GOP Moves to Suspend Debt Ceiling Until May

Alan Simpson - Caricature (Photo credit: DonkeyHotey)

House Speaker John Boehner indicated Tuesday that Republicans will vote on an extension of the federal debt ceiling to allow Treasury to borrow money until mid-May. The move would reverse the order of a series of expected debt and spending fights in Washington, an effort designed to put the GOP on more sound political footing.

The Speaker said the measure would be tied to a provision that would suspend the pay of lawmakers if they do not agree to a budget by April 15th. A vote is expected Wednesday.

"I think the American people understand that you can't continue to spend money that you don't have," Boehner said.

At the White House, spokesman Jay Carney indicated the president would likely sign the measure if the Congress passes it. "The House Republicans made a decision to back away from the kind of brinksmanship that was very concerning to the markets, very concerning to business, very concerning to the American people," Carney said. Read more >>

US deficit on track to exceed $1 trillion for 4th straight year

The U.S. budget deficit grew by nearly $60 billion in June, remaining on track to exceed $1 trillion for the fourth straight year. Through the first nine months of the budget year, the federal deficit totaled $904.2 billion, the Treasury Department reported Thursday. President Barack Obama is almost certain to face re-election having run trillion-dollar-plus deficits in each his first four years in office. That would likely benefit his opponent, GOP presumptive nominee Mitt Romney.

Obama and congressional Republicans remain at odds over how to lower the deficit. Unless their disagreement is broken, a series of tax increases and spending cuts could kick in next year. Economists warn that could dramatically slow an already weak U.S. economy and even tip it back into a recession. The Congressional Budget Office predicts the deficit for the full year, which ends on Sept. 30, will total $1.17 trillion. That would be a slight improvement from the $1.3 trillion deficit recorded in 2011, but still greater than any deficit before Obama took office.

One positive sign this year is the deficit is growing more slowly than last year. In June it was 6.8 percent behind the pace for the same period in budget year 2011. And a key reason for that is that revenues are up 5.2 percent this year, while spending is down by 0.9 percent. But the modest improvement has not cooled the budget debate in Washington. Read more >>

Jim Rogers: U.S. doesn't deserve AA+ credit rating, much less triple-A

Image via WikipediaThe U.S. doesn't deserve a AA-plus credit rating, much less triple-A, commodity bull and noted investor Jim Rogers told CNBC on Monday.

Rogers said the country was unlikely to be able to pay off its debt and Standard and Poor's rating cut had come too late and should have happened long ago.

"It seems to me it's physically, humanly impossible for the U.S. to ever pay off its debt," Rogers said. "They can roll it over and continue to play the charade, but the U.S. is bankrupt."

Rogers’ comments came during a CNBC interview with the head of sovereign ratings at Standard and Poor's, David Beers.

Beers said that according to S&P's calculations, total U.S. public debt, which includes local, state and federal government debt, will be $11 trillion this year, and will rise to $14 trillion in 2015 and to $20 trillion by 2021.

To put those numbers into perspective, according to the U.S. government's Bureau of Economic Analysis, U.S. annual gross domestic product (GDP) totaled $15 trillion in the second quarter of 2011. More...

US Default Inevitable

A U.S. default isn't a matter of "if" but "when," David Murrin, chief investment officer at Emergent Asset Management, told CNBC.

"It's inevitable that the U.S. will default—it's essentially an empire which is overextended and in decline—and that its financial system will go with it," he said.

The question is: Does the U.S. default when it is forced to by the outside world, probably the Chinese, or does it take the option to default on its own terms in such a way that it may have a strategic advantage, Murrin said.

Republicans and Democrats are currently locked in a debate on how to cut the U.S. budget deficit, and on whether the $14.3 trillion debt ceiling should be raised. Both parties need to come to a consensus by Aug. 2, otherwise the country will be in a state of technical default.

In his book "Breaking the Code of History," Murrin argues that the balance of power has shifted away from the West, with America as the superpower, towards the East, led by China.

He believes the U.S. cannot afford to compete with the rise of Eastern powers. More...

8 in 10 Americans: Economy is in poor shape

Image by DonkeyHotey via FlickrMore than 80% of Americans surveyed say the economy is in poor shape, with unemployment still the public's top concern, according to the latest CNN/Opinion Research Corporation survey.

Not everyone is down in the dumps. Seventeen percent of Americans say the economy is somewhat good. Only 1% say the economy is very good.

And that's pretty much the same way Americans have answered since Sept. 2008, on the eve of President Obama's election.

The reason for the dour outlook? Thirty-eight percent of respondents cited unemployment as the most important economic issue facing the country. The federal budget deficit was the second most popular answer, with 28%.

Rising gas prices (21%), mortgage and housing costs (6%) and taxes (4%) round out the top five concerns. More...

5 Reasons The GDP Jump is Bull$shit

Brian Sullivan

GDP last quarter grew 3.5%, more than the consensus estimate of economists. That's good. Any positive GDP print is better than a continued drop in the economy.

Before we break out the party hats, keep in mind a few key points that may make that 3.5% gain much less than the headlines suggest:

1. Dollar-for-dollar we're losing money. Instead of thinking in percentage terms, think of GDP in dollar terms. The 3.5% growth is from a jump in total seasonally-adjusted output from $12.901 trillion dollars in 2Q to $13,014 trillion last quarter. In other words, the economy added approximately $112 billion dollars in output quarter-over-quarter. Yet we have spent $173 billion worth of the $787 billion dollar stimulus plan so far.

In other words, the stimulus plan is 'returning' just 65-cents for every dollar spent.

Factor in future interest on the stimulus debt or the reduced buying power of a dollar once the money-printing stokes inflation and that 'return' may fall even more.

As FTN Financial economist Chris Low states in a note to clients this morning, "the economy is entirely dependent on federal deficit spending at the moment." Government consumption rose 2.3% with non-defense spending increasing 6.8%. Non-defense spending has risen on average about 3.5% per year over the past decade, so this near doubling of the 10 year average shows that spending from the stimulus plan is a big part of the increase. Financing growth today at the expense of greater debt tomorrow is a slippery slope. If one borrows $100 dollars today at 4% interest and has (like most government bonds) a 10 year loan, we may have 'gained' $100 today for immediate needs but will end up paying $140 over the length of the loan.

There is still much time - and hundreds of billions in stimulus left to spend - for Americans to see a better return on their investment. But let's hope that future spending results in a better 'return' on our stimulus investment than 65-cents on the dollar.

2. The job market remains weak. Unemployment claims came in at 530,000 last week. Worse, as Miller Tabak's Dan Greenhaus points out, revisions to prior data means the total number of people filing for some form of continued unemployment insurance rose above 10,000,000 for the first time ever during the week of October 3rd. While fewer people may be losing their jobs, America isn't adding jobs either. Everything is about jobs. Unless the unemployed can find work and those working feel more secure in their jobs, we are unlikely to see any sustained recovery. 10 million people collecting unemployment insurance is a huge drag on state and local budgets. The President admitted today that job recovery will be slow, but the growth better occur soon or the benefits to those 10 million out of work Americans will soon drain and require the government to print or borrow more money to fill the hole.

3. Consumption is up, but much was driven by temporary incentives. Personal consumption rose 3.4% last quarter, with durables posting a massive 22.3% jump. Durables are the big ticket items (cars, etc) that have largely been driven by artificial incentives to spend. Cash for Clunkers, tax credits for energy efficient appliances and other temporary programs drove consumers into showrooms. More succinctly, of the $112 billion increase in seasonally-adjusted GDP, $36.2 billion of that - or about 1/3rd - was auto sales.Those programs, while helpful to car dealers and appliance stores, are not only temporary but there are many, such as auto sales analysis firm Edmunds.com, who estimate that programs like 'C4C' end up costing taxpayers more than they bring to the economy. The idea being that the credits do not result in 'new' money being created, but are rather a transfer to certain consumers' pockets from a growing American federal debt load that ultimately must be paid back or continually refinanced through more debt sales. What happens to consumption and sales when the incentives end remains a huge unanswered question.

4. Housing helps but can it last? The whopper in the GDP was residential spending activity, which rose 23.4% and adding more than a half-percent to GDP after being a drag for nearly three years. That's good news, but like the example of consumer durables above, one wonders if we are growing now at the expense of an economic drag later. The National Association of Realtors argues that nearly half of the jump in home sales this year was directly attributable to the tax credit. Also recall that the National Association of Home Builders, a group which ostensibly supports any program that helps sell homes, has itself estimated that if the home buyer tax credit is extended through November 2010, would cost about $30 billion in lost tax receipts while generating tax revenues for federal, state and local governments of $11.6 billion. That's a spend of nearly three dollars for every dollar raised. So while the tax credits are great for buyers, realtors and others in and around the housing market, it is money that is coming at the expense of greater long-term federal deficits.

5. The weaker dollar isn't doing what we keep hearing it's supposed to do. We are told over and over by proponents of a weaker U.S. dollar that it's good for America because it will help companies here sell their goods around the world. I have often argued this is a fallacy for two reasons: 1) when the dollar falls, other countries can borrow dollars and more cheaply finance capital projects in their own country, and 2) the Chinese yuan is pegged to our dollar and as we fall, the yuan falls, resulting in a similar net difference in currency valuations and maintaining China's massive labor cost advantage. The GDP report seems to confirm that view, as imports actually grew faster than exports, meaning more non-U.S. goods are flowing into America than the other way around.