By Simon Grey, on July 29th, 2011
With the doomsday clock showing that America is five days away from the Economic Apocalypse™, I can’t help but wish that Boehner finally grows a pair and stands up against any proposed increases in the federal debt ceiling. I’ve noted multiple times before how an increase in federal debt is a horrible, horrible idea, and generally unsustainable, so at this point it seems that maintaining the current debt ceiling is a good idea. And, there are several possible positive outcomes.
First, we could default on our debt. This has the valuable outcome of making it harder for the federal government to borrow money, which should help to keep the budget in check. Of course, the government may find that it would just as well use inflation to bring more into the system in the even that it can’t find lenders, but that’s a risk worth taking.
Second, we could actually balance our budget. The beauty of the hitting the debt ceiling is that it makes a balanced budget amendment largely unnecessary. (Although, it should be noted, if one is using GAAP accounting techniques, one’s budget is, by definition, balanced. Of course, the general sentiment of the balanced budget amendment is, hopefully, that revenues equal expenses, and that the government does not take on more debt.) Anyway, the point in all this is that if Boehner really wants a balanced budget, all he has to do is make sure house Republicans vote against increasing the debt ceiling. This way, he no longer has to concern himself with passing an additional piece of legislation then having it ratified by the states.
Third, Obama could ignore the law and tell the Treasury to issue more debt. This would be a violation of the law, naturally enough, and should be grounds for impeachment. I almost want to see this happen, just to see what it would look like. Of course, given our luck, the Senate would laud Obama for his bold, decisive action, so all that would happen would be an increase in executive powers, leading America closer to being ruled by a dictator.
Finally, it’s possible that the government shuts down at the behest of President Obama in the attempt to play chicken with the Republicans. I sincerely hope this is what eventually happens, but mostly because I have nothing but contempt for the federal government. In fact, I hope that the federal government not only shuts down on August second, but that it stays shut down for all eternity. There is not a single federal function that is either a) necessary or b) can’t be replicated by the state governments. As such, it is time for this behemoth to die, and to that end I say let the debt ceiling stay the same. Let’s starve the beast!
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By Eldon Mast, on June 23rd, 2010
Treasury Secretary Timothy F. Geithner said credit availability is improving and companies are building up unprecedented cash reserves, signs that the U.S. economy continues on a path of increased growth.
Further the Secretary claimed on Tuesday that the government’s management of the $700 billion Troubled Asset Relief Program has yield the desire results while costing much less than originally estimated. The unpopular program he claims “played a critical role” in loosening access to credit and putting the economy back on a solid footing.
“Credit conditions overall, which dragged our economy into a deep recession in 2007, no longer pose an obstacle to growth,” Geithner said in his testimony to the Congressional Oversight Panel. Geithner pointed to U.S. firms that are now raising money in capital markets “and have built up record cash reserves, which will eventually be reinvested and fuel growth.”
The TARP program was criticized by both Democratic and Republican lawmakers as favoring Wall Street over small businesses. Many thought the government would likely lose all of the $700 billion lawmakers had allocated to rescue large banks as well as several U.S. automakers and housing loan backers.
Surprisingly, the cost to taxpayers has now plummeted to $105 billion at last estimate, down from an estimate of $341 billion in August. And it seems now that the benefits have thus far continued to outweigh the cost of the program.
Congress authorized TARP in October 2008 to prevent a collapse of the U.S. financial system. Against the predictions of many, companies like Goldman Sachs Group Inc. and Bank of America Corp. that borrowed funds have since repaid the government with interest. Additionally because of the return to more palatable market conditions, Geithner said the Treasury plans to sell the remainder of its stake in Citigroup Inc. in an “orderly fashion” by year end, further reducing the overall cost of the rescue program.
In additional good news, prospects for the government’s investments in the auto industry have improved, and the Treasury plans to begin to recover its stake in General Motors Co. after the company has an initial public offering later this year or in 2011.
Losses from government investments in GMAC Inc. “will be less than forecast last year,” the Secretary said.
Geithner said the Obama administration doesn’t plan to extend TARP past its Oct. 3 expiration and called Tuesday’s hearing “a eulogy” for the program.
The TARP loans “did what they were supposed to do,” Geithner continued. The economy wouldn’t have started to rebound “without the dramatic actions we took, however unpopular, to bring down the cost of credit and stabilize the system.”
By B.P.T., on April 29th, 2010
At 8:30 AM EDT, the U.S. government will release its weekly Jobless Claims report. The consensus is that there were 447,000 new jobless claims last week, which would be slightly less than the higher than expected number reported last week, and would continue the trend of slightly improving employment statistics.
At 10:00 AM EDT, the weekly Energy Information Administration Natural Gas Report will be released, giving an update on natural gas inventories in the United States.
At 2:30 PM EDT, Treasury Secretary Timothy Geithner will testify before the Senate Appropriations Financial Services subcommittee about the Treasury budget for 2010.
At 4:30 PM EDT, the Federal Reserve will release its Money Supply report, showing the amount of liquidity available in the U.S. economy.
Also at 4:30 PM EDT, the Federal Reserve will release its Balance Sheet report, showing the amount of liquidity the Fed has injected into the economy by adding or removing reserves.
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By Eldon Mast, on April 13th, 2010
Last year’s stimulus package included a program for states and municipalities entitled “Build America Bonds.”
The U.S. Treasury announced that so far it is on target to save those local governments $12.3 billion in borrowing costs with federally subsidized taxable bonds already sold during the first year of the program.
Since the stimulus passed last April, the Treasury has helped state and local governments sell $90 billion of these bonds to assist their jurisdictions with new liquidity to fund their local projects.
While most government agencies traditionally issue tax-exempt bonds, the Build America Bonds are taxable bonds with a 35 percent federal subsidy on interest costs. This means that a jurisdiction ultimately pays much less in interest to provide the same capital improvements or service upgrades to their constituents.
Denver Water which was one of the first agencies to take advantage of the program in order to effect need upgrades to the Denver water system. Chips Barry, manager of Denver Water stated that they were “pleased to be able to sell bonds at a very reasonable rate in the current market environment. For ratepayers, this means we are able to keep costs as low as possible while providing us the funding to improve our system.”
California issued seven of the top 10 bond deals according to analysis of Treasury Department data. The state also issued roughly one-quarter of the $90 billion worth of bonds since last April. Most of the bonds issued by the sunshine state are now in the midst of funding transportation and educational improvements.
“People originally said it would eliminate the issuance of municipal bonds,” says John Cummings, who is head of muni-bond investments at money-management firm PIMCO. “Instead they have stabilized the market and helped to create jobs.“
By B.P.T., on April 12th, 2010
At 2:00 PM EDT, the Treasury budget for March will be released. The consensus is a deficit of $62 billion, after a deficit of $220.9 billion due to spending on stimulus projects and TARP outlays. Historically, the U.S. Treasury has run an average deficit of $108 billion over the last 10 years, so if the deficit is near the consensus, it will actually be unusually low.
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By B.P.T., on March 25th, 2010
An updates on new jobless claims will be released at 8:30 AM EDT. These claims have been slowly decreasing over the last few weeks, and the consensus forecast is that there will be 450,000 new jobless claims, compared to 457,000 in the last period.
Ben Bernanke speaks to the House Committee on Financial Services about the Federal Reserve’s strategy for exiting the financial markets at 10:00 AM EDT.
Tim Geithner will testify to the House Appropriations Committee’s State and Foreign Operations Subcommittee regarding the Treasury Department’s international programs at 1:30 PM EDT.
A report on the money supply will be released at 4:30 PM EDT.
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By Eldon Mast, on January 13th, 2010
The Federal Reserve paid a record $46.1 billion to the U.S. Treasury in 2009 increasing by $14.4 billion its 2008 payment. It was the largest payment since the central bank was created in 1914. Its total 2009 net income of $52.1 billion also was a record.
“This is a silver lining in that big cloud of the Fed having to intervene massively and expand its balance sheet. ” said Nariman Behravesh, chief economist of Global Insight.
Fed Chairman Ben Bernanke and the Fed Board took unprecedented actions to prop up the financial system in the past year and a half. As their results continue to produce healthy outcomes, they now have the benefit of withering criticism from lawmakers bent of limiting the Fed’s authority.
Interestingly most of it’s income came from open-market buying of U.S. Treasury debt, debt of mortgage finance sources Fannie Mae (FNM.N) and Freddie Mac (FRE.N), and mortgage bonds and other securities. Additional portfolios hold a variety of assets from Bear Stearns, residential mortgage-backed securities, and collateralized debt obligations from AIG.
The holdings are being managed via a “long term” time horizon allowing them to be sold over an interval that maximizes their value.
This is perhaps one of the first significant results of our lesson last year on “how to turn toxic assets into gold.” And so far Bernanke and the Fed are getting it just right.
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