Debt now exceeds GDP, austerity measures where we come

[midnight rambler]

http://www.youtube.com/watch?v=qQBSlCTl140

[iOWNme]

Analysis: Obama, Bernanke out of ammo to boost jobs, growth



http://www.reuters.com/article/2011/08/03/us-usa-policymakers-idUSTRE7725O920110803


(Reuters) - The United States has a jobs problem and there's not a lot President Barack Obama or Federal Reserve Chairman Ben Bernanke can do about it.

In the face of rising risks of a recession that could imperil his re-election chances next year, Democrat Obama wants Congress to extend a payroll tax cut and emergency unemployment benefits that are due to expire in December.
But the Republican-controlled House of Representatives is emboldened by budget concessions it made Obama swallow to lift the country's debt limit this week and he has little political leverage to win significant fresh spending to aid growth.

"Obama does not have much presidential persuasion left. He is running out of capital," said James Thurber, of American University's Center for Congressional and Presidential Studies.

Obama's political opponents have been openly scornful of the impact of two previous stimulus packages, which were accompanied by extraordinary measures by the Federal Reserve to kick-start the U.S. economy (http://www.reuters.com/finance/economy).

"It seems we've thrown everything at it. We've had QE1 and QE2, Stimulus 1 and Stimulus 2, and the unemployment rate is still 9.2 percent," said John Makin, an economist at the American Enterprise Institute in Washington. "Maybe there are just not many options here at this point," he said.

World stock markets (http://www.reuters.com/finance/markets) shuddered after disappointing U.S. growth and manufacturing numbers and investors rushed to buy long-dated U.S. Treasury bonds in a move that suggests deep concerns about the economic outlook.
Data on Friday is expected to confirm the U.S. unemployment rate remained stuck at 9.2 percent in July.

Lawrence Summers, a top Obama adviser until last year, wrote in a Reuters column on Tuesday the odds of another U.S. recession were 1 in 3. Goldman Sachs has said a slight tick up in the unemployment rate could provide a strong recession signal.

HARD-WON COMPROMISE
Obama signed a hard-won compromise on Tuesday to raise the $14.3 trillion U.S. debt limit in return for measures that will reduce deficits by at least $2.1 trillion over 10 years.

Joel Prakken of the forecasting firm Macroeconomic Advisers estimates an extension of the payroll tax cut could add about 0.25 percentage points to U.S. growth next year.

Republicans fought hard to cut spending but are open to tax cuts, and the White House expects bipartisan support when Obama advances the idea in the coming months.

But analysts are skeptical it will make much difference for an economy that is having trouble gaining traction.

"A major option is extending the payroll tax cut. We did that in December, and the economy grew at a 0.6 percent annual rate over the first half of the year," said Makin.

But the economic benefit of extending the payroll tax cut will be curbed by the government spending cuts agreed to Obama, and a weak economy will make hitting deficit-reduction targets that much more difficult.

JPMorgan's Michael Feroli estimates fiscal policy will subtract about 1-3/4 percentage points from growth next year as spending cuts kick in, if the earlier payroll tax cut and unemployment insurance extensions expire on schedule.
"Given that GDP growth has been 1.6 percent over the past four quarters when fiscal policy has been much less of a drag, this doesn't bode well for next year," he said.

JPMorgan has cut its first half 2012 growth forecast to 2 percent from 2.5 pct due to fiscal drag.

Bernanke also seems to have few options at his disposal.

The Fed is not expected to announce an extension of its so-called quantitative easing, or QE, measures to stimulate economic activity at a policy meeting on Tuesday, despite the sense of gloom descending on the economy.

If push comes to shove, the Fed would likely look to cement its promise of keeping in place a loose monetary policy for a long period. It might even consider shifting the composition of its Treasury note holdings toward longer maturities, an option Bernanke has raised as a way to give the economy some relief.

"Someone should do something. Given that the Congress has declared itself unwilling to provide support for the economy, the Fed will feel pressure to try to do what it can," said Barry Eichengreen, an economics professor at the University of California, Berkeley.

NO GAME-CHANGER
However, the Fed's options hardly add up to a game-changing play to dramatically improve the U.S. outlook.

"Everyone is really looking to the Fed to support the economy, and I think (Bernanke) would realize that you could only do so much with monetary policy," said Mike Knebel at Portland, Oregon-based Ferguson Wellman Capital Management.

The Fed's scope for more easing of monetary policy has been narrowed by a rise in core inflation, which bottomed at 0.9 percent in December but has since hit 1.3 percent.

As Obama signed the debt deal (http://www.reuters.com/finance/deals), which averted a devastating default and reduced the risk to the country's AAA credit rating, he promised more ideas to boost hiring soon.

The White House declined to say what he had in mind or when he would lay out suggestions. But Treasury Secretary Timothy Geithner said in an opinion piece in the Washington Post that Congress could make space to fund a payroll tax cut extension by "locking in" long-term budget savings.

With lawmakers out of town for a summer recess, no major initiative is likely before September, although Obama does plan a Midwestern bus tour from August 15 to August 17 to talk up jobs.

When it comes, the odds favor small steps that allow Obama to show he is taking action, without disturbing investors.

"There is a good case to be made for additional stimulus, but given our fiscal situation it has to be targeted to create more jobs," said Karen Dynan, a scholar at the Brookings Institution in Washington.

[iOWNme]

US borrowing tops 100% of GDP: Treasury



http://news.yahoo.com/us-aaa-rating-still-under-threat-204040123.html



US debt shot up $238 billion to reach 100 percent of gross domestic project after the government's debt ceiling was lifted, Treasury figures showed Wednesday.
Treasury borrowing jumped Tuesday, the data showed, immediately after President Barack Obama signed into law an increase in the debt ceiling as the country's spending commitments reached a breaking point and it threatened to default on its debt.

The new borrowing took total public debt to $14.58 trillion, over end-2010 GDP of $14.53 trillion, and putting it in a league with highly indebted countries like Italy and Belgium.

Public debt subject to the official debt limit -- a slightly tighter definition -- was $14.53 trillion as of the end of Tuesday, rising from the previous official cap of $14.29 trillion a day earlier.

Treasury had used extraordinary measures to hold under the $14.29 trillion cap since reaching it on May 16, while politicians battled over it and over addressing the country's bloating deficit.

The official limit was hiked $400 billion on Tuesday and will be increased in stages over the next 18 months.

The last time US debt topped the size of its annual economy was in 1947 just after World War II. By 1981 it had fallen to 32.5 percent.

Ratings agencies have warned the country to reduce its debt-to-GDP ratio quickly or facing losing its coveted AAA debt rating.

Moody's said Tuesday that the government needed to stabilize the ratio at 73 percent by 2015 "to ensure that the long-run fiscal trajectory remains compatible with a AAA rating."

[mick silver]

you would have to trust the gov to start a company now so who in there right mind would trust a gang that not working for them

[Libertytree]

I'm still amazed that no one, media wise, has brought up that the Fed gave away more money to the banks (16T) than what the official national debt is (14+T). Our entire debt could have been theoretically paid off with that "money".

[mick silver]

but but liberytree that would make the banks poorer . dont you want there ceo to get there home in fl and buy a few nice cars

[dys]

I'm still amazed that no one, media wise, has brought up that the Fed gave away more money to the banks (16T) than what the official national debt is (14+T). Our entire debt could have been theoretically paid off with that "money".

Which is why I have maintained the position that this whole 'buried in debt' thing is nothing more than a facade, keeping the proverbial foot on the throat of the American people.

dys

[Twisted Titan]

No currency hase survied when a countrys GDP exceeds 250%.
Our current GDP is 400% and rising like rocket.
ponder that while you look at any wealth you hold in paper instruments

[Ash_Williams]

I'm still amazed that no one, media wise, has brought up that the Fed gave away more money to the banks (16T) than what the official national debt is (14+T). Our entire debt could have been theoretically paid off with that "money".

Those were loans. Same as the bailout to the US gov through QE.

[dys]

Those were loans. Same as the bailout to the US gov through QE.

So they say.

dys

[Libertytree]

Those were loans. Same as the bailout to the US gov through QE.

It's too bad that reporting the repayment of those "loans" are not part of the auditing requirements. Hey, I wouldn't bitch about being gifted a couple T either.