Wall Street Weekly | 05/29/2009 11:15 am

Will Government Debt Mow Down Green Shoots? by Liz Peek

Green shoots are turning the worlds’ economies into veritable gardens … so what’s next?

By Liz Peek

Bears, Bulls, Chickens and Pigs: wOw’s Wall Street Weekly with Liz Peek (Week of 5/25)

Editor’s Note: Liz Peek is a financial columnist and the author of wOw’s SHEconomics.

Treasury Secretary Timothy Geithner is trotting off to China next week to reassure our creditors that the U.S. isn’t the spendthrift careless nation that Beijing imagines us to be. He is, we might say, growing into the job. Remember that one of his first acts upon taking charge of our country’s purse strings was to accuse the Chinese of “manipulating” its currency. That was an oops; Mr. Geithner has since learned that you don’t kick your banker in the knee.

He’s not the only member of the administration that’s recently had a reality check or two. Yesterday President Obama phoned his still-eager network of campaign volunteers from Air Force One, hoping to rev up enthusiasm for his health-care initiative. His message? “If we don’t get it done this year, we’re not going to get it done.” He’s right.

Americans – and the financial markets – are beginning to assess the costs of not only the health-care program, but of the dozens of other undertakings that have Mr. Obama glued to the teleprompter almost daily. The Congressional Budget Office delivered a sobering message yesterday when it announced that undue federal control of the health-care apparatus would lead it to consider the industry part of the government. (I wonder what their stance is on autos and banking?) This could undermine the president’s ability to “reform” the sector, since the government’s financial health is already under stress.

Universal insurance coverage is estimated to cost as much as $150 billion each year. The administration has promised to buffer those outlays by cutting the cost of health care, a notion that is popular but puzzling. Where are those savings going to come from? The president is giddy over electronic record keeping, which is undoubtedly a good idea. But let’s face it – that’s not going to overnight reduce the cost of having a baby or getting a knee replacement. Hospitals and medical practices are surely not tightly managed organizations. Spend a few days in the hospital and you’ll become a rabid reformer. But the reality is that large cuts in expenditures will only come about by rationing care, or by limiting pay to doctors. You can bet that other health-care workers, most of whom are union members, will not feel the pain.

So, while celebrating a continuing stream of green shoots that signal some steadying of the economy, the markets also have begun to discount mounting government borrowings. That’s the message from the backing up of Treasury yields that has so shocked the markets. On Wednesday, yields hit their highest level in six months. The reason? The Obama administration has been long on spending initiatives, and short on how to pay for them.

One source of potential revenues, which I discussed last week, would be a gasoline tax. Another possibility that would more broadly (and more beneficially) impact energy choices in the U.S. would be an oil-import fee. If we truly want to lessen our need for imported oil – and we should – we could enact a fee designed to keep imported oil prices at about $70-$80 per barrel. At this price, according to most energy economists, consumption is discouraged and alternatives are encouraged. This measure would give investors in windfarms and solar panels reassurance that such ventures, if competitive at that price, would be viable regardless of the ups and downs in oil markets. It would also encourage domestic exploration and production that quickly lost steam as prices slid below $50 per barrel in recent months. And it would raise revenues.

98 Reader Comments (so far…) Sign In or Register to comment

Oh, he "isn’t" the spendthrift? China has mega reasons to be worried about their "investment" in the United States!!

The New Congressional Budget Office (CBO) offers this analysis: President Obama’s budget, as offered, would produce $9.3 trillion in deficits over the next decade. Not so, says CBO, the deficit would be $2.3 trillion more, for a total deficit of $11.6 trillion over the next 10 years. CBO estimates that Obama’s budget would generate "deficits averaging almost $1 trillion a year during the years 2010 to 2019. CBO notes that Obama’s "policies would never go below 4 percent of the size of the economy, a figure most economists agree is unsustainable. By the end of the decade, the deficits could worsen and exceed 5 percent."

http://www.newsmax.com/hostetter/obama_deficit/2009/03/25/196038.html

By deber B on 05/29/2009 11:25 am

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Hi Deber - I love your comments - thanks so much for weighing in. FYI- I couldn’t find the CBO revisions on the website recently - think they’ve been erased? All the best - Liz

By Liz Peek on 05/31/2009 4:16 pm

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http://www.econbrowser.com/archives/2009/02/cbo_assessment.html

This link provides the actual chart. Hope it helps. I’m glad you like my comments. I have some other ideas perhaps you can email me.

By deber B on 05/31/2009 4:58 pm

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Liz, I was going to post this on another thread but felt it would carry more weight with you. Perhaps you will consider providing us with a thread on the following two topics.

What policies of the Bush administration are being continued and which policies are being radically changed?

Impact of domestic policies on long term economic health especially with regard to "debt and inflation."

http://econlog.econlib.org/archives/2009/05/the_anti-stimul.html

All the best to you as well - deber

By deber B on 05/31/2009 5:27 pm

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Americans are beginning to voice their disapproval of President Obama’s vision for all Americans:

“President Obama is looking for cuts in all the wrong places,” SIA Director of Government Relations Don Erickson said. “We understand and support efforts to be fiscally responsible, but taking money away from programs that protect children in the classroom and the millions of Americans traveling on our mass transit systems or conducting business at our nations’ ports is not in any way responsible. It is a misguided step in the wrong direction.”

http://www.securitydirectornews.com/blogspm/?p=1175&cpage=1

By deber B on 05/29/2009 11:28 am

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This is what happens you elect an inexperienced man to the highest office in the United States:

"Immediately below is the transcript of a panel on the economy from Friday’s Lou Dobbs Show. In particular, it focuses on Secretary Geithner’s problems regarding the AIG bonuses, and the CBO estimates that the federal budget deficit will be much larger than the White House originally projected. This is followed by my forecasts for economic data to be released the weeks of March 23 and 30.

On related issues, press reports on Geithner’s plan to remove toxic assets from the banks indicate this program could prove even more expensive to the taxpayer than anticipated, quite wasteful and perhaps a disaster.

While this program could earn a profit, as did the Resolution Trust Corporation during the Savings and Loan Crisis and the Home Owners Loan Office during the Great Depression, the program Secretary Geithner is cooking up could unnecessarily stick the taxpayer with big losses on those toxic assets and give the banks big, unearned profits. It could save many bank executives’ careers, while running up the federal deficit even further and undermining international confidence in the dollar.

The plan could fail to remove enough toxic assets from the balance sheets of the banks to unlock private credit markets. Ultimately, the resulting federal deficits and domestic economic paralysis could make financing federal budget deficits, through domestic and foreign borrowing, extraordinarily difficult.

That would make Geither’s program to remove toxic assets one of the great financial disasters in the annals of republican government and wholly handicap President Obama’s ability to achieve his most important economic goals."

http://seekingalpha.com/article/127266-toxic-assets-obama-s-aig-and-budget-woes-friday-s-lou-dobbs-show-transcript

By deber B on 05/29/2009 11:31 am

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Budget Woes Hey libs, you thought wrong. Obama is actually going to raise taxes, like we all knew:

President Obama’s budget proposes $989 billion in new taxes over the course of the next 10 years, starting fiscal year 2011, most of which are tax increases on individuals.

The scariest:

2) Businesses:

$17 billion - Reinstate Superfund taxes
$24 billion - tax carried-interest as income
$5 billion - codify "economic substance doctrine"
$61 billion - repeal LIFO
$210 billion - international enforcement, reform deferral, other tax reform
$4 billion - information reporting for rental payments
$5.3 billion - excise tax on Gulf of Mexico oil and gas
$3.4 billion - repeal expensing of tangible drilling costs
$62 million - repeal deduction for tertiary injectants
$49 million - repeal passive loss exception for working interests in oil and natural gas properties
$13 billion - repeal manufacturing tax deduction for oil and natural gas companies
$1 billion - increase to 7 years geological and geophysical amortization period for independent producers
$882 million - eliminate advanced earned income tax credit

http://litlmissunshine.blogspot.com/2009/02/budget-woes.html

By deber B on 05/29/2009 11:35 am

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To me, the elephant in the room is a huge tax increase masquereding as: Cap and Trade."

A recent New Yorker piece explained that Mr. Axlerod plans to use revenue from cap and trade ($646 billion ovet eight years) to pay for universal heathcare.

I did the math.

The costs of cap and trade spread over the total of fossil fueled electric generation will result in a 30% increase in the cost of electricity - an economic anchor US industry will have to swim with.

To remain viable, industry will look for an equivalent offset in variable costs - inevitably (and historically) the first cost to be cut is labor.

Apparently, cap and trade will cause higher unemployment, and lower GDP.

Can anyone help me know why this is a good idea?

By Fly O. T. Wall on 05/29/2009 12:36 pm

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Welcome Fly On The Wall!!! Always enjoy your posts.

It is not a good idea and will spiral this country into hyperinflation. Obama is way out of his league, FOTW, way out of his league. Everything he has done so far is hurting our country. He "tampered" with a recession which is a huge no no in order to repay all of his campaign donors for his $668 mega donations and the stimulus had to pay them back through special interest programs. For example, bees, hog smell, etc. you know how it goes.

Now, President Marvel, is telling the country that we cannot "sustain" this debt. Right behind that is Health Care Reform which won’t have a ticker’s chance of going through now because we are flat broke and will be printing money by late fall.

Anyone thinking about refinancing their mortgages should do it now. By this time next year we could easily be mirroring Jimmy Carter’s presidency with mortgage interest rates of 22%. Anyone remember that? I certainly do.

To actually address your question: Think New World Order, Fly.

By deber B on 05/29/2009 12:51 pm

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Fly…exactly! So us taxpayers will get hit with more taxes, higher utility bills, taxed health insurance benefits paid by employers, taxes posed on our 401k’s and 403b’s, higher gas prices, higher tax on food, sodas, liquor, cigarettes and on and on…so if you put it all together….what we pay now in Health Care would be a blessing to us!!!!

By Libra Lady on 05/29/2009 12:51 pm

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Fly: Can anyone help me know why this is a good idea?

It isn’t and never was a good idea. I hope the Democrats wake up pretty soon and stop this guy because we will have inflation and taxation like we’ve never seen before. And I think Obama realizes his time is short on passing healthcare — he’s got to ram it through fast while he still has a lot of political capital or it isn’t going to happen. Problem is, something as vast as universal healthcare takes time. The kinks are varied and many.

By Marjorie C. on 05/29/2009 5:18 pm

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Marjorie — Yes, they are almost paranoid about getting "this" and any other program in before 2010. Is it because there are several Democrats in trouble in 2010? Are they afraid that they won’t have the majority to pass these bills? Yep, gotta ram it through ASAP. And, Universal Healthcare is a program that will take time and a lot of discussion. I understand that there are several Democrats who are more than just a little concerned.

Perhaps a little pressure from the voting folks!

By Lady Gator on 05/29/2009 7:28 pm

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Lady G,

Remember I mentioned to you, "Rremember this day" and mark my words, Nobama was going to raise taxes across the board and do so exorbitantly……..Yes?

By HA BIBI on 05/29/2009 10:23 pm

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Ha Bibi: Nobama was going to raise taxes across the board and do so exorbitantly…….

I think the need to raise taxes is part of the rush to pass the health care bill. He knows high taxes are coming, they have to. Even if he bundles it into the cap and trade revenues, most people understand the source… and if they don’t, they soon will. We have about a year before the ‘you-know-what’ hits the fan.

By Marjorie C. on 05/30/2009 6:32 am

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Yep, but the funny thing was, he was supposed to give everyone tax cuts across the board……All a part of his "Change and Hope message and no one at the time could predict that he was going shopping with his exorbitant spending spree, and of course who was going to foot that bill……..We were. And, with all that’s happened up to this point, I do believe those fan blades are getting their first coating now.

By HA BIBI on 05/30/2009 9:11 am