Category Archives: Government Debt

Financial System Riskier, Next Bailout Will Be Costlier, S&P Says

The financial system poses an even greater risk to taxpayers than before the crisis, according to analysts at Standard  Poors. The next rescue could be about a trillion dollars costlier, the credit rating agency warned.SP put policymakers on notice, saying theres “at least a one-in-three” chance that the U.S. government may lose its coveted AAA credit rating. Various risks could lead the agency to downgrade the Treasurys credit worthiness, including policymakers penchant for rescuing bankers and traders from their failures.”The potential for further extraordinary official assistance to large players in the U.S. financial sector poses a negative risk to the governments credit rating,” SP said in its Monday report.But, the agencys analysts warned, “we believe the risks from the U.S. financial sector are higher than we considered them to be before 2008.”Because of the increased risk, SP forecasts the potential initial cost to taxpayers of the next crisis cleanup to approach 34 percent of the nations annual economic output, or gross domestic product. In 2007, the agencys analysts estimated it could cost 26 percent of GDP.Last year, U.S. output neared $14.7 trillion, according to the Commerce Department. By SP’s estimate, that means taxpayers could be hit with $5 trillion in costs in the event of another financial collapse.Experts said that while the cost estimate seems unusually high, theres little dispute that when the next crisis hits, it will not be anticipated — and it will likely hurt the economy more than the last financial crisis.

via Financial System Riskier, Next Bailout Will Be Costlier, SP Says.

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Washington State Joins Movement For Public Banking by Ellen Brown

Bills were introduced on January 18 in both the House and Senate of the Washington State Legislature that add Washington to the growing number of states now actively moving to create public banking facilities.

The bills, House Bill 1320 and Senate Bill 5238, propose creation of a Washington Investment Trust (WIT) to “promote agriculture, education, community development, economic development, housing, and industry” by using “the resources of the people of Washington State within the state.”

Currently, all the state’s funds are deposited with Bank of America. HB 1320 proposes that, in the future, “all state funds be deposited in the Washington Investment Trust and be guaranteed by the state and used to promote the common good and public benefit of all the people and their businesses within [the] state.”

The legislation is similar to that now being studied or proposed in states including Illinois, Virginia, Hawaii, Massachusetts, Maryland, Florida, Michigan, Oregon, California and others.

The effort in Washington state draws heavily on the success of the 92-year-old Bank of North Dakota (BND), currently the only state-wide publicly owned U.S. bank. The BND has helped North Dakota escape the looming budgetary disaster facing other states. In 2009, North Dakota sported the largest budget surplus it had ever had.

The Wall Street Credit Crisis Is Crippling State and Municipal Governments

That state budget deficits are reaching crisis proportions was underscored in a January 19 New York Times article:

[A]lmost everywhere the fiscal crisis of states has grown more acute. Rainy day funds are drained, cities and towns have laid off more than 200,000 people, and Arizona even has leased out its state office building…

“It’s the time of the once unthinkable,” noted Lori Grange, deputy director of the Pew Center on the States. “Whether there are tax increases or dramatic cuts to education and vital services, the crisis is bad.”

via Washington State Joins Movement For Public Banking by Ellen Brown.

News Analysis – A Decade of Enormous Deficits May Alter American Politics and Power – NYTimes.com

By President Obama’s own optimistic projections, American deficits will not return to what are widely considered sustainable levels over the next 10 years. In fact, in 2019 and 2020 — years after Mr. Obama has left the political scene, even if he serves two terms — they start rising again sharply, to more than 5 percent of gross domestic product. His budget draws a picture of a nation that like many American homeowners simply cannot get above water.For Mr. Obama and his successors, the effect of those projections is clear: Unless miraculous growth, or miraculous political compromises, creates some unforeseen change over the next decade, there is virtually no room for new domestic initiatives for Mr. Obama or his successors. Beyond that lies the possibility that the United States could begin to suffer the same disease that has afflicted Japan over the past decade. As debt grew more rapidly than income, that country’s influence around the world eroded.

via News Analysis – A Decade of Enormous Deficits May Alter American Politics and Power – NYTimes.com.

via News Analysis – A Decade of Enormous Deficits May Alter American Politics and Power – NYTimes.com.

Watchdog: Bailouts created more risk in system – Yahoo! Finance

WASHINGTON AP — The governments response to the financial meltdown has made it more likely the United States will face a deeper crisis in the future, an independent watchdog at the Treasury Department warned.The problems that led to the last crisis have not yet been addressed, and in some cases have grown worse, says Neil Barofsky, the special inspector general for the trouble asset relief program, or TARP. The quarterly report to Congress was released Sunday.”Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car,” Barofsky wrote.Since Congress passed $700 billion financial bailout, the remaining institutions considered “too big to fail” have grown larger and failed to restrain the lavish pay for their executives, Barofsky wrote. He said the banks still have an incentive to take on risk because they know the government will save them rather than bring down the financial system.

via Watchdog: Bailouts created more risk in system – Yahoo! Finance.

via Watchdog: Bailouts created more risk in system – Yahoo! Finance.

Mortgage Modifications Are Seen as Adding to Housing Woes – NYTimes.com

Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

“The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”

via Mortgage Modifications Are Seen as Adding to Housing Woes – NYTimes.com.

via Mortgage Modifications Are Seen as Adding to Housing Woes – NYTimes.com.

Chicago Tribune: National debt – National voices – MercedSun-Star.com

Decades or centuries from now, scholars will examine U.S. government documents from our time and notice something strange: In four consecutive years around the close of the 20th century, the federal budget was recorded as having a surplus. That hadn’t happened since 1969, it hasn’t happened since, and the way things are going, it may never happen again.

Recent years have seen the collapse of all federal fiscal discipline. At the end of the 2001 fiscal year, the national debt stood at $5.7 trillion. Today, it’s over $12 trillion. With the population at roughly 300 million, your share is, oh, about $40,000. And you ain’t seen nothin’ yet. In the next decade, according to the Obama administration’s own estimates, Washington will pile up another $9 trillion in deficits. …

It’s a crisis that grew gradually for years and is now growing rapidly. It’s one that will force Americans to choose between getting our fiscal house in order or inviting an economic decline of the sort we associate with banana republics. And it’s one that demands action sooner rather than later.

via Chicago Tribune: National debt – National voices – MercedSun-Star.com.

via Chicago Tribune: National debt – National voices – MercedSun-Star.com.

Avoiding another Dubai – INSIDE JoongAng Daily

Sobering statistics…

<p>Government debt is currently piling up around the world. That’s usually considered a postwar situation. The reason for the increase in national debt is that governments are increasing their financial investments to overcome the economic crisis and using public funds to nationalize insolvent finance institutions. Some even say that last year’s financial crisis has now become an economic crisis – the two are similar in terms but the problems are different in structure.</p>

<p>The public debt of the United States, calculated as a percentage of its annual gross domestic product, was 30 percent in the early 1990s. Currently, however, the percentage is hovering around 50. The White House anticipates the ratio will exceed 100 percent by 2019, which means the United States will have to spend more than 20 percent of its annual budget on its national debt should the current zero interest rate rise to the 3 percent level.</p>

<p>via <a href=”http://joongangdaily.joins.com/article/view.asp?aid=2913260&#8243; mce_href=”http://joongangdaily.joins.com/article/view.asp?aid=2913260″>Avoiding another Dubai – INSIDE JoongAng Daily</a>.</p>

via Avoiding another Dubai – INSIDE JoongAng Daily.