NYT: Deficits May Be Wearing Thin at the Fed

[kskiska]

THEY are only low-level rumblings, oblique signals of discontent that are stripped of any direct political threat.

But as President Bush embarked on his second term last week, it was hard to escape the sense that his longtime honeymoon with the Federal Reserve may be ending.

The Fed and its chairman, Alan Greenspan, have arguably been Mr. Bush's most important economic supporters. Mr. Greenspan gave his blessing to the Bush tax cuts of 2001 and, less enthusiastically, to those of 2003.

Despite Mr. Greenspan's reputation as a staunch opponent of fiscal deficits, he tiptoed around criticism of the soaring federal debt that Mr. Bush ran up in his first term and will almost certainly continue to run up in his second.

(snip)

The new element is a rising concern at the Fed about the nation's imbalances: the federal deficit, which hit $413 billion in 2004; a low and declining national savings rate; evidence of speculative behavior among investors and consumers; and the country's enormous trade and financial deficit with the rest of the world.

more…
http://nytimes.com/2005/01/23/business/yourmoney/23view.html

[antigop]

1. ARGGHH!!! Isn't the deficit really higher than $413 billion?

because they are taking the surplus from the Social Security trust fund?

[Blower]

4. The number doesn't seem right?!?

No...?

[Strelnikov_]

10. The Reported Deficit Is Lower Than The Growth In Debt

It seems that the reported deficit is $180-280bn lower annually than the growth in debt which reflects borrowing from the Social Security trust fund. As far as I am concerned, the deficit should reflect this transfer and be reported per column (2) below.

The money in the trust fund belongs top the working people of this country. Why should Federal borrowing from the SS trust fund be treated differently than borrowing from the Chinese Communists.

(1) Debt at end of fiscal year (Oct-Sep FY)
http://www.publicdebt.treas.gov/opd/opdpenny.htm

(2) FY debt growth (Diff. between begin and end FY debt)

(3) Reported Deficit
http://www.cbo.gov/showdoc.cfm?index=1821&sequence=0#table11

2004 Deficit - http://www.msnbc.msn.com/id/6249895/

All in $bn

.............(1)............(2)..........(3)
FY 04 $ 7,379 ......$ 596 .......$412
FY 03 $ 6,783 ......$ 555 .......$375
FY 02 $ 6,228 ......$ 421 ...... $158
FY 01 $ 5,807 ......$ 133 ....(+)$127
FY 00 $ 5,674 .......$ 18 .....(+)$233
FY 99 $ 5,656

[eg101]

14. del rio tx?

[EST]

25. The BFEE doesn't intend to pay the social security

fund back the money borrowed, as it has to do with foreign debt. Thus, it doesn't list it as a debit.

[Pam-Moby]

2. Well this is a strong indication that Bu*h needs to stop spending

our money. Lets set and watch the fireworks.

[roguevalley]

3. poor babies. where were they four years ago. watch out! financial

ice burg ahead.

[asjr]

5. Greenspan should be tarred and feathered. He knew 4 years

ago what the tax cuts would do to the economy. Probably received 240.000 for going along with it.

[flygal]

12. Just curious - where do these people keep their money?

Do they have to divulge where their money is invested?

[indepat]

17. Greenspan betrayed every babyboomer who will ever need to rely on social

security in the slightest during their retirement years IMHO and also broke every principle of sound fiscal management by supporting those tax cuts. May his name live in infamy for as long as this nation remains a Republic.

[barb162]

26. 'broke every principle of sound fiscal management' YEP!

Exactly and so when the article mentions him tiptoeing around certain things for the last 4 years, I have to wonder why

deficits + tax cuts + unnecessary Iraq War= Fed chairman NOT opening his for 4 years.

Was he paid off by Bush these last 4 years?

[Just Me]

6. Frankly, I'm surprised they've gotten this far with their magical numbers.

The world of pretend must come crashing down eventually. It's just a matter of time.

[cliss]

21. I'm glad I'm not the only one who's noticed.

I've noticed "fudgy figures" for quite a while now. I know the reason: they don't want the real figures to be divulged - for obvious reasons.

Imagine the outcry when policymakers find out the truth about the real figures....or maybe they already know.

Not to mention the panic that would follow if the general population found out.

[Robbien]

7. Greenspan will continue the cheerleading

he almost has to do so. If he didn't the whole ball of wax will come tumbling down.

[NYC]

22. He would also have to explain

why he supported such measures in the past. Hard to reverse himself now, without accepting blame.

[genieroze]

8. Clinton should have got rid of Greenspan when he had the chance. eom

[tsuki]

9. I was out of town this past couple of days, so I turned on the TV to

watch a few news programs that I avoid like the plague at home. I wanted to see if they were carrying the protests.

I came across a program on CNBC called "Wine and Cheese," which I quickly saw was "Whine and Sleaze."

It was a round table of 30-somethings in biz suits and expensive hair cuts talking about the deficit.

Their analysis was the the deficit was okay because it was only 3% of the GNP. It could be likened to a credit card. If you only owed 3% of what you earned, it was okay.

But Social Security's impending "bankruptcy" in 42 years was a BIG problem.

[nashville_brook]

11. wouldn't it be great if there were a SLAP button on the remote

that could deliver an actual smack to dumbasses like this on tv? i think it's a great premise for a show and the next logical step from American Idol. call it American Idiot and have a 900 number and people can even PAY to punch the idiots.

[muriel_volestrangler]

18. In fact, US federal outlays are estimated at 143% of revenues

according to this http://www.cbo.gov/showdoc.cfm?index=1944&sequence=0

on-budget (ie with social security as a 'lock box') for 2004:
revenues $1338 billion
outlays $1912 billion

The 'hair cuts' make the mistake of thinking that all of the US's GNP is potential income for the federal government. Well, they could pretend it's a mistake. In fact, it's a con trick when they say it.

[NYC]

23. Thanks for the figures.

:hi:

[klyon]

32. that is exactly right

as a percentage money to be received it is excessive, since they have no plan to pay anything off

KL

[xchrom]

13. greenspan = bush

there is no daylight between the two.
journalistic speculation that there might be is just a ruse to stave off criticism.

greenspan and bush are symbolic of the corporate oligarchy who are really driving america at this time.
fundies march to their tune.

[Kolesar]

36. Yeah. This article is more NY Times blather

[radfringe]

15. don't know about you

but it's getting harder each week to make the paychecks last

[priller]

16. I wonder what Cheney is saying to Greenspan?

"The Fed chairman meets regularly with Vice President Dick Cheney and periodically with Mr. Bush."

==

"But Alan," says Dick, "deficits don't matter! Reagan proved that. Who are you compared to St. Ronnie?"

[ausiedownunderground]

19. America-You owe more than any other country in the world

You people are dreaming. Wars,Tax cuts,incredibly expensive houses,SUV's,LCD Tv's,etc etc. America is "Rich"! We're the richest country in the world!!! WRONG!!!! Your not! Currently America owes "The Rest of the world" 7.7 trillion dollars! That is approximately $25,000 US dollars per person, every single old person and baby included. Most of this debt is held by Japanese and Chinese Central Bankers, not old man Greenspan! As long as these old asian's want to hold your debt then you are fine. But younger asians are coming through and some of them might not be so "affectionate" towards American's. They don't remember WW2! Eventually you will be asked to pay it back. China has a potential "middle class" of 300-400 million people - more than America's whole population! They will need to be looked after by their one-party state! If they start to "Kick up a stink" because they see the US population rich and famous then who knows what Chinese Central Bankers will be asked to do???

[Yavin4]

20. Greenspan Is The Primary Reason Why Bush Got Re-Elected

His historically low interest rate policies allowed much of middle class America to continue their extravagant lifestyles even while private sector middle class-paying jobs disappeared. During these last four years, it was much easier to borrow $75,000 than it was to earn $75,000. The problem is that a lot of Americans don't know the difference between borrowing $75K and earning $75K. Greenspan's cheap debt policies assisted this confusion.

[NYC]

24. Greenspan was a big proponent of refinancing mortgages.

At the end, he recommended that people get rid of their fixed rate mortgages in favor of variable rate mortgages. I hope no one followed that advice.

[barb162]

28. I don't remember that...on what reasoning? Were

adjustables a lot lower than fixed rate at the time?

I wonder how many mortgages out there are adjustable v. fixed.

[NYC]

29. The reasoning was that refinancing

would put money in people's hands, and encourage them to spend. That was his regular refinancing reason.

Why go for adjustable rate right before interest rates would start to rise? Greenspan was giving horrible advice to the little people.

They had already refinanced to get the fixed rate mortgages. Now, by giving the advice to get adjustable rate, he hoped they would refinance again.

I'll go look for the article with Greenspan telling the peons to get adjustable rate mortgages.

If I don't find it, you can look for it. It's out there. I remember it quite clearly. Couldn't believe he was saying it.

[NYC]

30. Greenspan re adjustable rate mortgages.

http://www.washingtonmonthly.com/features/2004/0404.wallace-wells.html

Dated April, 2004.

One of these spells flared up during the last week in February, when Greenspan recommended that the home-owning public take a good hard look at switching from fixed-rate mortgages, under whose terms payments stay the same no matter what interest rates do, to adjustable rate mortgages (ARMs), where payments fluctuate along with interest rates--which, right now, makes close to zero sense. Interest rates are lower than they've been in 30 years, and, with all economists predicting a general economic upturn, and Bush's budget deficit and the weak dollar sucking up capital, little doubt exists that interest rates must rise, in which case, switching from a fixed-rate to adjustable-rate mortgage would be pretty costly for any family naïve enough to take Greenspan at his word. The episode did not pass completely without critical notice. It was "the strangest bit of advice ever to be proffered by an American central banker," Jim Grant, publisher of Grant's Interest Rate Observer, told the San Francisco Chronicle. Then the press moved on: "Oh, it's just Greenspan."

But sometimes wacko ideas can betray deeper truths. It is tempting to ask what stake the chairman might have in trying to convince millions of people to do something so contrary to their own interest. One theory floated by Fed-watchers is that the chairman is trying to help out his classic institutional constituency, the big banks, which hold trillions of dollars in fixed-rate mortgage paper. There may be something to that theory, but there is almost certainly a deeper and more important motive behind this curious advice. Quite simply, Greenspan is trying to keep a wobbly and fragile recovery alive--and using mortgage refinancing to do it.

--------- This was the only article I could find at the moment.

[barb162]

33. Thanks, this is amazing. Unless adjustable rates were way way lower

than fixed and they had some kind of very low maximum % increase per year, there would be zero reason to give this advice. This is going to cause some bankruptcies for the people who took these adjustables. Greenspan should have been sacked a few years ago. I still say Greenspan is being paid off by the Bushies because the crap he's been saying since Bush came in is beyond whacko.

[NYC]

37. I agree with "beyond whacko".

I think the adjustable rate advice was an example of that.

[barb162]

27. idiotboy Greenspan has no room to move anymore. Oh

he could lower rates again another few basis points, but then what ferriners are gonna buy those treasuries again.

[killbotfactory]

31. It was intentional

Now they are going to cut social programs that get their panties in a wad. Bastards.

[Roland99]

34. Central banks 'shunning dollar'

http://news.bbc.co.uk/1/hi/business/4200811.stm

Many of the world's central banks are starting to look to the euro to fill their currency reserves instead of the dollar, a survey suggests.

The poll carried out by Central Banking Publications found 39 nations of the 65 surveyed raising their euro holdings, with 29 cutting back on the US dollar.

The dollar's sharp fall in the face of huge deficits could be one cause of the switch, the report says.

The survey was sponsored by the UK's Royal Bank of Scotland.

[txaslftist]

35. Too late and too tepid...

Heard this am on NPR that most foreign banks are dumping dollars and moving to Euros. They got the message a long time before the Fed. The dollar is tipping into its long anticipated free fall against foreign (unencumbered by deficits) currencies.

Look for the sticker price on that Nissan to climb.