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U.S BUDGET DEFICIT TO BE CLOSE TO 12.5% OF GDP IN 09 AKA $2 TRILLION

Discussion in 'BBS Hangout: Debate & Discussion' started by robbie380, Oct 12, 2008.

  1. robbie380

    robbie380 ლ(▀̿Ĺ̯▀̿ ̿ლ)
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    if you think this crisis is just a blip on the radar like other bear markets of 87 and 01 then you are sadly mistaken. it's crazy to think prices in the market could get significantly cheaper if this downturn ends of being something like 1974. back then was when buffett loaded up and the p/e of the s&p 500 was somewhere closer to 7 than the current 13. even back in the 80 and 82 recessions p/e's of the s&p 500 were close to 7...meaning we could still have a way to go if things continue to get worse as it appears they will. many more train wrecks to come if action is not taken immediately to slow the implosion of the credit bubble. please watch the video to see some great commentary on this issue.

    <object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/VB_bQDUxykw&hl=en&fs=1"></param><param name="allowFullScreen" value="true"></param><embed src="http://www.youtube.com/v/VB_bQDUxykw&hl=en&fs=1" type="application/x-shockwave-flash" allowfullscreen="true" width="425" height="344"></embed></object>

    http://www.bloomberg.com/apps/news?pid=20601109&sid=anUDEEEP1_M0&refer=home


    Cost of U.S. Crisis Action Grows, Along With Debt

    By Matthew Benjamin

    Oct. 10 (Bloomberg) -- The global financial crisis is turning into a bigger drain on the U.S. federal budget than experts estimated two weeks ago, ballooning the deficit toward $2 trillion.

    Bailouts of American International Group, Fannie Mae and Freddie Mac likely will be more expensive than expected. States are turning to Washington for fiscal help. The Federal Reserve said this week it will begin buying commercial paper, the short- term loans companies used to conduct day-to-day business, further increasing costs. And analysts now say the $700 billion bank- rescue plan passed by Congress last week may have to be significantly larger.

    ``I always assumed they would be asking for more money along the way if it was necessary, and it looks like it's going to be necessary,'' said Stan Collender, a former analyst for the House and Senate budget committees, now at Qorvis Communications in Washington. ``At the moment, there's nothing happening here that's positive for the budget. Nothing.''

    The 2009 budget deficit could be close to $2 trillion, or 12.5 percent of gross domestic product, more than twice the record of 6 percent set in 1983, according to David Greenlaw, Morgan Stanley's chief economist. Two weeks ago, budget analysts said the measures might push deficit to as much as $1.5 trillion.


    Yields to Rise

    That means a lot more borrowing by Treasury, which will push up interest rates, said Greenlaw. ``The Treasury's going to be ramping up supply dramatically over the course of coming months to meet this enormous federal budget obligation,'' Greenlaw told Bloomberg this week. ``The supply will trigger some elevation in yields.''

    Treasuries have fallen the past four days even as stocks sank, a sign investors are preparing for bigger U.S. government borrowing. Benchmark 10-year note yields rose to 3.82 percent at 7:49 a.m. in New York, from a close of 3.45 percent Oct. 6.

    Payments the government allocated to keep vital companies solvent are beginning to look insufficient.

    AIG, the giant insurance company that was taken over by the government in mid-September, said this week it may access $37.8 billion from the Federal Reserve Bank of New York, in addition to the $85 billion the government already loaned it to stave off bankruptcy.

    ``You're in for a dime, you're in for a dollar on this one,'' said David Havens, a credit analyst at UBS AG.

    The financial health and earnings prospects of Fannie Mae and Freddie Mac -- seized by the government on Sept. 7 to prevent them from failing -- worsened in the second and third quarters, the companies' government regulator said this week.

    Price Declines

    The companies and regulators are recalculating the value of all of their assets to factor in price erosion. That may mean the government will have to spend more to keep the firms solvent.

    Earlier this week the Fed announced it will create a special fund to buy commercial paper, the credit that businesses use to finance payrolls and other ongoing expenses. The Treasury will deposit money into the Fed's New York district bank to help set up the new unit. A Fed official said Treasury funding for the program could be ``substantial.''

    California, Alabama and Massachusetts are urging the Fed and Treasury to include their securities in rescue plans designed for banks and businesses. The $2.66 trillion U.S. market for state and city bonds has been all but frozen since Lehman Brothers Holdings Inc., weighed down by losses in mortgage-backed bonds, declared history's largest bankruptcy on Sept. 15.

    California has said it needs to sell as much as $7 billion in notes to maintain its schools, health system and other public services. The Bush administration said it is reviewing the states' financial positions.

    Plan for Banks

    Meanwhile, Treasury Secretary Henry Paulson indicated two days ago that he is considering buying stakes in a wide range of banks in coming weeks to help recapitalize them.

    Such a move is allowed under the $700 billion bailout package Congress passed last week. Edmund Phelps, winner of the 2006 Nobel Prize for economics and a professor at Columbia University, said such action is necessary -- and will likely turn out to increase the measure's cost. Spending beyond the amount set in last week's bill would require further Congressional approval.

    ``We have to recapitalize the banks,'' Phelps told Bloomberg Television this week. ``I don't imagine that there's enough money in the first Paulson plan to be able to do all that needs to be done in that direction.''

    The additional borrowing could push the national debt well past 70 percent of GDP, the highest since the immediate aftermath of World War II, when the U.S. was still paying off war debt.

    Debt Limit

    Gross U.S. debt, which includes debt held by the public and by government agencies, this year reached about $9.6 trillion, or about 68 percent of gross domestic product. The rescue legislation increased the government's debt limit to more than $11.3 trillion from $10.6 trillion.

    On top of all that, budget watchdogs say the sheer size of the interventions is making Washington more profligate than usual. To attract votes in Congress, leaders added several costly items to the $700 billion rescue, including extensions of some tax credits and tax breaks for makers of wooden arrows and stock- car racetrack owners.

    Under normal circumstances, there would have been more resistance to such expenses, said Robert Bixby, executive director of the Concord Coalition, a non-partisan budget watchdog.

    The rescue legislation ``creates a mask for all sorts of fiscal irresponsibility,'' said Bixby. ``It covers up a multitude of sins.''

    To contact the reporters on this story: Matthew Benjamin at mbenjamin2@bloomberg.net
    Last Updated: October 10, 2008 07:55 EDT
     
  2. Invisible Fan

    Invisible Fan Contributing Member

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    Utterly disgusting mess. I gotta admit that Bush didn't have many options after 9/11, but I hope it's a lesson to future presidents that you can't spend yourself out of a cyclical recession by cheapening interest rates and looking the other way when it comes to "experimental financial products".

    Assuming we'll have future presidents who can read and understand American history...
     
  3. God's Son

    God's Son Member

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    o'reilly had some analyst who said there was economic terrorism taking place in last two weeks because the selling has been all done in last few hours of the day and he said it was intentional and he's worried some countries or investors were intentionally driving markets down
     
  4. SamFisher

    SamFisher Contributing Member

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    Thank you Iraq war & tax cuts - a winning combo!
     
  5. thadeus

    thadeus Contributing Member

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    hey ... has it trickled down yet?
     
  6. Rocket River

    Rocket River Member

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    I think Invisible Fan touched on the major thing

    Will we learn from this?

    Rocket River
     
  7. adoo

    adoo Member

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    he had the option of not occupying Iraq, not continuing with the tax cut, not approval the budget that included the bridge to nowhere, etc.
     
  8. robbie380

    robbie380 ლ(▀̿Ĺ̯▀̿ ̿ლ)
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    I don't know and it can be pretty unnerving to think about what is going to happen if both parties continue to do nothing. both sides continue to blather about which side is worse but neither seem to be willing to actually attack the fundamental problems in america of wastefulness and incompetent planning. I know mccain certainly doesn't get it and I don't think obama does either. this time it is too dangerous to sit around and talk while rome burns.

    I hate to sound melodramatic but the more I read and the more I think about the situation the more I realize that this going to result in a major restructuring of world economics. it almost doesn't feel real because it (abusive spending and debt) is such a large problem. hell I was just looking around at some "blue chip" companies today and I see good ole caterpillar (CAT) is infected with painfully high debt levels. they have 36 BILLION in debt and they only have a 24 BILLION dollar market cap now that their stock has been halved. their debt to shareholder equity is over 3 to 1...not good. ok i'll stop ranting now since I am typing on my phone and I am tired of writing.


    p.s. really I am a much happier person in real life so don't take my ranting to be that of a pessimistic hater. but man it's just so hard not to get pissed off about this stuff.
     
  9. Invisible Fan

    Invisible Fan Contributing Member

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    What can the average person do about this? I've read about the Financial Tsunami since March, and after some insomnia filled months, I just stopped worrying about it and living life the way it was. I probably have more nightmare less nights now than 4 months ago.

    Everything is working on a scope that the average person can get lost in. What can we do about it?
     
  10. Rocket River

    Rocket River Member

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    That is my question as well
    what can *I* do . . .
    While I won't solve this crisis . .. I can at least try to ride it out
    and make sure me and mine stay afloat during these harsh times

    Rocket River
     
  11. Rocketball

    Rocketball Contributing Member
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    I feel a little better now about my personal financial situation....it can always be worse..... :D
     
  12. rhester

    rhester Contributing Member

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    I love to see Democrats blame Bush or Republicans blame Congress...

    , (edit)- at best misguided
     
    #12 rhester, Oct 12, 2008
    Last edited: Oct 12, 2008
  13. Rocket River

    Rocket River Member

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    No one seems to be blaming the companies/brokers
    They deflect blame
    but
    IMO their inability to either
    1. control themselves [being too greedy/arrogant/risky/etc]
    2. do their jobs.

    If you get paid THE BIG BUCKS to watch for these type of things
    and they fail . . .should you not be held accountable . .instead they are rewarded with golden Parachutes
    everyone in the company loses . .except them

    Rocket River
     
  14. Dairy Ashford

    Dairy Ashford Member

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    It'd be nice if we could just start cutting each non-military and non-social security federal budget line item by a set percentage, each year, for the next twenty years. No debating or deliberating: just a couple extra columns in the spreadsheet. Maybe we bite the bullet and create a balanced budget act, renewable every 25 years. Have the GAO and the IRS give Congress a firm total dollar amount and then have Congress allocate budget funds on a percentage rather than dollar basis.

    Or just get serious about privatizing parts of the federal government. Constituents pay direct fees to the third party contractors for services, with government oversight on the contractors by regulation and/or provider licensing.

    I wonder if avoiding trillion or half-trillion dollar annual deficits would ever be a big enough issue to once again create a new second party.
     
  15. Rocket River

    Rocket River Member

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    I have serious reservations about Third Party [FOR-PROFITs] doing what the government was suppose to do . . .
    I doubt any amount of regulation would properly ensure even the base level . .that the current government supplies

    Rocket River
     
  16. robbie380

    robbie380 ლ(▀̿Ĺ̯▀̿ ̿ლ)
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    http://perotcharts.com/challenges/
     
  17. Dairy Ashford

    Dairy Ashford Member

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    Unfortunately, part of the point is that government services and entitlements have to diminsh.
     
  18. robbie380

    robbie380 ლ(▀̿Ĺ̯▀̿ ̿ლ)
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    pay off debts and save money. it's as simple as that. fwiw i would also look to avoid the equity market for investments and look to bond funds/fixed income for your retirement accounts. i see the equity markets continuing to be mostly sideways for the next 5+ years. the future depends on how our government takes action with budget deficits and debt and how we deal with the collapse of the credit bubble as a society.
     

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