet projects without review. So what I'm saying is, we're not having earmarks in the recovery package, period. I was describing what earmarks are.
Question: So there's - you're not suggesting there's some level of review that might ...
Obama: I'm saying there are no earmarks in the recovery package. That, that is the position that I'm taking.
Question: Well, if I may, I was just wondering if $200,000 sounds like about the right level at which the tax credits would be phased out. I know that's been thrown out there ...
Obama: You know, look, I think you can get some guidance from what I said during the campaign, but I don't want to be locked in to a particular number, Chuck, just because we're still formulating the details of the plan. OK ...
Question: Some are - some are questioning Leon Panetta's lack of intelligence - lack of experience on intelligence matters. Sorry about that. I know this is tricky for you since you haven't announced it yet, but what does he bring to the table for you?
Obama: Well, as you noted, I haven't made - haven't made a formal announcement about my intelligence team.
(cell phone rings)
Obama: That may be him calling now... finding out where it's at.
Obama: I have the utmost respect for Leon Panetta. I think that he is one of the finest public servants that we have. He brings extraordinary management skills, great political savvy, an impeccable record of integrity.
As chief of staff, he is somebody who - to the president - he's somebody who obviously was fully versed in international affairs, crisis management, and had to evaluate intelligence consistently on a day-to-day basis.
Having said all that, I have not made an announcement. When we make the announcement, I think what people will see is, is that we are putting together a top-notch intelligence team that is not only going to assure that I get the best possible intelligence unvarnished, that the intelligence community is no longer geared towards telling the president what they think the president wants to hear, but instead are going to be delivering the information that the president needs to make critical decisions to keep the American people safe.
I think what you're also going to see is a team that is committed to breaking with some of the past practices and concerns that have, I think, tarnished the image of the agencies, the intelligence agencies, as well as U.S. foreign policy.
Last point I will make, though, on this is that there are outstanding intelligence professionals in the CIA, in DNI, and others, and I have the utmost regard for the work that they've done, and we are committed to making sure that this is a team effort that's not looking backwards, but is looking forward to figure out how we're going to serve the American people best, OK?
Question: Thank you, Mr. President-elect. You're being put under a lot of pressure internationally to get more involved in the situation in Gaza. I understand you think there should only be one president at a time, but what do you have to say to the Israelis and the Palestinians who are fighting and dying in Gaza?
Obama: As I've said before, when it comes to foreign policy, I think the need to adhere to one president at a time is particularly important. In domestic policy, Democrats, Republicans, we can have arguments back and forth about what tax policies are going to be. When it comes to international affairs, other countries are looking to see who speaks for America. Right now, President George Bush, as president of the United States, speaks on behalf of the U.S. government and the American people when it comes to international affairs.
Obviously, I am deeply concerned about the conflict that's taking place there. I'm being fully briefed and monitored - monitoring the situation on a day-to-day basis. The loss of civilian life in Gaza and in Israel is a source of deep concern for me.
And after January 20th, I am going to have plenty to say about the issue. And I am not backing away at all from what I said during the campaign, that I - starting at the beginning of our administration, we are going to engage effectively and consistently in trying to resolve the conflicts that exist in the Middle East.
That's something that I'm committed to. I think it's not only right for the people in that region; most importantly, it's right for the national security of the American people and the stability that is so important to this country. So on January 20th, you will be hearing directly from me and my opinions on this issue. Until then, my job is to monitor the situation and put together the best possible national security team so that we hit the ground running once we are responsible for national security issues.
January 6, 2009
Transcript
Obama’s Media Availability
The following is a rush transcript of President-Elect Barack Obama’s media availability as provided by the Obama team.
Obama: When the American people spoke last November, they were demanding change, change in policies that helped deliver the worst economic crisis that we've seen since the Great Depression, but they're also looking for a change in the way that Washington does business. They were demanding that we restore a sense of responsibility and prudence to how we'd run our government.
One of the measures of irresponsibility that we've seen is the enormous federal debt that has accumulated, a number that has doubled in recent years. As we just discussed, my budget team filled me in on - Peter Orszag now forecasts that, at the current course and speed, a trillion-dollar deficit will be here before we even start the next budget, that we've already looked - we're already looking at a trillion-dollar budget deficit or close to a trillion-dollar budget deficit, and that potentially we've got trillion-dollar deficits for years to come, even with the economic recovery that we are working on at this point.
So the reason I raise this is that we're going to have to stop talking about budget reform. We're going to have to totally embrace it. It's an absolute necessity.
And it has to begin with the economic recovery and reinvestment plan that Congress will soon be considering, that we're going to be investing an extraordinary amount of money to jump-start our economy, save or create 3 million new jobs, mostly in the private sector, and lay a solid foundation for future growth.
But we're not going to be able to expect the American people to support this critical effort unless we take extraordinary steps to ensure that the investments are made wisely and managed well. And that's why my recovery and reinvestment plan will have - will set a new higher standard of accountability, transparency, and oversight.
We are going to ban all earmarks, the process by which individual members insert pet projects without review. We will create an economic recovery oversight board made up of key administration officials and independent advisers to identify problems early and make sure we're doing all that we can to solve it. We will put information about where money is being spent online so that the American people know exactly where their precious tax dollars are going and whether we are hitting our marks.
But we're not going to be able to stop there. We're going to have to bring significant reform not just to our recovery and reinvestment plan, but to the overall budget process, to address both the deficit of dollars and the deficit of trust. We'll have to make tough choices, and we're going to have to break old habits. We're going to have to eliminate outmoded programs and make the ones that we do need work better.
That's the challenge that I've handed to Peter, and Rob Nabors, and the rest of my budget team. That's the challenge that the American people have handed me. They know that we're at a perilous crossroad and that tinkering in the margins will not do.
I'm going to have more to say about this subject tomorrow, but today I wanted to lay out an early marker with those that I've entrusted to help bring the changes that the American people voted for. We are going to bring a long-overdue sense of responsibility and accountability to Washington. We are going to stop talking about government reform, and we're actually going to start executing.
That's the charge that I've given the members of the administration. That's the charge that was given to me by the American people. And we are ready for the challenge.
So with that, I'm going to take some questions. And let's start with you.
Question: Thank you, Mr. President-elect. Do you think that you'll be submitting a budget larger than the $3.1 trillion that President Bush submitted for fiscal '09? And, also, what are you doing to address concerns from other Democrats about deficit spending and increasing the deficit with the stimulus package?
Obama: Well, you know, I don't want to get into particular budget numbers, because we're obviously still in the process of reviewing what the existing budget looks like, where we can obtain some savings, what programs we can potentially eliminate. We will be submitting that budget later, after we've submitted the recovery and reinvestment plan.
I can give you a set of general principles, though. We know that we're going to have to spend money to jump-start the economy. I spoke about that yesterday.
We know that even if we did nothing that we have close to a trillion-dollar deficit, even if we were on the current path that we're on. And we know that we have to then implement a set of fiscal measures that deal with the medium and long term so that we have a sustainable path of economic growth.
So what I've assigned Peter to do is - and Rob and others - is to work with my economic team. They are part of the team that is putting together the accountability and oversight measures into the recovery act, but they also have this broader charge, which is, how do we get a fix on this budget so that, as the economy recovers, we start stabilizing the economy and - and getting our budget under control?
It's not just Democrat or Republican colleagues on the Hill that are concerned about this. I'm concerned about this. And so what I've said is, I'm going to be willing to make some very difficult choices in how we get a handle on this deficit. That's what the American people are looking for.
And, you know, what we intend to do this year, next year, and all the years that I'm in office is to demonstrate our seriousness, not by gimmicks, not by punting to future administrations the tough choices, but by making some of those tough choices while I'm in office.
Question: ... Earmarks, you said there will be none that get in there without review. Some people would argue even the so-called bridge to nowhere got review, some level of review ...
Obama: No, no, no. What I'm saying is - let me repeat what I said about that ... We will ban all earmarks in the recovery package. And I describe earmarks as the process by which individual members insert pet projects without review. So what I'm saying is, we're not having earmarks in the recovery package, period. I was describing what earmarks are.
Question: So there's - you're not suggesting there's some level of review that might ...
Obama: I'm saying there are no earmarks in the recovery package. That, that is the position that I'm taking.
Question: Well, if I may, I was just wondering if $200,000 sounds like about the right level at which the tax credits would be phased out. I know that's been thrown out there ...
Obama: You know, look, I think you can get some guidance from what I said during the campaign, but I don't want to be locked in to a particular number, Chuck, just because we're still formulating the details of the plan. OK ...
Question: Some are - some are questioning Leon Panetta's lack of intelligence - lack of experience on intelligence matters. Sorry about that. I know this is tricky for you since you haven't announced it yet, but what does he bring to the table for you?
Obama: Well, as you noted, I haven't made - haven't made a formal announcement about my intelligence team.
(cell phone rings)
Obama: That may be him calling now... finding out where it's at.
Obama: I have the utmost respect for Leon Panetta. I think that he is one of the finest public servants that we have. He brings extraordinary management skills, great political savvy, an impeccable record of integrity.
As chief of staff, he is somebody who - to the president - he's somebody who obviously was fully versed in international affairs, crisis management, and had to evaluate intelligence consistently on a day-to-day basis.
Having said all that, I have not made an announcement. When we make the announcement, I think what people will see is, is that we are putting together a top-notch intelligence team that is not only going to assure that I get the best possible intelligence unvarnished, that the intelligence community is no longer geared towards telling the president what they think the president wants to hear, but instead are going to be delivering the information that the president needs to make critical decisions to keep the American people safe.
I think what you're also going to see is a team that is committed to breaking with some of the past practices and concerns that have, I think, tarnished the image of the agencies, the intelligence agencies, as well as U.S. foreign policy.
Last point I will make, though, on this is that there are outstanding intelligence professionals in the CIA, in DNI, and others, and I have the utmost regard for the work that they've done, and we are committed to making sure that this is a team effort that's not looking backwards, but is looking forward to figure out how we're going to serve the American people best, OK?
Question: Thank you, Mr. President-elect. You're being put under a lot of pressure internationally to get more involved in the situation in Gaza. I understand you think there should only be one president at a time, but what do you have to say to the Israelis and the Palestinians who are fighting and dying in Gaza?
Obama: As I've said before, when it comes to foreign policy, I think the need to adhere to one president at a time is particularly important. In domestic policy, Democrats, Republicans, we can have arguments back and forth about what tax policies are going to be. When it comes to international affairs, other countries are looking to see who speaks for America. Right now, President George Bush, as president of the United States, speaks on behalf of the U.S. government and the American people when it comes to international affairs.
Obviously, I am deeply concerned about the conflict that's taking place there. I'm being fully briefed and monitored - monitoring the situation on a day-to-day basis. The loss of civilian life in Gaza and in Israel is a source of deep concern for me.
And after January 20th, I am going to have plenty to say about the issue. And I am not backing away at all from what I said during the campaign, that I - starting at the beginning of our administration, we are going to engage effectively and consistently in trying to resolve the conflicts that exist in the Middle East.
That's something that I'm committed to. I think it's not only right for the people in that region; most importantly, it's right for the national security of the American people and the stability that is so important to this country. So on January 20th, you will be hearing directly from me and my opinions on this issue. Until then, my job is to monitor the situation and put together the best possible national security team so that we hit the ground running once we are responsible for national security issues.
Monday, January 5, 2009
Eric Lewis 2009 Comic
This really says it all doesnt it? From the Calculated Risk blog - this is a comic by Eric G Lewis (who's website will be up soon at http://www.ericglewis.com/)
Sunday, January 4, 2009
Schilling forecasts S&P to reach 600 this year
Gary Schilling - one of the best forecasters of 2008 - all of his 2008 predictions (13 of them came true). Here's a preview of what he is thinking.
http://finance.yahoo.com/tech-ticker/article/149147/S&P-600:-Thats-Gary-Shillings-Forecast-for-2009,-Not-an-Index&comment_start=21
S&P 600: That's Gary Shilling's Forecast for 2009, Not an Index
Posted Dec 19, 2008 12:33pm EST by Aaron Task in Investing, Commodities, Recession
Related: ^dji, ^gspc, FXI, TLT, EEM, UDN, SPY
The S&P 500 could fall to as low as 600 in 2009 and "alternative assets" like commodities and currencies will provide no shelter for investors, says Gary Shilling, president of A. Gary Shilling & Co.
Having been appropriately bearish heading into this year, Shilling sees "few good places to hide" in 2009. Currently, Shilling is long Treasuries and the dollar, but notes the bond market's rally is getting long in the tooth.
Other than defensive plays like utilities and consumer staples, Shilling is short stocks. His "S&P 600" prediction, a 33% drop from current levels, is based on a view that S&P earnings will be $40 per share next year (vs. the consensus of $83) and the index will trade with a P/E multiple of 15. (Here's the math: $40 EPS x 15 P/E = 600.)
Shilling is also short commodities and remains bearish on emerging markets, most notably China. The theory China, most notably, could "decouple" from the U.S. doesn't hold up to scrutiny, Shilling says, as evinced by the slowdown of China's economy and the fact their middle class isn't large enough to sustain growth internally.
Against that backdrop, Shilling isn't only bearish on China as an investment, he sees the potential for major social upheaval in the world's most populous nation.
Yeah... this is definitely THE bear case. I happen to be in the bear camp along with Schilling and Roubini. Be careful out there.
http://finance.yahoo.com/tech-ticker/article/149147/S&P-600:-Thats-Gary-Shillings-Forecast-for-2009,-Not-an-Index&comment_start=21
S&P 600: That's Gary Shilling's Forecast for 2009, Not an Index
Posted Dec 19, 2008 12:33pm EST by Aaron Task in Investing, Commodities, Recession
Related: ^dji, ^gspc, FXI, TLT, EEM, UDN, SPY
The S&P 500 could fall to as low as 600 in 2009 and "alternative assets" like commodities and currencies will provide no shelter for investors, says Gary Shilling, president of A. Gary Shilling & Co.
Having been appropriately bearish heading into this year, Shilling sees "few good places to hide" in 2009. Currently, Shilling is long Treasuries and the dollar, but notes the bond market's rally is getting long in the tooth.
Other than defensive plays like utilities and consumer staples, Shilling is short stocks. His "S&P 600" prediction, a 33% drop from current levels, is based on a view that S&P earnings will be $40 per share next year (vs. the consensus of $83) and the index will trade with a P/E multiple of 15. (Here's the math: $40 EPS x 15 P/E = 600.)
Shilling is also short commodities and remains bearish on emerging markets, most notably China. The theory China, most notably, could "decouple" from the U.S. doesn't hold up to scrutiny, Shilling says, as evinced by the slowdown of China's economy and the fact their middle class isn't large enough to sustain growth internally.
Against that backdrop, Shilling isn't only bearish on China as an investment, he sees the potential for major social upheaval in the world's most populous nation.
Yeah... this is definitely THE bear case. I happen to be in the bear camp along with Schilling and Roubini. Be careful out there.
Saturday, January 3, 2009
ECB Papademos: Don't see recovery in 2009
Papademos Says ECB to ‘Act Appropriately’ in Slowdown (Update2)
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By Simon Kennedy
Jan. 3 (Bloomberg) -- European Central Bank Vice President Lucas Papademos said an economic recovery may not begin until next year and that policy makers have the scope to cut interest rates if inflation slows further.
“The economic outlook is unusually uncertain,” Papademos said in an interview with Germany’s WirtschaftsWoche magazine published today. “It is quite possible that the recovery will not start until the beginning of 2010.”
Having reduced their key interest rate by 175 basis points since early October to 2.5 percent, ECB policy makers enter the new year under pressure to cut more deeply amid Europe’s first recession in 15 years. Retail sales fell for a seventh month in December, manufacturing shrank at a record pace and lending to the private sector stagnated, reports showed this past week.
The economy may be even weaker in 2009 than the ECB’s prediction of last month for a contraction of about 0.5 percent, Papademos said. The Frankfurt-based central bank will “act appropriately” and has room to do so if the slowdown threatens price stability, which the ECB defines as inflation just below 2 percent in the medium term, he said.
“If, in our assessment, the risks to price stability change further in the coming months, monetary policy could be eased further and we will act appropriately,” Papademos said.
Inflation to Fall
The ECB’s current view is that the 16-nation economy will remain weak and contract for two to three more quarters with a “gradual recovery” in the second half of the year at the earliest, he said. While it is premature for the bank to revise its projections it “cannot rule out that economic activity in 2009 may turn out to be weaker than suggested,” he said.
Although deflation, a sustained period of falling prices, isn’t likely in the euro-area, inflation may “fall considerably” in the middle of 2009 before accelerating toward levels consistent with price stability by the end of the year, Papademos said.
The inflation rate fell to 1.8 percent last month, beneath the ECB’s target for the first time since July 2007, according to the median of 20 forecasts given by economists before a report scheduled for release in the coming week.
The fall in the price of oil from its peak of $147 a barrel last July as well as lower interest rates and taxes should support expansion, Papademos said.
Rate Expectations
Economists at Bank of America Corp. are among those anticipating the economy will be weaker than the ECB projects this year with a forecast for a 2.5 percent contraction. They expect the ECB to cut its benchmark to 1.5 percent this quarter even as officials such as President Jean-Claude Trichet signal a reluctance to pursue aggressive rate cuts.
The ECB’s governing council next meets Jan. 15 with investors indicating they expect a cut of at least 25 basis points, according to Eonia forward contracts.
Papademos said the ECB had “absolutely not” lagged behind counterparts such as the Federal Reserve in combating the economic fallout from the financial crisis. The Fed last month cut its main interest rate to as low as zero for the first time.
The economies and mandates of central banks differ and interest rates were higher elsewhere than in Europe when the turmoil began, Papademos said. “The fact that some central banks have lowered their key rates more quickly than us does not mean they are ahead of us,” he said.
‘More Time’
The difficulty facing the ECB is that the crisis means markets are not passing on interest rate cuts to the ECB as fast as they would traditionally, Papademos said. “In the current environment, it will take more time for interest rate cuts to affect economic activity and their impact may be weaker than is usually the case,” he said.
The ECB official urged banks to take advantage of government funding and better disclose the losses and risk they face. A proposal for a clearing house to guarantee loans between banks is a “concept worth exploring,” he said.
The ECB provided a transcript of Papademos interview to news media.
To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net.
Last Updated: January 3, 2009 08:01 EST
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By Simon Kennedy
Jan. 3 (Bloomberg) -- European Central Bank Vice President Lucas Papademos said an economic recovery may not begin until next year and that policy makers have the scope to cut interest rates if inflation slows further.
“The economic outlook is unusually uncertain,” Papademos said in an interview with Germany’s WirtschaftsWoche magazine published today. “It is quite possible that the recovery will not start until the beginning of 2010.”
Having reduced their key interest rate by 175 basis points since early October to 2.5 percent, ECB policy makers enter the new year under pressure to cut more deeply amid Europe’s first recession in 15 years. Retail sales fell for a seventh month in December, manufacturing shrank at a record pace and lending to the private sector stagnated, reports showed this past week.
The economy may be even weaker in 2009 than the ECB’s prediction of last month for a contraction of about 0.5 percent, Papademos said. The Frankfurt-based central bank will “act appropriately” and has room to do so if the slowdown threatens price stability, which the ECB defines as inflation just below 2 percent in the medium term, he said.
“If, in our assessment, the risks to price stability change further in the coming months, monetary policy could be eased further and we will act appropriately,” Papademos said.
Inflation to Fall
The ECB’s current view is that the 16-nation economy will remain weak and contract for two to three more quarters with a “gradual recovery” in the second half of the year at the earliest, he said. While it is premature for the bank to revise its projections it “cannot rule out that economic activity in 2009 may turn out to be weaker than suggested,” he said.
Although deflation, a sustained period of falling prices, isn’t likely in the euro-area, inflation may “fall considerably” in the middle of 2009 before accelerating toward levels consistent with price stability by the end of the year, Papademos said.
The inflation rate fell to 1.8 percent last month, beneath the ECB’s target for the first time since July 2007, according to the median of 20 forecasts given by economists before a report scheduled for release in the coming week.
The fall in the price of oil from its peak of $147 a barrel last July as well as lower interest rates and taxes should support expansion, Papademos said.
Rate Expectations
Economists at Bank of America Corp. are among those anticipating the economy will be weaker than the ECB projects this year with a forecast for a 2.5 percent contraction. They expect the ECB to cut its benchmark to 1.5 percent this quarter even as officials such as President Jean-Claude Trichet signal a reluctance to pursue aggressive rate cuts.
The ECB’s governing council next meets Jan. 15 with investors indicating they expect a cut of at least 25 basis points, according to Eonia forward contracts.
Papademos said the ECB had “absolutely not” lagged behind counterparts such as the Federal Reserve in combating the economic fallout from the financial crisis. The Fed last month cut its main interest rate to as low as zero for the first time.
The economies and mandates of central banks differ and interest rates were higher elsewhere than in Europe when the turmoil began, Papademos said. “The fact that some central banks have lowered their key rates more quickly than us does not mean they are ahead of us,” he said.
‘More Time’
The difficulty facing the ECB is that the crisis means markets are not passing on interest rate cuts to the ECB as fast as they would traditionally, Papademos said. “In the current environment, it will take more time for interest rate cuts to affect economic activity and their impact may be weaker than is usually the case,” he said.
The ECB official urged banks to take advantage of government funding and better disclose the losses and risk they face. A proposal for a clearing house to guarantee loans between banks is a “concept worth exploring,” he said.
The ECB provided a transcript of Papademos interview to news media.
To contact the reporters on this story: Simon Kennedy in Paris at skennedy4@bloomberg.net.
Last Updated: January 3, 2009 08:01 EST
A central banker will never come right out and say that there wont be a recovery in 2009. But we have to interpret that Papademos is essentially saying that there wont be a recovery in 2009. The ECB is signaling a change of their optimisitic forecast and will cut interest rates this quarter.
Friday, January 2, 2009
Stimulus: Buy American
Obama Team Reviewing ‘Buy American’ Plank in Stimulus (Update1)
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By Edwin Chen
Jan. 2 (Bloomberg) -- President-elect Barack Obama’s advisers are looking at including a “buy American” provision in the economic-stimulus legislation that the incoming administration has made its first priority.
“We are reviewing the buy American proposal and we are committed to a plan that will save or create 3 million jobs, including jobs in manufacturing,” said Jen Psaki, a spokeswoman for Obama’s transition team.
With the U.S. amid its worst economic slump since World War II, Obama is working on a package combining tax cuts and spending on infrastructure, such as roads, bridges and transit systems, to boost growth.
The stimulus package must pass Congress, and Representative Chris Van Hollen, the Maryland Democrat who is a liaison between Congress and Obama’s transition team, said “we obviously want to focus our investments in areas where American industry will benefit.”
Still, Van Hollen, speaking in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” said the aim of the legislation wasn’t to “set up walls” and that the stimulus would be aimed at “generating American jobs,” not triggering a “trade war.”
Obama will meet privately with Democratic congressional leaders on Jan. 5 in the Capitol and will hold discussions later with leaders in both parties, said Brendan Daly, a spokesman for House Speaker Nancy Pelosi. The president-elect and lawmakers will discuss the stimulus measure and other legislation slated to move in the first weeks of the congressional session, Daly said.
Manufacturing Council
Nucor Corp. Chief Executive Officer Dan DiMicco said he will use his position as a member of the U.S. Department of Commerce’s manufacturing council to push for the use of domestically produced steel in such projects. Current requirements that American-made material be used in government projects are unevenly enforced, he said.
The New York Times reported yesterday that U.S. steelmakers are counting on government spending to make up for sagging demand from automakers and other industries.
U.S. steel demand fell to an estimated 104 million metric tons last year from 120.5 million in 2007, said Purchasing magazine, an industry publication.
Democrats are seeking to have legislation ready soon after Obama’s Jan. 20 inauguration, though Senate Republican leader Mitch McConnell has threatened to slow that timetable.
Obama advisers and congressional Democrats estimate the stimulus plan may total $850 billion. Some economists are recommending as much as $1 trillion to spur the economy.
To contact the reporter on this story: Edwin Chen in Washington at Echen32@bloomberg.net.
Last Updated: January 2, 2009 18:42 EST
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By Edwin Chen
Jan. 2 (Bloomberg) -- President-elect Barack Obama’s advisers are looking at including a “buy American” provision in the economic-stimulus legislation that the incoming administration has made its first priority.
“We are reviewing the buy American proposal and we are committed to a plan that will save or create 3 million jobs, including jobs in manufacturing,” said Jen Psaki, a spokeswoman for Obama’s transition team.
With the U.S. amid its worst economic slump since World War II, Obama is working on a package combining tax cuts and spending on infrastructure, such as roads, bridges and transit systems, to boost growth.
The stimulus package must pass Congress, and Representative Chris Van Hollen, the Maryland Democrat who is a liaison between Congress and Obama’s transition team, said “we obviously want to focus our investments in areas where American industry will benefit.”
Still, Van Hollen, speaking in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” said the aim of the legislation wasn’t to “set up walls” and that the stimulus would be aimed at “generating American jobs,” not triggering a “trade war.”
Obama will meet privately with Democratic congressional leaders on Jan. 5 in the Capitol and will hold discussions later with leaders in both parties, said Brendan Daly, a spokesman for House Speaker Nancy Pelosi. The president-elect and lawmakers will discuss the stimulus measure and other legislation slated to move in the first weeks of the congressional session, Daly said.
Manufacturing Council
Nucor Corp. Chief Executive Officer Dan DiMicco said he will use his position as a member of the U.S. Department of Commerce’s manufacturing council to push for the use of domestically produced steel in such projects. Current requirements that American-made material be used in government projects are unevenly enforced, he said.
The New York Times reported yesterday that U.S. steelmakers are counting on government spending to make up for sagging demand from automakers and other industries.
U.S. steel demand fell to an estimated 104 million metric tons last year from 120.5 million in 2007, said Purchasing magazine, an industry publication.
Democrats are seeking to have legislation ready soon after Obama’s Jan. 20 inauguration, though Senate Republican leader Mitch McConnell has threatened to slow that timetable.
Obama advisers and congressional Democrats estimate the stimulus plan may total $850 billion. Some economists are recommending as much as $1 trillion to spur the economy.
To contact the reporter on this story: Edwin Chen in Washington at Echen32@bloomberg.net.
Last Updated: January 2, 2009 18:42 EST
I had commented previously on Will Rahal's blog about how the stimulus needed to have such a Buy American provision. This is absolutely the right thinking. America's manufacturing base needs a big lift and this is the smartest way to do it. Why would you outsource your stimulus?
Thursday, January 1, 2009
So its 2009....
My thoughts:
And so it begins. Quietly. Like a thief. It has all the makings of being a year that most people would like to forget when it does end. The financial crisis is getting close to the mid point mark. The gangrene though has spread into the real economy. Large masses of people are starting to get laid off - not just the bottom 10% as sales slow. Consumers and Business are deleveraging simultaneously and as they do - they are feeding what is a classic deflationary downward spiral with demand destruction in all economic activities. In such a scenario the velocity of money slows dramatically and one of the ways to combat this is to create more money and hope that the additional money will compensate for the reduced velocity. The second and surer way to combat this is by Keynsian government spending. We've now heard of a proposed 800B Stimulus package from Obama's financial team. By the time this makes it way into Congress and Senate this should be close to 900B if not 1T. This spending if done wisely (giving it to the 50 States, green infrastructure etc) will help create demand (which is being destroyed in the private sectors). Robert Shiller (of Case Shiller) has called for Obama to create full employment (or what full employment would be in a typical recession). Obama is 100% right when he pinpoints the fact that it will be JOB CREATION that will renew confidence. Right now that is the most vital commodity that we're in a sore lack of. CONFIDENCE. Without it - nothing much matters.
Speaking of confidence, restoring that in the financial markets is another ballgame completely. Ofcourse one of the first things on Tim Geithner's agenda will be Insolvency at the heart of the US Banking system. If we were to assume 2T of total losses (I have even heard 3T worldwide if you factor in credit cards, student loans, CRE etc) - then only 550B or so has been recognized. Even if I were to believe some other estimates and say 800B has been recognized - that still means there is 1.2 to 1.4 T dollars of looses that have not been recognized. Even cutting this estimate into half - we're still left with 600B - 700B of looses that need to be recognized before the end of 2009.
Folks - this means that the Fed is going to print money. It also means that the Treasury will likely have to come up to the Congress one more time for another 700B or so and this money will be solely to re-capitalize the banks (dare I say nationalize the banks?). But assuming that this happens in the early part of 2009 - and the stimulus passes - and we start creating jobs again - we should see the end to this immediate nightmare by end 2009 or early 2010. But then we will have a ton of printed money worldwide sloshing around. At that point, inflation will make a huge comeback. I wouldn't be surprised to see oil take off to the races once again along with the other commodities in 2010. The Fed as usual is likely to be behind the curve and will tighten only when it is sure that inflation has taken hold and the economy will not die. So expect some tightening of interest rates in mid 2010 (and expect inflation to run rampant here...). Eventually Volcker will be able to talk some sense into the responsible people and liquidity will be drained severely in 2011. But don't be surprised if ice-cream ends up costing you five dollars a cone before this is done and things return to "normal."
Expect to be robbed and take steps to protect yourself.
Good luck to all.
Wednesday, December 31, 2008
2009: Artificial Life? Keep your eye on Craig Venter
This is mind blowing stuff. Read the entire presentation as well as the Q&A afterward. Keep your eye on Craig Venter. 2009 might be notable for the first creation of artificial life.
Tuesday, December 30, 2008
2009 - In the land of the blind a one eyed man is king WINK
from www.ft.com (Financial Times)
Published: December 27 2008 00:23 | Last updated: December 27 2008 00:23
An imaginary retrospective of 2009
By Niall FergusonPublished: December 27 2008 00:23 | Last updated: December 27 2008 00:23
It was the year when people finally gave up trying to predict the year ahead. It was the year when every forecast had to be revised – usually downwards – at least three times. It was the year when the paradox of globalisation was laid bare for all to see, if their eyes weren’t tightly shut.
On the one hand, the increasing integration of markets for commodities, manufactures, labour and capital had led to great gains. As Adam Smith had foreseen in The Wealth of Nations, economic liberalisation had allowed the division of labour and comparative advantage to operate on a global scale. From the 1980s until 2007, the world economy had enjoyed higher, more widespread growth and fewer, less severe crises – hence Federal Reserve chairman Ben Bernanke’s hubristic celebration of a “great moderation” in 2004.
On the other hand, the more the world came to resemble an intricate, multi-nodal network operating at maximum efficiency – with minimal inventories and just-in-time delivery – the more vulnerable it became to a massive systemic crash.
That was the true significance of the Great Repression which began in August 2007 and reached its nadir in 2009. It was clearly not a Great Depression on the scale of the 1930s, when output in the US declined by as much as a third and unemployment reached 25 per cent. Nor was it merely a Big Recession. As output in the developed world continued to decline throughout 2009 – despite the best efforts of central banks and finance ministries – the tag “Great Repression” seemed more and more apt: although this was the worst economic crisis in 70 years, many people remained in deep denial about it.
“We assumed that we economists had learned how to combat this kind of crisis,” admitted one of President Barack Obama’s “dream team” of economic advisers, shortly after his return to academic life in September 2009. “We thought that if the Fed injected enough liquidity into the financial system, we could avoid deflation. We thought if the government ran a big enough deficit, we could end a recession. It turned out we were wrong. So much for [John Maynard] Keynes. So much for [Milton] Friedman.”
The root of the problem remained the US’s property bubble, which continued to deflate throughout the year. Many people had assumed that by the end of 2008 the worst must be over. It was not. Economist Robert Shiller’s real home price index in 2006 had stood at just under 206, nearly double its level just six years earlier. To return to its pre-bubble level, it therefore had to fall by 50 per cent. Barely half that decline had taken place by the end of 2008. So house prices continued to slide in the US. As they did, more and more families found themselves in negative equity, with debts exceeding the value of their homes. In turn, rising foreclosures translated into bigger losses on mortgage-backed securities and yet more red ink on banks’ balance sheets.
With total debt above 350 per cent of US gross domestic product, the excesses of the age of leverage proved difficult to purge. Households reined in their consumption. Banks sought to restrict new lending. The recession deepened. Unemployment rose towards 10 per cent, and then higher. The economic downward spiral seemed unstoppable. No matter how hard they saved, Americans simply could not stabilise the ratio of their debts to their disposable incomes. The paradox of thrift meant that rising savings translated into falling consumer demand, which led to rising unemployment, falling incomes and so on, ever downwards.
“Necessity will be the mother of invention,” Obama declared in his inaugural address on January 20. “By investing in innovation, we can restore our faith in American creativity. We need to build new schools, not new shopping malls. We need to produce clean energy, not dirty derivatives.” Commentators agreed that the speech was on a par with Franklin Roosevelt’s on his inauguration in 1933. Yet Roosevelt had spoken after the worst of the Depression was over, Obama in mid-tailspin. The rhetoric flew high. But the markets sank lower. The contagion spread inexorably from subprime to prime mortgages, to commercial real estate, to corporate bonds and back to the financial sector. By the end of June, Standard & Poor’s 500 Index had sunk to 624, its lowest monthly close since January 1996, and about 60 per cent below its October 2007 peak.
The crux of the problem was the fundamental insolvency of the major banks, another reality that policymakers sought to repress. In 2008, the Bank of England had estimated total losses on toxic assets at about $2.8 trillion. Yet total bank writedowns by the end of 2008 were little more than $583bn, while total capital raised was just $435bn. Losses, in other words, were either being massively understated, or they had been incurred outside the banking system. Either way, the system of credit creation had broken down. The banks could not contract their balance sheets because of a host of pre-arranged credit lines, which their clients were now desperately drawing on, while their only source of new capital was the US Treasury, which had to contend with an increasingly sceptical Congress. The other credit-creating institutions – especially the markets for asset-backed securities – were all but paralysed.
There was uproar when Timothy Geithner, US Treasury secretary, requested an additional $300bn to provide further equity injections for Citigroup, Bank of America and the seven other big banks, just a week after imposing an agonising “mega-merger” on the automobile industry. In Detroit, the Big Three had become just a Big One, on the formation of CGF (Chrysler-General Motors-Ford; inevitably, the press soon re-christened it “Can’t Get Funding”). The banks, by contrast, seemed to enjoy an infinite claim on public funds. Yet no amount of money seemed enough to persuade them to make new loans at lower rates. As one indignant Michigan law-maker put it: “Nobody wants to face the fact that these institutions [the banks] are bust. Not only have they lost all of their capital. If we genuinely marked their assets to market, they would have lost it twice over. The Big Three were never so badly managed as these bankrupt banks.”
In the first quarter, the Fed continued to do everything in its power to avert the slide into deflation. The effective federal funds rate had already hit zero by the end of 2008. In all but name, quantitative easing had begun in November 2008, with large-scale purchases of the debt and mortgage-backed securities of government-sponsored agencies (the renationalised mortgage giants Fannie Mae and Freddie Mac) and the promise of future purchases of government bonds. Yet the expansion of the monetary base was negated by the contraction of broader monetary measures such as M2 (the measurement of money and its “close substitutes”, such as savings deposits, that is a key indicator of inflation). The ailing banks were eating liquidity almost as fast as the Fed could create it. The Fed increasingly resembled a government-owned hedge fund, leveraged at more than 75 to 1, its balance sheet composed of assets everyone else wanted to be rid of.
. . .
The position of the US federal government was scarcely better. By the end of 2008, the total value of loans, investments and guarantees given by the Fed and the Treasury since the beginning of the financial crisis had already reached $7.8 trillion. In the year to November 30 2008, the total federal debt had increased by more than $1.5 trillion. Morgan Stanley estimated that the total federal deficit for the fiscal year 2009 could equal 12.5 per cent of GDP. The figure would have been even higher had President Obama not been persuaded by his chief economic adviser, Lawrence Summers, to postpone his planned healthcare reform and promised spending increases in education, research and foreign aid.
Obama had set out to construct an administration in which his rivals and allies were equally represented. But his rivals were a good deal more experienced than his allies. The result was an administration that talked like Barack Obama but thought like Bill Clinton. The Clinton-era veterans, not least Secretary of State Hillary Clinton, had vivid memories of the bond-market volatility that had plagued them in 1993 (prompting campaign manager James Carville to say that, if there was such a thing as reincarnation, he wanted to come back as the bond market). Terrified at the swelling size of the deficit, they urged Obama to defer any expenditure that was not specifically targeted on ending the financial crisis.
Yet the world had changed since the early 1990s. Despite the fears of the still-influential former Treasury secretary Robert Rubin, investors around the world were more than happy to buy new issues of US Treasuries, no matter how voluminous. Contrary to conventional wisdom, the quadrupling of the deficit did not lead to falling bond prices and rising yields. Instead, the flight to quality and the deflationary pressures unleashed by the crisis around the world drove long-term yields downwards. They remained at close to 3 per cent all year.
Nor was there a dollar rout, as many had feared. The foreign appetite for the US currency withstood the Fed’s money-printing antics, and the trade weighted exchange rate actually appreciated during 2009.
Here was the irony at the heart of the crisis. In all kinds of ways, the Great Repression had “Made in America” stamped all over it. Yet its effects were more severe in the rest of the world than in the US. And, as a consequence, the US managed to retain its “safe haven” status. The worse things got in Europe, in Japan and in emerging markets, the more readily investors bought Treasuries and held dollars.
. . .
For the rest of the world, 2009 proved to be an annus horribilis. Japan was plunged back into the deflationary nightmare of the 1990s by yen appreciation and a collapse of consumer confidence. Things were little better in Europe. There had been much anti-American finger-pointing by European leaders in 2008. The French president Nicolas Sarkozy had talked at the G-20 summit in Washington as if he alone could save the world economy. The British prime minister Gordon Brown had sought to give a similar impression, claiming authorship of the policy of bank recapitalisation. The German chancellor Angela Merkel, meanwhile, voiced stern disapproval of the excessively large American deficit.
By the first quarter of 2009, however, the mood in Europe had darkened. It became apparent that the problems of the European banks were just as serious as those of their American counterparts. Indeed, the short-term liabilities of the Belgian, Swiss, British and Italian banks were far larger in relation to those countries’ economies, while the German, French and Danish banks were much more dangerously leveraged. Moreover, in the absence of a European-wide finance ministry, all talk of a European stimulus package was just that – mere talk. In practice, fiscal policy became a matter of sauve qui peut, with each European country improvising its own bailout and its own stimulus package. The result was a mess. Currencies outside the Euro area were afflicted by severe volatility. Inside the Euro area, the volatility was in the bond market, with spreads on Greek and Italian bonds exploding relative to German bunds.
The picture was even worse in most emerging markets. Especially hard hit in eastern Europe were Bulgaria, Romania, Ukraine and Hungary. Of the Brics (Brazil, Russia, India and China), Brazil had the best year, Russia the worst. It was a terrible year for oil and gas exporters, as prices plunged, taking currencies such as the rouble down with them. The Indian stock market, meanwhile, was battered by escalating tensions between New Delhi and Islamabad in the wake of the Mumbai terrorist attacks.
Political instability also struck China, where riots by newly redundant workers in Shenzhen and other export centres provoked a heavy-handed clampdown by the government, but also a renewed effort by the People’s Bank of China to prevent the appreciation of the yuan by buying up yet more hundreds of billions of dollars of US Treasuries. “Chimerica” – the symbiotic relationship between China and America – not only survived the crisis, but gained from it. Although Obama’s decision to attend the first G-2 summit in Beijing in April dismayed some liberals, most recognised that trade trumped Tibet at such a time of economic crisis.
This asymmetric character of the global crisis – the fact that the shocks were even bigger on the periphery than at the epicentre – had its disadvantages for the US, to be sure. Any hope that America could depreciate its way out from under its external debt burden faded as 10-year yields and the dollar held firm. Nor did American manufacturers get a second wind from reviving exports, as they would have done had the dollar sagged. The Fed’s achievement was to keep inflation in positive territory – just. Those who had feared galloping inflation and the end of the dollar as a reserve currency were confounded.
On the other hand, the troubles of the rest of the world meant that in relative terms the US gained, politically as well as economically. Many commentators had warned in 2008 that the financial crisis would be the final nail in the coffin of American credibility around the world. First, neo-conservatism had been discredited in Iraq. Now the “Washington consensus” on free markets had collapsed. Yet this was to overlook two things. The first was that most other economic systems fared even worse than America’s when the crisis struck: the country’s fiercest critics – Russia, Venezuela – fell flattest. The second was the enormous boost to America’s international reputation that followed Obama’s inauguration.
. . .
If proof were needed that the US constitution still worked, here it was. If proof were needed that America had expunged its original sin of racial discrimination, here it was. And if proof were needed that Americans were pragmatists, not ideologues, here it was. It was not that Obama’s New New Deal – announced after the Labor Day purge of the Clintonites – produced an economic miracle. Nobody had expected it to do so. It was more that the federal takeover of the big banks and the conversion of all private mortgage debt into new 50-year Obamabonds signalled an impressive boldness on the part of the new president.
The same was true of Obama’s decision to fly to Tehran in June – a decision that did more than anything else to sour relations with Hillary Clinton, whose supporters never quite recovered from the sight of the former presidential candidate shrouded in a veil. Not that the so-called “opening to Iran” produced a dramatic improvement in the Middle East region. Nobody had expected that either. It was more that, like Richard Nixon’s visit to China in 1972, it symbolised a readiness on Obama’s part to rethink the very fundamentals of American grand strategy. And the downfall of the Iranian president Mahmoud Ahmedinejad – followed soon after by the abandonment of the country’s nuclear weapons programme – was a significant prize in its own right. With their economy prostrate, the pragmatists in Tehran were finally ready to make their peace with “the Great Satan”, in return for desperately needed investment.
Meanwhile, al-Qaeda’s bungled attempt to assassinate Obama – on the eve of Thanksgiving – only served to discredit radical Islamism and to reinforce Obama’s public image as “The One”. Another of the many ironies of 2009 was that the mood of religious reawakening triggered by the economic crisis benefited the Democrats rather than the deeply divided Republicans.
By year end, it was possible for the first time to detect – rather than just to hope for – the beginning of the end of the Great Repression. The downward spiral in America’s real estate market and the banking system had finally been halted by radical steps that the administration had initially hesitated to take. At the same time, the far larger economic problems in the rest of the world had given Obama a unique opportunity to reassert American leadership, particularly in Asia and the Middle East.
The “unipolar moment” was over, no question. But power is a relative concept, as the president pointed out in his last press conference of the year: “They warned us that America was doomed to decline. And we certainly all got poorer this year. But they forgot that if everyone else declined even further, then America would still be out in front. After all, in the land of the blind, the one-eyed man is king.”
And, with a wink, President Barack Obama wished the world a happy new year.
Niall Ferguson is a contributing editor of the FT and the author of ‘The Ascent of Money: A Financial History of the World’ (Penguin)
On the one hand, the increasing integration of markets for commodities, manufactures, labour and capital had led to great gains. As Adam Smith had foreseen in The Wealth of Nations, economic liberalisation had allowed the division of labour and comparative advantage to operate on a global scale. From the 1980s until 2007, the world economy had enjoyed higher, more widespread growth and fewer, less severe crises – hence Federal Reserve chairman Ben Bernanke’s hubristic celebration of a “great moderation” in 2004.
On the other hand, the more the world came to resemble an intricate, multi-nodal network operating at maximum efficiency – with minimal inventories and just-in-time delivery – the more vulnerable it became to a massive systemic crash.
That was the true significance of the Great Repression which began in August 2007 and reached its nadir in 2009. It was clearly not a Great Depression on the scale of the 1930s, when output in the US declined by as much as a third and unemployment reached 25 per cent. Nor was it merely a Big Recession. As output in the developed world continued to decline throughout 2009 – despite the best efforts of central banks and finance ministries – the tag “Great Repression” seemed more and more apt: although this was the worst economic crisis in 70 years, many people remained in deep denial about it.
“We assumed that we economists had learned how to combat this kind of crisis,” admitted one of President Barack Obama’s “dream team” of economic advisers, shortly after his return to academic life in September 2009. “We thought that if the Fed injected enough liquidity into the financial system, we could avoid deflation. We thought if the government ran a big enough deficit, we could end a recession. It turned out we were wrong. So much for [John Maynard] Keynes. So much for [Milton] Friedman.”
The root of the problem remained the US’s property bubble, which continued to deflate throughout the year. Many people had assumed that by the end of 2008 the worst must be over. It was not. Economist Robert Shiller’s real home price index in 2006 had stood at just under 206, nearly double its level just six years earlier. To return to its pre-bubble level, it therefore had to fall by 50 per cent. Barely half that decline had taken place by the end of 2008. So house prices continued to slide in the US. As they did, more and more families found themselves in negative equity, with debts exceeding the value of their homes. In turn, rising foreclosures translated into bigger losses on mortgage-backed securities and yet more red ink on banks’ balance sheets.
With total debt above 350 per cent of US gross domestic product, the excesses of the age of leverage proved difficult to purge. Households reined in their consumption. Banks sought to restrict new lending. The recession deepened. Unemployment rose towards 10 per cent, and then higher. The economic downward spiral seemed unstoppable. No matter how hard they saved, Americans simply could not stabilise the ratio of their debts to their disposable incomes. The paradox of thrift meant that rising savings translated into falling consumer demand, which led to rising unemployment, falling incomes and so on, ever downwards.
“Necessity will be the mother of invention,” Obama declared in his inaugural address on January 20. “By investing in innovation, we can restore our faith in American creativity. We need to build new schools, not new shopping malls. We need to produce clean energy, not dirty derivatives.” Commentators agreed that the speech was on a par with Franklin Roosevelt’s on his inauguration in 1933. Yet Roosevelt had spoken after the worst of the Depression was over, Obama in mid-tailspin. The rhetoric flew high. But the markets sank lower. The contagion spread inexorably from subprime to prime mortgages, to commercial real estate, to corporate bonds and back to the financial sector. By the end of June, Standard & Poor’s 500 Index had sunk to 624, its lowest monthly close since January 1996, and about 60 per cent below its October 2007 peak.
The crux of the problem was the fundamental insolvency of the major banks, another reality that policymakers sought to repress. In 2008, the Bank of England had estimated total losses on toxic assets at about $2.8 trillion. Yet total bank writedowns by the end of 2008 were little more than $583bn, while total capital raised was just $435bn. Losses, in other words, were either being massively understated, or they had been incurred outside the banking system. Either way, the system of credit creation had broken down. The banks could not contract their balance sheets because of a host of pre-arranged credit lines, which their clients were now desperately drawing on, while their only source of new capital was the US Treasury, which had to contend with an increasingly sceptical Congress. The other credit-creating institutions – especially the markets for asset-backed securities – were all but paralysed.
There was uproar when Timothy Geithner, US Treasury secretary, requested an additional $300bn to provide further equity injections for Citigroup, Bank of America and the seven other big banks, just a week after imposing an agonising “mega-merger” on the automobile industry. In Detroit, the Big Three had become just a Big One, on the formation of CGF (Chrysler-General Motors-Ford; inevitably, the press soon re-christened it “Can’t Get Funding”). The banks, by contrast, seemed to enjoy an infinite claim on public funds. Yet no amount of money seemed enough to persuade them to make new loans at lower rates. As one indignant Michigan law-maker put it: “Nobody wants to face the fact that these institutions [the banks] are bust. Not only have they lost all of their capital. If we genuinely marked their assets to market, they would have lost it twice over. The Big Three were never so badly managed as these bankrupt banks.”
In the first quarter, the Fed continued to do everything in its power to avert the slide into deflation. The effective federal funds rate had already hit zero by the end of 2008. In all but name, quantitative easing had begun in November 2008, with large-scale purchases of the debt and mortgage-backed securities of government-sponsored agencies (the renationalised mortgage giants Fannie Mae and Freddie Mac) and the promise of future purchases of government bonds. Yet the expansion of the monetary base was negated by the contraction of broader monetary measures such as M2 (the measurement of money and its “close substitutes”, such as savings deposits, that is a key indicator of inflation). The ailing banks were eating liquidity almost as fast as the Fed could create it. The Fed increasingly resembled a government-owned hedge fund, leveraged at more than 75 to 1, its balance sheet composed of assets everyone else wanted to be rid of.
. . .
The position of the US federal government was scarcely better. By the end of 2008, the total value of loans, investments and guarantees given by the Fed and the Treasury since the beginning of the financial crisis had already reached $7.8 trillion. In the year to November 30 2008, the total federal debt had increased by more than $1.5 trillion. Morgan Stanley estimated that the total federal deficit for the fiscal year 2009 could equal 12.5 per cent of GDP. The figure would have been even higher had President Obama not been persuaded by his chief economic adviser, Lawrence Summers, to postpone his planned healthcare reform and promised spending increases in education, research and foreign aid.
Obama had set out to construct an administration in which his rivals and allies were equally represented. But his rivals were a good deal more experienced than his allies. The result was an administration that talked like Barack Obama but thought like Bill Clinton. The Clinton-era veterans, not least Secretary of State Hillary Clinton, had vivid memories of the bond-market volatility that had plagued them in 1993 (prompting campaign manager James Carville to say that, if there was such a thing as reincarnation, he wanted to come back as the bond market). Terrified at the swelling size of the deficit, they urged Obama to defer any expenditure that was not specifically targeted on ending the financial crisis.
Yet the world had changed since the early 1990s. Despite the fears of the still-influential former Treasury secretary Robert Rubin, investors around the world were more than happy to buy new issues of US Treasuries, no matter how voluminous. Contrary to conventional wisdom, the quadrupling of the deficit did not lead to falling bond prices and rising yields. Instead, the flight to quality and the deflationary pressures unleashed by the crisis around the world drove long-term yields downwards. They remained at close to 3 per cent all year.
Nor was there a dollar rout, as many had feared. The foreign appetite for the US currency withstood the Fed’s money-printing antics, and the trade weighted exchange rate actually appreciated during 2009.
Here was the irony at the heart of the crisis. In all kinds of ways, the Great Repression had “Made in America” stamped all over it. Yet its effects were more severe in the rest of the world than in the US. And, as a consequence, the US managed to retain its “safe haven” status. The worse things got in Europe, in Japan and in emerging markets, the more readily investors bought Treasuries and held dollars.
. . .
For the rest of the world, 2009 proved to be an annus horribilis. Japan was plunged back into the deflationary nightmare of the 1990s by yen appreciation and a collapse of consumer confidence. Things were little better in Europe. There had been much anti-American finger-pointing by European leaders in 2008. The French president Nicolas Sarkozy had talked at the G-20 summit in Washington as if he alone could save the world economy. The British prime minister Gordon Brown had sought to give a similar impression, claiming authorship of the policy of bank recapitalisation. The German chancellor Angela Merkel, meanwhile, voiced stern disapproval of the excessively large American deficit.
By the first quarter of 2009, however, the mood in Europe had darkened. It became apparent that the problems of the European banks were just as serious as those of their American counterparts. Indeed, the short-term liabilities of the Belgian, Swiss, British and Italian banks were far larger in relation to those countries’ economies, while the German, French and Danish banks were much more dangerously leveraged. Moreover, in the absence of a European-wide finance ministry, all talk of a European stimulus package was just that – mere talk. In practice, fiscal policy became a matter of sauve qui peut, with each European country improvising its own bailout and its own stimulus package. The result was a mess. Currencies outside the Euro area were afflicted by severe volatility. Inside the Euro area, the volatility was in the bond market, with spreads on Greek and Italian bonds exploding relative to German bunds.
The picture was even worse in most emerging markets. Especially hard hit in eastern Europe were Bulgaria, Romania, Ukraine and Hungary. Of the Brics (Brazil, Russia, India and China), Brazil had the best year, Russia the worst. It was a terrible year for oil and gas exporters, as prices plunged, taking currencies such as the rouble down with them. The Indian stock market, meanwhile, was battered by escalating tensions between New Delhi and Islamabad in the wake of the Mumbai terrorist attacks.
Political instability also struck China, where riots by newly redundant workers in Shenzhen and other export centres provoked a heavy-handed clampdown by the government, but also a renewed effort by the People’s Bank of China to prevent the appreciation of the yuan by buying up yet more hundreds of billions of dollars of US Treasuries. “Chimerica” – the symbiotic relationship between China and America – not only survived the crisis, but gained from it. Although Obama’s decision to attend the first G-2 summit in Beijing in April dismayed some liberals, most recognised that trade trumped Tibet at such a time of economic crisis.
This asymmetric character of the global crisis – the fact that the shocks were even bigger on the periphery than at the epicentre – had its disadvantages for the US, to be sure. Any hope that America could depreciate its way out from under its external debt burden faded as 10-year yields and the dollar held firm. Nor did American manufacturers get a second wind from reviving exports, as they would have done had the dollar sagged. The Fed’s achievement was to keep inflation in positive territory – just. Those who had feared galloping inflation and the end of the dollar as a reserve currency were confounded.
On the other hand, the troubles of the rest of the world meant that in relative terms the US gained, politically as well as economically. Many commentators had warned in 2008 that the financial crisis would be the final nail in the coffin of American credibility around the world. First, neo-conservatism had been discredited in Iraq. Now the “Washington consensus” on free markets had collapsed. Yet this was to overlook two things. The first was that most other economic systems fared even worse than America’s when the crisis struck: the country’s fiercest critics – Russia, Venezuela – fell flattest. The second was the enormous boost to America’s international reputation that followed Obama’s inauguration.
. . .
If proof were needed that the US constitution still worked, here it was. If proof were needed that America had expunged its original sin of racial discrimination, here it was. And if proof were needed that Americans were pragmatists, not ideologues, here it was. It was not that Obama’s New New Deal – announced after the Labor Day purge of the Clintonites – produced an economic miracle. Nobody had expected it to do so. It was more that the federal takeover of the big banks and the conversion of all private mortgage debt into new 50-year Obamabonds signalled an impressive boldness on the part of the new president.
The same was true of Obama’s decision to fly to Tehran in June – a decision that did more than anything else to sour relations with Hillary Clinton, whose supporters never quite recovered from the sight of the former presidential candidate shrouded in a veil. Not that the so-called “opening to Iran” produced a dramatic improvement in the Middle East region. Nobody had expected that either. It was more that, like Richard Nixon’s visit to China in 1972, it symbolised a readiness on Obama’s part to rethink the very fundamentals of American grand strategy. And the downfall of the Iranian president Mahmoud Ahmedinejad – followed soon after by the abandonment of the country’s nuclear weapons programme – was a significant prize in its own right. With their economy prostrate, the pragmatists in Tehran were finally ready to make their peace with “the Great Satan”, in return for desperately needed investment.
Meanwhile, al-Qaeda’s bungled attempt to assassinate Obama – on the eve of Thanksgiving – only served to discredit radical Islamism and to reinforce Obama’s public image as “The One”. Another of the many ironies of 2009 was that the mood of religious reawakening triggered by the economic crisis benefited the Democrats rather than the deeply divided Republicans.
By year end, it was possible for the first time to detect – rather than just to hope for – the beginning of the end of the Great Repression. The downward spiral in America’s real estate market and the banking system had finally been halted by radical steps that the administration had initially hesitated to take. At the same time, the far larger economic problems in the rest of the world had given Obama a unique opportunity to reassert American leadership, particularly in Asia and the Middle East.
The “unipolar moment” was over, no question. But power is a relative concept, as the president pointed out in his last press conference of the year: “They warned us that America was doomed to decline. And we certainly all got poorer this year. But they forgot that if everyone else declined even further, then America would still be out in front. After all, in the land of the blind, the one-eyed man is king.”
And, with a wink, President Barack Obama wished the world a happy new year.
Niall Ferguson is a contributing editor of the FT and the author of ‘The Ascent of Money: A Financial History of the World’ (Penguin)
Monday, July 28, 2008
Record deficit expected in 2009
By Richard Wolf, USA TODAY
WASHINGTON — The White House has increased its estimate for next year's deficit to nearly $490 billion, a record figure that will saddle the next president with deepening budget problems in his first year in office, a report due out Monday shows.
The projected deficit for the fiscal year that begins Oct. 1 is being driven higher by the continuing economic slowdown and larger-than-anticipated costs of the two-year, $168 billion fiscal stimulus package passed by Congress, said two senior administration officials with direct knowledge of the report. In February, President Bush predicted the 2009 deficit would be $407 billion.
The budget update shows this year's deficit headed under $400 billion, at least $10 billion less than projected, according to the two officials. That's partly because tax revenue held up reasonably well despite the weaker economy.
The rising deficit for 2009 marks a sharp turnaround for Bush's fiscal legacy. He inherited a $128 billion surplus when he came into office in 2001. It soon turned to red ink because of a recession, the Sept. 11 attacks and the war on terrorism.
Curbing the deficit will fall to Bush's successor and the next Congress following a time when taxes were cut and major spending initiatives were undertaken, including the wars in Iraq and Afghanistan, transportation projects, farm subsidies, Medicare prescription drug coverage and a recently passed expansion of veterans' education benefits.
The actual 2009 deficit could climb still higher because the new projection does not reflect full funding for the wars. In addition, a worsening economy could add to the red ink by reducing tax revenue and increasing safety-net payments, such as jobless benefits and food stamps.
Both presidential candidates have proposed tax cuts that could further swell the deficit. The non-partisan Tax Policy Center estimates that Republican John McCain's cuts would cost $4.2 trillion and Democrat Barack Obama's $2.8 trillion over 10 years. Neither candidate has specified major spending cuts he would make to reduce the deficit.
"The picture's looking pretty dark out there," said Sen. Judd Gregg, R-N.H., top Republican on the Senate Budget Committee. He credited Bush's tax cuts with creating six years of economic growth but "on the spending side, their record is not good."
White House budget director Jim Nussle said that despite the surplus Bush started with, he faced a deficit in defense, intelligence and homeland security that had to be bolstered after 9/11.
"This is not just a mathematical exercise," he said in an interview with USA TODAY. Nussle said an economic recovery and a renewed effort by Congress to control spending could rein in the deficit.
Bush proposed in recent years to slow the growth of spending in programs such as Social Security, Medicare and Medicaid. Those efforts were ignored by Congress — most recently last week, when the House voted to sidestep a provision of the 2003 Medicare prescription drug law that would have required lower Medicare spending.
The biggest budget deficit recorded to date was $413 billion in 2004. In today's dollars, that would be about $478 billion. As a share of the economy, the 2009 deficit would be 3% to 4%, below the post-World War II record of 6% set in 1983.
and from calculatedrisk.blogspot.com
First, this is the Unified Budget deficit. By these projections, the General Fund deficit (the President's responsibility) will be around $600 billion this year, and $700 billion next year. Second, these projections are probably optimistic.
The costs of bailing out F&F are not included in these projections.
By Richard Wolf, USA TODAY
WASHINGTON — The White House has increased its estimate for next year's deficit to nearly $490 billion, a record figure that will saddle the next president with deepening budget problems in his first year in office, a report due out Monday shows.
The projected deficit for the fiscal year that begins Oct. 1 is being driven higher by the continuing economic slowdown and larger-than-anticipated costs of the two-year, $168 billion fiscal stimulus package passed by Congress, said two senior administration officials with direct knowledge of the report. In February, President Bush predicted the 2009 deficit would be $407 billion.
The budget update shows this year's deficit headed under $400 billion, at least $10 billion less than projected, according to the two officials. That's partly because tax revenue held up reasonably well despite the weaker economy.
The rising deficit for 2009 marks a sharp turnaround for Bush's fiscal legacy. He inherited a $128 billion surplus when he came into office in 2001. It soon turned to red ink because of a recession, the Sept. 11 attacks and the war on terrorism.
Curbing the deficit will fall to Bush's successor and the next Congress following a time when taxes were cut and major spending initiatives were undertaken, including the wars in Iraq and Afghanistan, transportation projects, farm subsidies, Medicare prescription drug coverage and a recently passed expansion of veterans' education benefits.
The actual 2009 deficit could climb still higher because the new projection does not reflect full funding for the wars. In addition, a worsening economy could add to the red ink by reducing tax revenue and increasing safety-net payments, such as jobless benefits and food stamps.
Both presidential candidates have proposed tax cuts that could further swell the deficit. The non-partisan Tax Policy Center estimates that Republican John McCain's cuts would cost $4.2 trillion and Democrat Barack Obama's $2.8 trillion over 10 years. Neither candidate has specified major spending cuts he would make to reduce the deficit.
"The picture's looking pretty dark out there," said Sen. Judd Gregg, R-N.H., top Republican on the Senate Budget Committee. He credited Bush's tax cuts with creating six years of economic growth but "on the spending side, their record is not good."
White House budget director Jim Nussle said that despite the surplus Bush started with, he faced a deficit in defense, intelligence and homeland security that had to be bolstered after 9/11.
"This is not just a mathematical exercise," he said in an interview with USA TODAY. Nussle said an economic recovery and a renewed effort by Congress to control spending could rein in the deficit.
Bush proposed in recent years to slow the growth of spending in programs such as Social Security, Medicare and Medicaid. Those efforts were ignored by Congress — most recently last week, when the House voted to sidestep a provision of the 2003 Medicare prescription drug law that would have required lower Medicare spending.
The biggest budget deficit recorded to date was $413 billion in 2004. In today's dollars, that would be about $478 billion. As a share of the economy, the 2009 deficit would be 3% to 4%, below the post-World War II record of 6% set in 1983.
and from calculatedrisk.blogspot.com
First, this is the Unified Budget deficit. By these projections, the General Fund deficit (the President's responsibility) will be around $600 billion this year, and $700 billion next year. Second, these projections are probably optimistic.
The costs of bailing out F&F are not included in these projections.
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