James Pethokoukis

Politics and policy from inside Washington

Around the horn

Aug 25, 2009 19:17 UTC

Stuff I read today that you should, too!

Bernanke’s out of control! Russell Roberts thinks Bernanke has gone overboard in reacting to the Great Recession. He might be right, though as the man who jumped out of the burning airplane with no parachute said, “First things first!”

Kicking healthcare, Massachusetts style. Kurt Brouwer  finds fault aplenty with RomneyCare.

Words Bernanke wishes he hadn’t said. My pal John Carney of Clusterstock has a must-read (and must-view) photo gallery of some Bernanke misses. But what about his chitchat with Maria Bartiromo!

How to pay for real economic stimulus. Ed Harrison had the same idea I did. Cut entitlements tomorrow create fiscal space today.

Another vote for Bernanke. Right-of-center economist Greg Mankiw likes the Bernanke reappointment.

Trillion dollar stimulus. Donald Marron notices that the Obama’s fiscal stimulus plan may cost $900 billion.


I joked about Obama appointing a Fed Czar, effectively keeping a popular choice – Bernanke, but undercutting him. Basically, no one seems to be talking about the two appointments for the Governors board that have been vacant due to hold ups for confirmantion during the Bush years. This plus other retirements would provide the current administration with a majority on Fed voting decisions. Nifty.

I’m a litttle disappointed that nobody has brought up this permutation.

http://www.bloomberg.com/apps/news?pid=2 0601087&sid=aO3Cyu_.OHD4

“…….Federal Reserve Chairman Ben S. Bernanke, nominated today for a second four-year term at the helm of the central bank, will be working with a reshaped team.

President Barack Obama, who nominated Bernanke for a second term beginning in February, still must fill two other vacancies on the Fed’s Board of Governors, which has operated without its full seven-member complement since April 2006. On top of that, Vice Chairman Donald Kohn’s term expires in June, and Gary Stern, the longest-serving policy maker, will retire when a replacement is named.

The turnover means Obama will be able to appoint a majority of governors in his first year. Bernanke will have to convince the Fed’s new members to concentrate on maintaining the economic recovery and put aside concerns about a revival of inflation, said former Fed Governor Lyle Gramley…….”

Posted by Siobhan Sack | Report as abusive

The U.S. budget deficit is even worse than you think

Aug 25, 2009 18:28 UTC

Oh yes, America’s fiscal situation is a dreadful mess.

The White House says the federal government will run a $9 trillion budget deficit over the next decade. As a percentage of the total economy, the United States looks to have an astounding debt-to-GDP ratio of 11 percent this year, with that number declining to around 4 percent from 2015 though 2019. And total debt held by the public will rise to 68 percent of GDP by that year versus 33 percent in 2001.

Those numbers, however, are actually a bit on the rosy side. In his blog, Douglas Elmendorf, director of the Congressional Budget Office, notes that the forecasts presume no change in current tax laws, such as the continued existence of the Bush tax cuts and the alternative minimum tax (AMT), which grabs more and more taxpayers ever year at a lower and lower income level.

Such forecasts also assume annual spending increases grow at the rate of inflation. But tomorrow is rarely the same as today in Washington. A more realistic scenario — if the AMT were indexed for inflation, most of the Bush tax cuts continued and spending rose as it has in the past — would see the deficit at 8.5 percent of GDP in 2019. That is a level, before the current crisis, not seen since World War Two.

Budget numbers like these are generated on a cash accounting basis. They don’t take into account the underfunding of America’s vast entitlement programs and the annual changes in the net present value of those programs.

Calculated on an accrual basis, much as a corporation would estimate its pension and healthcare liabilities, the annual deficit number would be at least $6 trillion this year.  In 2008, for example, the headline budget number — the one calculated on a cash in, cash out basis — was $454 billion. But if you ran the number as the federal deficit plus the net present value of all those unfunded liabilities, the deficit was $5.1 trillion with total fiscal obligations at $66 trillion. As Elmendorf dryly puts it: “Putting the nation on a sustainable fiscal course will require some combination of lower spending and higher revenues than the amounts now projected.”

And that is The Choice. Does America want to be a low-tax nation with a government that does less than it does now, or a higher-tax nation with an even bigger public sector? Right now, it sort of wants both. You can see that not only in today’s budget numbers, but also in the healthcare debate, where a fair reading of the polls reveals Americans want to contain costs while also having every high-tech solution and test available to them.

The politicians are certainly no better. When the Republicans wanted to fix Social Security, Democrats argued the program was in good shape. And now when Democrats want to trim Medicare costs, the GOP plays the defender of seniors.

So put me down for 8.5 percent in the 2019 debt-to-GDP ratio office pool, OK?


Several reasons or “justifications” were offered to initiate the post 9/11 war against first Afghanistan, then Iraq: the Administration with the assistance of Philip Zelikow, who chaired:”The 9/11 Commission Report: Final Report of the National Commission on Terrorist Attacks” which omits the World Trade Center in its title and loads a justification for war, this same Philip Zelikow is the architect of the war.
One hundred percent of reported commercial aircraft incidents prior to 911 requiring Military intercept were intercepted. Usually military jet intercept takes about 10 minutes – no intercepts occurred on the morning of 11 September 2001. Building 7 of the WTC housed investigations on Bear Sterns and other Wall Street firms, it fell similar to Tower 1 and 2 but was not hit by aircraft. Within the rubble, core columns were diagonally cut as photo evidence shows in a manner similar to demolition by professionals. NAFTA, during the Clinton Administration and Gore (of Cap ‘n Trade and the Green Police who can make your living in your own house a crime) exported much of manufacturing in the US due to labor cost differentials.
So, is this a marketing move by the Defense Industry or is as some have argued, a retaliation against Iraq for attempting to market Oil in “Euros”, away from the US dollar?
Both wars also strategically place US military in the OIL geopolitical region under whatever justification.
Let’s assume the debt moves forward to collapse the US currency, as those who see that comming move to commodities and elsewhere, then the US dollar collapse represents a buying opportunity.
Comments anyone?

Obama: 64 percent of budget deficit is my handiwork

Aug 25, 2009 16:38 UTC

From the Office of Management and Budget:

The Administration contemporaneously acted to address the financial crisis and get credit flowing again through the Financial Stability Plan, and worked to help homeowners facing foreclosure through the Homeowner Affordability and Stability Plan. In addition, the Administration took action to forestall the failure of two of the Nation’s largest automobile manufacturers and to strengthen the non-bank credit market. All together, these efforts—along with the ARRA—increased the deficit in the short run. In fact, 64 percent of the current deficit is directly attributable to rescue and recovery efforts and other countercyclical programs that were essential in preventing a deeper and more costly recession.


There is a reason we have the expression “tax and spend democrat.” Obama has spent more money in 6 months than George Bush did in 8 years, and he spent money like a democrat. Obama promised transparency and then rammed a spending bill through that no-one had time to read. The ones that voted for him were too lazy to research what he really stood for. Based on his factual, documented voting record, he was the most liberal, leftist member in the senate, followed by John Kerry and Hillary Clinton. Now he wants to force socialized medicine down our throats, for another 10 Trillion, and he doesn’t even take care of his brother and aunt, living here in the projects illegally. Wake up, morons!

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What would the deficit be if McCain were president?

Aug 25, 2009 16:17 UTC

Bruce Bartlett, who has a new booking coming out, was nice enough to run some budget numbers so I wouldn’t have to:

I was looking through the new CBO projections and saw a point worth emphasizing.

CBO projected a deficit of $1,186 billion in January before Obama took office.  It now projects a deficit of $1,587 billion, an increase of $401 billion.  If one goes through the March update (pp. 6-7) and the August update (pp. 52-53) and adds up all the changes to the January estimate, you find that the deficit increase since January consists of $46 billion in lower than expected revenues due to the economy (11.5%), $129 billion in higher spending due to technical re-estimates (32.2%), and $226 billion due to legislative changes to both spending and revenues (56.3%).

This suggests that we would have had a deficit of at least $1,361 billion this year even if McCain had won (January deficit plus lower revenues and technical changes and no legislative changes)—assuming no stimulus and assuming that the economy would have done as well as it has done without it.  That’s only 14% less than the deficit currently projected. And keep in mind that some of the legislative changes are due to higher defense spending and other non-stimulus related programs.

But McCain undoubtedly would have supported some sort of fiscal stimulus.  It might have been more tax- than spending-oriented, but would have increased the deficit nevertheless.  If we assume that McCain’s stimulus would have been half the size of Obama’s that leaves us with an estimated deficit of $1,474 billion under McCain—only 7% less than the deficit now estimated.


The article makes a whole myriad of blanket assumptions about the deficit, but ignores some fundamental differences that also have enormous implications on the overall economy. Without the radical- pro-abortion agenda, there would be millions of people who would earn income, pay taxes and pay into social security. Under McCain, he wouldn’t penalize the biggest sources of energy we have, thus increasing our dependence on foreign oil, and losing more US jobs. We wouldn’t have a major socialized medicine agenda that will cost another 10 trillion, with tax payers-funded abortions. We wouldn’t have the most leftist, liberal, socialist member of the senate selling our country down the river, either. More change than we can stand.

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Budget deficits may be twice as bad as White House is predicting

Aug 25, 2009 14:19 UTC

More to come on this, but the WH is predicting that as a percentage of GDP, annual budget deficits will decrease to around 4 percent over the next decade from 11 percent in 2009. Or will they? The Congressional Budget Office has some doubts (via the Director Doug Elmendorf’s blog):

Those projections generally follow the rules, originally established in
law, that have traditionally governed baseline projections.  However,
some of the resulting assumptions may underestimate potential deficits.
Because they presume no changes in current tax laws, the projections
incorporate increases in revenues that would result from the expiration
of tax reductions enacted earlier in this decade and provisions that
have kept the alternative minimum tax (AMT) from affecting many more
taxpayers.  They also assume that future annual appropriations grow
each year at the rate of inflation.  Those assumptions result in
projected revenues that, as a percentage of GDP, would be high by
historical standards, and projected discretionary spending that,
relative to GDP, would be low by historical standards. Many other
outcomes are possible.  If, for example, those tax reductions were
continued, the parameters of the AMT were indexed for inflation, and
future annual appropriations were to remain at their 2009 share of GDP,
the deficit in 2019 would reach 8.5 percent of GDP, by CBO’s estimates.

Obama to renominate Bernanke as Federal Reserve chairman: a few thoughts

Aug 25, 2009 11:36 UTC

And once more, another person in Washington involved with helping create the financial crisis gets to keep his job. In a bit of a  summertime surprise,  President Obama has renominated Ben Bernanke as Fed chairman.

1) So not only does the White House release its new budget forecast on the same day as the Congressional Budget Office releases its forecast so there aren’t two separate days of terrible stories, it also drops this bomb to further dilute the impact. The news might even generate a nice stock market reaction Smart politics.

2) I am mildly surprised. Although, Bernanke seemed to have the backing of Wall Street, the politics were not as clear. What president would not rather have his own pick in the post? And while most economists praise the Fed’s efforts to keep the recession from becoming a depression, politicians in both parties have attacked the Fed’s big bailouts, as well as its handling of the BofA-Merrill merger. Plus, Bernanke terribly underestimated the potential severity of the financial crisis in its early days. If Obama wanted to make a switch, there was enough there to justify it.

3) Bernanke got lucky with the timing. If his term was up in January of 2011 instead, he might get more of the blame for a lackluster economic rebound. As it is, he gets credit for engineering the rebound — and given the mood six months ago, any rebound is a good rebound. But another year of high unemployment might alter those views.

4) I think Obama should get credit for not picking an obvious dove like Janet Yellen, but I am not sure she was really a ever a viable option. I think Larry Summers was viewed as both too independent and too outspoken, a real wildcard. Bernanke is a known quantity in the position who has worked with the White House every step of this crisis.