Congressional Budget Office

$38 Billion In Cuts? Make That $353 Million

Warning: people on blood pressure medication are urged not to read this.

Yesterday the media had a field day when it was uncovered that the hard fought $38 billion in budget "cuts" which almost caused America to shut down were in reality $14 billion. We, thus, can't wait to find out what the response will be when it is uncovered that the actual cuts were... $353 million. Yes: the ongoing functioning of the government was a pawn in a soap opera whose benefit to the US debt is $353 million, or about what Goldman's trading desk makes in less than one day.

IMF Issues Biggest Criticism Of US Policy To Date: Says Treasury Should Put GSE Obligations On Balance Sheet

In another confounding episode of biting the biggest hand that feeds it, the IMF has just issued another criticism of US fiscal policy, and in its just released Global Financial Stability report says that the US should include in its budget the "cost of mortgage loan guarantees and other housing supports." Not only that but the fund also urges that the Treasury should immediately make its support for the GSEs explicit and carry Fannie and Freddie's roughly $7 trillion in debt on the books: a move that would send US debt to well over $20 trillion and make the ratio of marketable debt (the lowest common debt denominator) to GDP well over 100%. To wit: "Government guarantees should be explicit and fully accounted for on the government's balance sheet... There is a need for better-defined and more transparent government
participation in the housing market, with all such policies, including
strict affordable housing goals, transparently shown in the government's
budget." Of course this won't happen for many years as otherwise the US would effectively confirm that it is insolvent per various Reinhart-Rogoff ratios, and instead the administration will continue pushing with its misguided plan of offloading GSE obligations on the balance sheets of private institutions. As if that will change anything: it only means that the next taxpayer funded bailout will save the TBTFs once again, instead of leading to a run on the Treasury. End result: same thing.

Lawrence Kotlikoff - "With The Fiscal Crisis In Spitting Distance Here Is My Proposed Solution"

With everyone offering some version of a US budget, one more ridiculous than the other, one thing is certain: nobody has any clue how to fix America's fiscal catastrophe. And while the biggest soap opera rages in D.C. Larry Kotlikoff, who recently served as the only rational contributor to the just released IMF what paper "An Analysis of U.S. Fiscal and Generational Imbalances: Who Will Pay and How?" summarizes the "progress" so far: "The two parties are having a heated debate over the Republican plan to slice $61 billion off Uncle Sam’s projected $3.6 trillion budget. If the Republicans get their way, the deficit will fall from 9.5 percent of gross domestic product to 9.1 percent. If they don’t, they’ll probably shut the government for a couple of days. Then they’ll compromise on, say, a $40 billion budget cut, having proved they gave it their best shot." And sick of the corrupt petulance in DC, Kotlikoff has decided to propose his own budget. " I launched last week
to solicit endorsements for what I call the Purple Health Plan -
- a proposal that offers common ground to both Republicans and
Democrats. To date, five Nobel laureates in economics, George Akerlof, Edmund Phelps, Thomas Schelling, Vernon Smith and
William Sharpe, have signed on. So have other prominent
economists." We have not read it but fail to see how it can be possibly worse, especially since one Paul Krugman has not endorsed said plan.

CBO Analyzes Ryan Budget Proposal: 2050 Debt/GDP At 10% Versus 344% In Revised Existing Budget... But How?

The Congressional Budget Office has chimed in with a 30 page summary comparing the proposed Ryan budget and two previously analyzed scenarios: scenarios—an extended-baseline scenario based on June 2010-current law and an alternative fiscal scenario that incorporated several changes to then-current law that were widely expected to occur or that would modify some provisions of law that might be difficult to sustain for a long period. In essence these are merely variation on the theme of an Obama budget. Needless to say, the divergences are quite dramatic. Since the Ryan budget is focused on fiscal solvency, it achieves that: indeed, comparing projected 2050 Debt/GDP in the Ryan proposal, the CBO reaches a number of 10%, compared to 90% and 344% for the extended-baseline and the alternative fiscal scenarios. On the other hand, the credibility of the assumptions used to goalseek this outcome remain very much in doubt (much more on these in the CBO analysis below). The massive amount of spending cuts, coupled with some very aggressive revenue postulates, will certainly bring the critics out of the woodwork. It will also mean that with fiscal stimulus essentially curtailed, the only source of incremental economic boosting will be monetary policy, read - the Fed, which is an outcome that Bernanke has vocally warned against, due to his concern of Fed "politicization." Then again, with no other choice, it means that the debauchery of the dollar, since the economy is nowhere near the stage where the morphine can be removed, is about to kick into hyperdrive. In the meantime, here are the CBO summary observations.

Congressional Budget Office Projects $9.5 Trillion In Deficits By 2021, $2.3 Trillion More Than Obama's Estimate

Today the Congressional Budget Office slammed the president's unrealistic budget presented recently, concluding that the cumulative deficit over the decade between 2011-2021 would be $9.5 trillion, or $2.3 trillion higher than that estimated by the White House. The reason for the differences according to the CBO is  "differences in the underlying projections of what would happen under
current law ($1.3 trillion) as well as from differing assessments of the
effects of the President’s proposals ($1.0 trillion)." Then again, as we fail to recall when was the last time even the slightly more realistic CBO predicted a correct cumulative deficit ten years forward, we are fairly certain both will vastly underestimate the actual deficit by 2021. And as gross debt issuance tends to run about 50% over cumulative deficits, Zero Hedge expects that the best case scenario is for $15 trillion in debt issuance over the next 10 years as a baseline, and likely far more (bringing total marketable debt to around $25 trillion by 2021). This is problematic to say the least, because as the AP notes, the White House's goal is to reach a point where the budget is balanced
except for interest payments on the $14 trillion national debt. Such
"primary balance" occurs when the deficit is about 3 percent of the size
of the economy, and economists say deficits of that magnitude are
generally sustainable. Instead, just the interest expense per the CBO will be greater than this threshold: "Outlays would be greater under the President’s budget than in CBO’s baseline in each of the next 10 years, largely because the proposed reduction in revenues would boost deficits and thus the costs of paying interest on the additional debt that would accumulate. In particular, net interest payments would nearly quadruple in nominal dollars (without an adjustment for inflation) over the 2012–2021 period and would increase from 1.7 percent of GDP to 3.9 percent." And once again, this is based on numbers which will likely way undershoot the final outcome.

February $223 Billion Budget Deficit Largest Ever

Well, it's one way to start a deficit cutting scramble. Washington Times reports that the preliminary number for the February deficit, which will formally be released by the FMS shortly, is $223 billion: this is the largest single month deficit in history! So much for prudent budgets and all that. At least the number can only get better from here. Unless, of course, it gets much, much worse, and rates continue creeping higher, resulting in 30% of total revenues being dedicated to paying gross interest, as was previously discussed on Zero Hedge. Then 40%. Then 50%... One gets the picture.

In 2011, Non-farm Payrolls Have To Grow By 121,000 Per Month Just To Keep Up With Population Growth

Until now, in our Non Farm Payroll growth forecasts, Zero Hedge had been using 90,000 as the number of monthly jobs the US should be creating each month just to keep up with population growth. However, per the CBO budget released in January, it may be time to revise this estimate. As the chart below shows, according to the traditionally optimistic Congressional Budget Office, the US has to create 121,000 jobs per month in 2011 just to keep pace with population growth. This number declines modestly over the next several years, but still averages 106,000 per month over the next 5 years. And the kicker is that this number does not account for the 3 million people who are not currently in the workforce that the CBO defines as Potential Workforce. Assuming the inflow of this portion of the population into the workforce over the next three years, it adds an additional 83,000 people that have to be incorporated in the work force. This means that in 2011, in the "best" case scenario, the monthly NFP number has to be over 200,000 before the unemployment rate is reduced by even one basis point excluding the impact of the BLS' favorite trick of fudging the labor force participation rate, which we have discussed extensively in the past.

European Sovereign Debt Crisis Deepening - Risk of Contagion And Bond Market Crash, And Why Rising Rates Mean Gold Strength

There is a real sense of the “calm before the storm” in markets globally. Complacency reigns, despite signs that the sovereign debt crisis in Europe is deepening and that Japanese and US bond markets also look very vulnerable due to rising inflation, very large deficits and massive public debt. US Treasuries have been sold by some of the largest investors (both private and sovereign) in the world recently (see news). These include large creditor nations Russia and China but also PIMCO, the largest bond fund in the world. A global sovereign debt crisis is now quite possible. At the very least, we are likely to have a long period of rising interest rates which will depress economic growth. Contrary to some misguided commentary, rising interest rates will benefit gold as was seen when interest rates rose sharply in the 1970s. It was only towards the end of the interest rate tightening cycle in 1980, when interest rates were higher than inflation, that gold prices began to fall.

Watch Bernanke And Ron Paul In Two Separate Hearings Discuss The Impact Of Monetary Policy On Jobs

Federal Reserve Chairman Rudolph Shalom Von Bernankestein will testify before the House Budget Committee starting at 10 am Eastern today. Congressional employees of the Fed and the Banking syndicate are expected to question the Fed's plans on avoiding inflation and the current unemployment rate. We expect more of the same "QE is working because after spending $2 trillion we got 650,000 part time jobs, and we are certain it is working because rates are surging, and wholesale mortgage are now again at the higest since April, which doesn't make sense but I am a Princeton economist (Ph.D.) and you don't get this complicated stuff."

Richmond Fed's Lacker Says FOMC Should "Seriously" Re-Evaluate QE2

Yesterday Richard Fisher, now it is Jeffrey Lacker's turn to speak out against QE2 and inflation concerns. Just more jawboning or are we actually going to see more dissenting votes finally? Keep in mind Lacker is an alternate member on the FOMC board in year 2011 and is not a voting member. From remarks presented by Lacker to the University of Delaware. "The Committee recognized that the provision of further monetary stimulus at this point in the business cycle is not without risks, and therefore committed to regularly review the pace and overall size of the asset-purchase program in light of incoming information and adjust the program as needed. The distinct improvement in the economic outlook since the program was initiated suggests taking that re-evaluation quite seriously. That re-evaluation will be challenging, because inflation is capable of accelerating, even if the level of economic activity has not yet returned to pre-recession trend."

Is Egypt A Preview of 2015 America?

Love them or hate them, only the most self-deluded can claim that the NIA, and its predictions, have been incorrect so far in this monetary 'printing' cycle. Sure they may have an agenda, and yes, Gen Ben may one day pull his money (if he is willing to see the S&P plunge to 666 and well below, so not really), which would kill all commodities, and certainly gold, in their tracks, but focusing solely on their message will have spared many massive real (not nominal) losses as surging commodity prices dwarf the modest pick up in stocks. Today's note from the NIA, while unpleasant, looks at the disastrous long-term consequences of the Chairman's monetary policy, and concludes rightfully so, that absent a diametric shift, which after today's press meeting may well require a revolution as the creature appears to be well on its way to QE3, 4 and so on, what is happening in Egypt is a preview of what will happen in the US in a few short year. Furthermore, the NIA's prediction that rice is up, up and away is in line with what Zero Hedge has been claiming since October (link). Also as a reminder, and as David Tepper just confirmed today, the realization that Rubber is the third and last R-bubble is starting to percolate...