Jan 28 2011

Sh*t hurling towards the fan

(1 pm. – promoted by ek hornbeck)

Excerpts from 3 very disturbing articles….

WASHINGTON, Jan 27 (Reuters) – The U.S. Treasury on Thursday initiated the first in what is likely be a series of maneuvers aimed at preventing it from hitting a legal debt limit as a political battle over spending intensified.

The action to reduce the amount of money the Treasury holds in a special account at the Federal Reserve marked only a small step in freeing up new borrowing capacity, but was symbolically important as the Obama administration and Republican lawmakers stake out ground in a wider budget debate.

As of Tuesday, Treasury’s remaining borrowing authority was down to $279 billion — all that remained before it bumps against a legally set $14.294 trillion debt ceiling. link

The CBO said the fiscal 2011 deficit will hit $1.48 trillion, up from last August’s $1.07 trillion estimate, which was crafted before Bush-era tax rates were extended at a cost of $858 billion over 10 years.

The CBO “estimates that the act (renewing tax cuts) will increase the deficit by $390 billion in 2011, by $407 billion in 2012 and by $120 billion in 2013,” according to the report.

~ snip ~

The severe impact of annual budget deficits was noted by CBO Director Douglas Elmendorf, who wrote in an Internet posting that “debt held by the public will probably jump from 40 percent of GDP at the end of fiscal year 2008 to nearly 70 percent at the end of fiscal year 2011.”

The debt held by the public could keep rising, reaching 77 percent of GDP in 2021 if current spending and tax policies are unchanged, the CBO said. Analysts say the United States should strive for a more sustainable 60 percent debt to GDP ratio.

“As disturbing as those near-term deficits are, the long-term outlook is even worse,” Conrad said.

link

more cheery news….

The United States and Japan received sharp warnings from the IMF and ratings agencies on Thursday that they must tackle their huge budget deficits to avoid investors dumping their bonds, which would create a sovereign debt crisis and push up their borrowing costs. link

Why am I thinking about Naomi Klein’s “the Take”?

2 comments

  1. Another article from earlier in the week

    Can the Federal Reserve go broke? Not now….

    Concerns that the Federal Reserve could suffer losses on its massive bond holdings may have driven the central bank to adopt a little-noticed accounting change with huge implications: it makes insolvency much less likely.

    The significant shift was tucked quietly into the Fed’s weekly report on its balance sheet and phrased in such technical terms that it was not even reported by financial media when originally announced on January 6.

    But the new rules have slowly begun to catch the attention of market analysts. Many are at once surprised that the Fed can set its own guidelines, and also relieved that the remote but dangerous possibility that the world’s most powerful central bank might need to ask the U.S. Treasury or its member banks for money is now more likely to be averted.

    “Could the Fed go broke? The answer to this question was ‘Yes,’ but is now ‘No,'” said Raymond Stone, managing director at Stone & McCarthy in Princeton, New Jersey. “An accounting methodology change at the central bank will allow the Fed to incur losses, even substantial losses, without eroding its capital.”   link

    Nothing to see here move along. Pay no attention to the House of Cards.

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