Go to PDF Version | Go to Recent Issues
To save time in the future, you may select one of the preferences below. You may update your eIBD preferences at any time by going into My IBD and selecting Update Your eIBD Preferences.
Set Web-Based Version as Default Set PDF Version as Default Set Recent Issues as Default
Get QuoteSearch Site
Daily Graphs Online
View Enlarged Image
Fiscal retrenchment is like driving up a steep, muddy hill in a downpour. If the economy moves too slowly, it might lose traction or even start backsliding as more debt accumulates.
Now, as the fiscal climb begins unless Congress prolongs stimulus and tax cuts the apparent economic downshift could make budget progress difficult.
The White House's Office of Management and Budget sees 4% average real GDP growth from 2011 to 2014. But if growth is 3%, OMB says deficits would be $2 trillion higher through 2020 than the $8.5 trillion under its baseline scenario.
A one-percentage-point shortfall in growth each year from 2010 to 2020 would raise deficits by $3.1 trillion.
Instead of a debt-to-GDP ratio of 77% in 2020, as OMB projects, the latter scenario of persistently slower growth would push that to 99%.
That slower growth scenario assumes the stimulus unwinds and the White House's budget prescriptions are on schedule. Proposed tax hikes on higher earners, corporations and the middle class with the phasing out of President Obama's Making Work Pay $400 tax credit would amount to $1 trillion the first five years, reaching $285 billion in 2015.
Even so, slower growth would have a much larger deficit impact than delaying big tax increases for a couple of years.
University of California, Berkeley, economist Alan Auerbach argues that debt levels are still manageable enough that it makes sense to give the economy more running room to solidify the recovery before embracing austerity.
"I think the best strategy which is not one that is politically likely is to not worry so much about the short-term debt accumulation but to take very forceful action" to address long-term deficits tied to health care spending and Social Security, Auerbach said.
The risk, said former Congressional Budget Office director Rudy Penner, is that a "dysfunctional" Congress will delay action on that longer-term problem and foreigners will begin to shun Treasuries, or at least demand a premium.
A one-percentage-point hike in real interest rates from 2010-20 would raise projected deficits by $845 billion, OMB estimates.
Another downside fiscal risk is that neither OMB nor the CBO tries to predict future recessions .
After the U.S. returns to full employment a 5.2% jobless rate in 2018 OMB projects steady, if unspectacular, 2.5% growth.
Lakshman Achuthan, managing director of the Economic Cycle Research Institute, argues that the economy has evolved in ways that haven't been built into the budget crunchers' models.
Tom Gallup of Redfield, S.D., voted for Democratic Rep. Stephanie Herseth-Sandlin in 2008. But this year he is undecided. "I thought (Herseth-Sandlin) would do a better job than she has done," he said. Herseth-Sandlin, a three-term House member, is known as a more moderate Blue Dog Democrat. Like ...
Democrats have radically scaled backed their hopes for a comprehensive greenhouse gas bill, to the point where it is iffy that the legislation will limit emissions at all. In fact, the tide has rolled so far against their efforts that they are now mulling requests from utilities for regulatory ...
It's been a hot summer in Washington, D.C., but the forecast for President Obama and Democrats is dark, overcast and chilly , according to July's IBD/TIPP poll. Only 43% of likely voters say they want the Democrats to retain control of Congress after November's midterm elections, while 48% favor a ...
The Obama administration followed through Tuesday on a threat to sue Arizona over its new immigration enforcement law, waging a high-stakes gamble on one of the most divisive issues of the upcoming congressional elections. Immigrant rights groups, courted by many Democratic candidates, despise the ...
President Obama pushed again for a comprehensive immigration reform bill Thursday but acknowledged that Congress is unlikely to tackle the controversial issue. Critics said his address at a naturalization ceremony at American University in Washington included no new proposals or ideas and was ...
Posted By: GLOBE TRADER(105) on 7/19/2010 | 9:49 PM ET
Can you hear the helicopters..??
To participate in Community areas, please Sign In or Register
Don't trade based solely on IBD's ratings.
Get QuoteSearch Site