How about a stress test for the federal budget?
The government did a stress test of capital adequacy of the banks and determined that the largest institutions need about $75 billion in additional capital. The stress test assumes potentially tough economic conditions in the US going forward. NYT:
Under the worst-case assumptions — an unemployment rate of 10.3 percent next year, an economic contraction of 3.3 percent this year and a 22 percent further decline in housing prices — the losses by the 19 banks could total $600 billion this year and next, or 9.1 percent of the banks’ total loans, regulators concluded. That rate of loss would be higher than any other since 1921. But while the adverse situation was supposed to be unlikely, it is not that much worse than what has happened so far. Unemployment hit 8.5 percent in April and could top 9 percent as early as Friday, when the Labor Department releases its employment report for May.
The Obama administration has introduced a gargantuan three and a half trillion dollar budget (with a little comic relief of late — teeny tiny budget reductions for the adoring media to praise). The budget plan produces outrageous deficits, that even taxing the rich at 100% will not cure. The bill for this orgy of spending will be passed on to a bunch of chumps, whom we in America call “children.” The Obama administration is robbing from the future to pay for the present on a scale unprecedented in US history.
Perhaps the greatest outrage is the overt dishonesty of it all — these huge budget deficits are based on an impossibly rosy scenario of tremendous growth in the economy, an assumption that is totally inconsistent with that of the stress tests. In all likelihood the projected growth in 2010 is a pipe dream, and the actual deficits will be far worse than anticipated. Modesty and shame have disappeared from the American political lexicon (if they ever were there to begin with).
Perhaps the administration should apply the bank stress test scenarios to its own budget — the result of which should be a reduction in the crazy level of spending and borrowing envisioned by the Obama administration. Alas, we’re all going to learn yet once more that you can’t repeal the laws of economics with champagne wishes and caviar dreams. Whether the American people come to their senses after this period of utopian delusion is unknown at this time.
May 9th, 2009 at 12:37 am
The American people will eventually come to their senses, when they start to long for the “good old days” when George W Bush was president.
We’re just beginning the Obama administration. The bills for the reckless spending are not yet due, and some are still willing to lend to this government. This is not sustainable, cannot be paid for by the rich, and will be repaid. That leaves tax increases or inflation or both as the options, any of which will be painful. This is, needless to say, before any “cap and trade” tax increase on energy prices. When the misery index gets high enough, hope and change will morph into disillusionment and disengagement.
Of course, we will never get back to where we were, short of revolution.
May 10th, 2009 at 12:09 am
Obama is counting on petrodollars to buy US bonds. Take a look at the demographics in the Petro countries. There is a budding social policy funding problem that will likely manifest itself once the flow of oil starts to reduce. Below is a link to Saudi Arabia. Once can also look at Indonesia.
I suspect we may be looking at the various middle east petro societies transforming over time from a Saudi Arabian type model, to an Indonesian/Iranian/Pakistanian model to possibly a Palestinian model.
The bottom line is that Obama will have a very difficult time selling US bonds. These petro-countries cannot afford to lose foreign reserves as they have funding pressures at home.
Here is the link to the Saudi Arabian demographics. Look at the Population Pyramid graph
http://en.wikipedia.org/wiki/Demographics_of_Saudi_Arabia