Powering Up Our Economy, Cutting The Federal Debt, Regaining Confidence In The Dollar And The Government, Consumer Confidence, Commercial Real Estate Crisis
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Wed/Thurs June 10/11, 2009
Today's Zinger:
The Needs Of A Nation vs. The Ideology Of An Administration: Congress Is Between a Barack And A Hard Place
The Morning Briefing:
The government is racking up deficits and debt that has caused the Chairman of the Federal Reserve to take pause and President Obama to finally admit that the deficits are not sustainable. There are some buds sprouting in the economy but not enough to feel that the recession is over. Consumer confidence is improving but remains low and the recovery is fragile. If the economy recovers on the multi year plan of the Obama administration we run the risk of throwing the economy into a second, and potentially worse recession, driven by a commercial real estate crisis and consumer loan crisis.
So what should the government do to power up the recovery and stabilize confidence in consumers, creditors and the dollar? Zinger has a four-step program that will reduce the addiction to deficits and help the consumer and creditors confidence while accelerating the economic recovery.
The Discussion:
The federal government has issued more deficit spending in the last six months than in the history of the United States. The red ink is scheduled to increase for years to come, accumulating to over $17 trillion in debt by 2017. This excludes the future cost of any new policies or programs like healthcare.
This is staggering. After months of hearing from the Democratic Congress and President Obama that additional stimulus may be needed to continue to fund the recovery, the story has finally changed. A combination of our creditors balking at additional U.S investment in our debt, the general population taking to the streets in tea parties, the media beginning to question the fiscal plans and the economy already showing signs of recovery, Congress has backed off plans for a second round of stimulus and Chairman Bernanke and President Obama finally admitted that the debt is unsustainable.
It is critical that our economy recovery quickly. A delayed recovery will further affect retail, commercial real estate, consumer debt and future tax revenues. If we do not prevent a breakdown in these areas the economy will quickly fall into a potentially worse recession. With so much debt already committed and the economy still fragile, what are we to do? Zinger has a plan. To turn our economy around we must reduce our debt, increase consumer and creditor confidence and continue to stimulate the economy with near term actions. Here is my four-step process.
Step 1: Cut planned spending by $2 trillion. Terminate future spending that is committed but not spent. Specifically:
Step 2: The administration needs to stop talking about how tough the job is (the worst economic crisis since the great depression) and just get it done. The hero and sainthood talk has to give way to results. The Obama administration has spent more time talking about the Bush administration and the difficulty of the inherited economy when they should be leading the economic recovery with words and actions. This will also lead to my third step.
Step 3: Rebuild Confidence. Consumers are worried about their incomes and creditors are worried about their investments. If the government would focus on a near term recovery, reduce debt with the money from the above expense reductions, consumers and creditors would be more open to future borrowing and this would keep interest rates lower and confidence higher.
Step 4: Implement a multi-year payroll tax reduction. When consumers know that they will be receiving higher income over time, versus a lump sum stimulus check, they will be far more inclined to spend the money. Economic theory shows that lump sum checks tend to be saved or used to pay down debt while raises in income are used for consumption. Consumer spending should be more stimulative than government spending under this scenario. The government spends on construction of assets that takes longer to define and complete than when consumers buy existing assets.
The Conclusion: :
Lower the debt, build consumer and creditor confidence and reduce payroll taxes to stimulate the economy going forward. So why won’t Congress do this? First, it requires them to admit that some of the programs they approved are not stimulative but social spending. Second, they must admit that they are spending too much and third, they have the Obama administration pushing for certain programs as part of his ideological agenda. Even if the voters voice their opinion and push for a new direction, Congress will most likely not change because it will appear that they are backtpeddling and there are programs that the Republicans have emphasized that make sense. Clearly, Congress is between a Barack and a hard place.
Recent ZingerKing Articles:
Articles can be found under “Recent Articles” in the purple sidebar. Click on the title of the article that you would like to see. Older articles can be found in the archives that are stored by month. These are found at the bottom of the purple sidebar.
Here is a link to the most recent articles:
ZingerKing is Published on Monday, Wednesday and Friday of each week.
Wed/Thurs June 10/11, 2009
Today's Zinger:
The Needs Of A Nation vs. The Ideology Of An Administration: Congress Is Between a Barack And A Hard Place
The Morning Briefing:
The government is racking up deficits and debt that has caused the Chairman of the Federal Reserve to take pause and President Obama to finally admit that the deficits are not sustainable. There are some buds sprouting in the economy but not enough to feel that the recession is over. Consumer confidence is improving but remains low and the recovery is fragile. If the economy recovers on the multi year plan of the Obama administration we run the risk of throwing the economy into a second, and potentially worse recession, driven by a commercial real estate crisis and consumer loan crisis.
So what should the government do to power up the recovery and stabilize confidence in consumers, creditors and the dollar? Zinger has a four-step program that will reduce the addiction to deficits and help the consumer and creditors confidence while accelerating the economic recovery.
The Facts:
- The Federal budget for fiscal 2010 ($3.85 trillion) contains over $1.8 trillion in deficit spending. Of this, $600 billion is unassigned but allocated for “healthcare spending".
- The Federal government, under the Bush administration, allocated loans of almost $800 billion to TARP funds to be used to stabilize companies, primarily banks and financial institutions, threatened by the liquidity crisis. Approximately $135 billion has yet to be committed.
- The federal government authorized the Stimulus Act of 2009 to infuse government spending into the economy to increase economic activity, bring an end to the recession and fund social programs (such as unemployment insurance and healthcare for those most affected by the recession). Most of this money will not spent until 2010 and 2011.
- Consumer confidence has improved in recent months (currently 52 points) but has not hit traditional index levels of 80-90 points on the scale.
- Economic indicators are on track for an improving economy. Unemployment, a lagging indicator of economic recovery, continues to increase as would be expected (currently 9.4%).
The Discussion:
The federal government has issued more deficit spending in the last six months than in the history of the United States. The red ink is scheduled to increase for years to come, accumulating to over $17 trillion in debt by 2017. This excludes the future cost of any new policies or programs like healthcare.
This is staggering. After months of hearing from the Democratic Congress and President Obama that additional stimulus may be needed to continue to fund the recovery, the story has finally changed. A combination of our creditors balking at additional U.S investment in our debt, the general population taking to the streets in tea parties, the media beginning to question the fiscal plans and the economy already showing signs of recovery, Congress has backed off plans for a second round of stimulus and Chairman Bernanke and President Obama finally admitted that the debt is unsustainable.
It is critical that our economy recovery quickly. A delayed recovery will further affect retail, commercial real estate, consumer debt and future tax revenues. If we do not prevent a breakdown in these areas the economy will quickly fall into a potentially worse recession. With so much debt already committed and the economy still fragile, what are we to do? Zinger has a plan. To turn our economy around we must reduce our debt, increase consumer and creditor confidence and continue to stimulate the economy with near term actions. Here is my four-step process.
Step 1: Cut planned spending by $2 trillion. Terminate future spending that is committed but not spent. Specifically:
- Eliminate the $600 billion that is generally allocated to health care in the 2010 federal budget. Congress must prove that they can cut general healthcare costs before they are given additional funds. If the government cannot cut healthcare costs we will be piling on additional deficit spending on top of an already bloated system creating further deficits and a decline in our future borrowing capacity and increased cost of sustaining the debt. Alternatively, the government could raise taxes to pay the healthcare bill but this is contractionary and will negatively impact economic growth.
- Cancel the stimulus spending that is planned for 2010 and 2011. This will save an additional $600 billion. Most of this spending is not stimulus but rather transfer payments or one-time projects that will not generate future jobs.
- Put pressure on the TARP fund recipients to repay the loans sooner rather than later. Include an early repayment bonus to encourage payoff. This will generate an additional $600 billion.
Step 2: The administration needs to stop talking about how tough the job is (the worst economic crisis since the great depression) and just get it done. The hero and sainthood talk has to give way to results. The Obama administration has spent more time talking about the Bush administration and the difficulty of the inherited economy when they should be leading the economic recovery with words and actions. This will also lead to my third step.
Step 3: Rebuild Confidence. Consumers are worried about their incomes and creditors are worried about their investments. If the government would focus on a near term recovery, reduce debt with the money from the above expense reductions, consumers and creditors would be more open to future borrowing and this would keep interest rates lower and confidence higher.
Step 4: Implement a multi-year payroll tax reduction. When consumers know that they will be receiving higher income over time, versus a lump sum stimulus check, they will be far more inclined to spend the money. Economic theory shows that lump sum checks tend to be saved or used to pay down debt while raises in income are used for consumption. Consumer spending should be more stimulative than government spending under this scenario. The government spends on construction of assets that takes longer to define and complete than when consumers buy existing assets.
The Conclusion: :
Lower the debt, build consumer and creditor confidence and reduce payroll taxes to stimulate the economy going forward. So why won’t Congress do this? First, it requires them to admit that some of the programs they approved are not stimulative but social spending. Second, they must admit that they are spending too much and third, they have the Obama administration pushing for certain programs as part of his ideological agenda. Even if the voters voice their opinion and push for a new direction, Congress will most likely not change because it will appear that they are backtpeddling and there are programs that the Republicans have emphasized that make sense. Clearly, Congress is between a Barack and a hard place.
Recent ZingerKing Articles:
Articles can be found under “Recent Articles” in the purple sidebar. Click on the title of the article that you would like to see. Older articles can be found in the archives that are stored by month. These are found at the bottom of the purple sidebar.
Here is a link to the most recent articles:
Bubble Economics, The Energy Bubble
Retirement Crisis, Baby Boom Generation
Lessons Learned In Obama's First Four Months
Outsourcing Torture to Middle Eastern Allies
California Is Going To "Pot" To Cure Its Financial Crisis
Nancy Pelosi's war with the CIA
Running On Empty, Federal Deficits
Islamic Fundamentalism, Stage Four Religous Cancer
Shameless Request For Support:
Have you Zinged someone lately. Please forward a link to ZingerKing to a friend, family member or neighbor. If you enjoy reading the Zinger please subscribe (see the subscribe box at the top of the article in the purple side band). Subscribers receive the "Morning Briefing" when published with a link to the full article. Your email address will not sold to others and will not be shared.
Retirement Crisis, Baby Boom Generation
Lessons Learned In Obama's First Four Months
Outsourcing Torture to Middle Eastern Allies
California Is Going To "Pot" To Cure Its Financial Crisis
Nancy Pelosi's war with the CIA
Running On Empty, Federal Deficits
Islamic Fundamentalism, Stage Four Religous Cancer
Shameless Request For Support:
Have you Zinged someone lately. Please forward a link to ZingerKing to a friend, family member or neighbor. If you enjoy reading the Zinger please subscribe (see the subscribe box at the top of the article in the purple side band). Subscribers receive the "Morning Briefing" when published with a link to the full article. Your email address will not sold to others and will not be shared.
Posted by ZK at 6/9/2009 11:31 AM 
Categories: Obama Administration, Bailouts, Federal Budget, Taxes, Politics, Congress, Economics
Categories: Obama Administration, Bailouts, Federal Budget, Taxes, Politics, Congress, Economics
"President Obama’s agenda, ambitious as it may be, is responsible for only a sliver of the deficits, despite what many of his Republican critics are saying. [Yet] Mr. Obama does not have a realistic plan for eliminating the deficit, despite what his advisers have suggested."
The above quote is from the NY Times, 6/10. I recommend the entire article. Let us not forget that we had a large surplus at the end of the Clinton adminstartion and a huge deficit at the end of the Bush adminstration. That does not mean that the problem is not serious and that Obama should be given a pass. But it is regretable that W was.
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W was not given a pass. This is the reason the Democrats won the House and Obama was elected President. It was the excessive spending of the Republicans. The Democrats are following the same path and will be at risk if they don't change soon.
Reply to this
It is true that W created about 4 trillion in debt, however we need the government to deal with the conditions and not enact more that would further contribute to the problem. If you are a couch and want to focus on offensive but your team is weak on defense, unless you first fix the defense you will not be able to install your great offense.
Obama needs to fix the defense or the deficits. He is trying to do both simultaneously. Zinger was right about the $17 trillion at the end of 8 years, however that number is sure to be low and Obama's new offense (healthcare, etc) will sure lead to higher taxes. Al of this at a time when the economy is fragile. Everything in its time. That does not seem to be the motto of the administration.
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