budget-deficits

State, Local Governments Cut Jobs At Accelerated Pace In February

by on March 5, 2011

Huffington Post…

State and local governments, aiming to reduce their budget deficits, cut jobs at an accelerating pace in February.

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State, Local Governments Cut Jobs At Accelerated Pace In February

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State Budget Woes Unlikely To Be Fixed In Washington

by The Huffington Post on February 28, 2011

Huffington Post…

Even as widening state budget deficits are becoming a potential stumbling block for economic recovery, Federal assistance seems unlikely. With Washington lawmakers focused on getting the Federal budget in order, the prospect of aid for struggling states has all but left the conversation, the Washington Post reports. States and local governments face a fiscal crisis, experts say, since the Great Recession withered their revenue. Finding it increasingly difficult to meet their basic obligations, governments across the nation have had to lay off thousands of workers and will likely have to lay off many more, just to keep their fiscal houses in order. With the unemployment rate around 9 percent, the economic recovery remains fragile. State budget cuts could make the situation worse, the Associated Press reported. As governments cut spending on education, jobs and safety net programs, average Americans, who are already contending with rising fuel prices , could see their economic situation worsen. The present state budget dilemma would likely be far more severe without the Federal dollars that are currently propping up state budgets. As part of the stimulus package, states received Federal money to compensate for weakened revenue streams. Currently, that assistance covers about a third of state budget shortfalls, according to a recent report from the Center on Budget and Policy Priorities . Federal assistance is quickly running dry. Next fiscal year, a total of about $6 billion will remain. State budget deficits will have grown to a combined $125 billion, according to the report. As spending outpaces revenue, states have few solutions. State tax collection is currently 12 percent below pre-recession levels, according to another report from the Center on Budget and Policy Priorities. As the appetite for tax hikes remains virtually non-existent, savings will come from the other side of the ledger. Already, states have cut 400,000 workers since 2008, the Washington Post notes. If they were to balance their budgets solely by laying off employees, another 850,000 workers would be dismissed. State pain impacts budget troubles on the municipal level. Newark, New Jersey, for instance, has seen aid from the state drop by 40 percent between 2008 and 2010. As a result, Newark has had to make some difficult cuts, including laying off 13 percent of its police force. New Jersey is expected to have a budget shortfall equal to about 37.4 percent of its current budget, according to the Center on Budget and Policy Priorities. Other states face bigger deficits: Illinois’ projected shortfall is 44.9 percent of its current budget. Nevada’s is 45.2 percent. Federal lawmakers deprived states of one potential source of revenue when they allowed the Build America Bonds program — which used Federal money to make it cheaper for states to borrow money — to expire in December.

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Video: Rendell Says `No Need’ to End Collective Bargaining

February 25, 2011

Feb. 25 (Bloomberg) — Former Pennsylvania Governor Edward Rendell talks about the challenge of cutting expenses and raising revenue to close government budget deficits at the state level, and the importance of collective bargaining and unions to the U.S. middle class. Wisconsin’s Assembly passed Governor Scott Walker’s limits on the collective-bargaining power of government workers’ unions, ending a debate that began Feb. 22, while Senate Democrats remained out of state to block the bill. Rendell speaks with Matt Miller and Carol Massar on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

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Bernanke To Congress: The Economy Needs You To Keep Spending

July 21, 2010

Federal Reserve Chairman Ben Bernanke reiterated Wednesday his belief that Congress should continue to prop up the sputtering economy, casting aside concerns that federal budget should trump the economy’s need for additional stimulus. In other words, Congress should spend now and worry about deficits later. “At the current moment the large deficits, as unattractive as they are, are important for supporting economic activity,” the nation’s central banker told a Senate panel , citing “weak” private spending and a “great deal of excess capacity.” Bernanke added that he’d be “reluctant to withdraw that support too precipitously in the near term.” His comments strongly echoed remarks he made in June . The debate over budget deficits versus stimulus spending has gripped the nation’s capital as the economy, though technically in recovery , continues to exhibit negative trends. For one, the national unemployment rate is essentially unchanged from June 2009. At 9.5 percent, it’s fluctuated in the intervening year, rising to 10.1 percent in October before dropping back down last month. About half of the nation’s unemployed workers have been jobless for at least six months. In addition, foreclosures continue to mount. Consumers continue to hold back on spending. Credit is tight. And banks and corporations are sitting on record amounts of cash, worried about expansion during a time of such great uncertainty. Left-leaning Democrats in Congress want to keep their foot on the pedal, pumping money into the economy to make up for the lack of private demand. Moderates and Republicans are more cautious, warning about unsustainable budget deficits and the mounting national debt. The total outstanding pubic debt was at $13.2 trillion as of Tuesday, Treasury Department data show. President Barack Obama’s 2011 budget forecasts a $1.6 trillion hole, or about 10.6 percent of the nation’s total output, a post-World War II high. Bernanke said there’s a time to worry about that — but it’s not now. Policymakers must “maintain some fiscal support for the economy in the near term,” he said. Over the “medium term,” though, policymaker must present “credible” plans and pay “serious attention to addressing fiscal issues” in order to maintain the confidence of the financial markets. When the U.S. government spends more than it generates, it generally has to sell debt (though the Fed could also just print more money). Buyers of that debt expect a rate of return. Investors were demanding 2.99 percent interest from the U.S. government in order to buy 10-year Treasury bonds as of Monday, a level near historic lows, Treasury data show. Ten years ago, investors demanded double that rate. But, key to keeping the government’s borrowing costs low is maintaining the confidence of the markets. Bernanke warned Wednesday that if policymakers don’t get serious about reducing the annual budget deficits, they’d risk a “loss of confidence.” It’s “very important to demonstrate as best we can we are serious about addressing long-term issues,” Bernanke said in response to a question by Alabama Senator Richard Shelby, the Banking Committee’s top Republican. The nation’s fiscal path is “unsustainable,” Bernanke warned, and that view is “widely shared.” A loss of confidence in America’s fiscal well-being could lead investors to demand higher rates of return in order to buy Treasuries, which would drive up the government’s borrowing costs. Funds for government programs would instead be diverted to bondholders. Social programs, military spending and the like would suffer.

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ECB’s Honohan Welcomes Government Bond Purchases as `Important’ New Tool

May 31, 2010

By Simone Meier May 31 (Bloomberg) — European Central Bank council member Patrick Honohan welcomed the bank’s government bond purchases as an “important” new weapon in its armory and said any risks associated with the policy are being managed. “This has been an important extension, a use of tools that haven’t been used before,” Honohan, who is also head of Ireland’s central bank, said in an interview in his office in Dublin on May 28. The decision “was exactly the right kind of prompt initiative” needed, he said. The ECB’s asset purchases are part of a European bid to rescue the euro after budget blowouts in Greece, Portugal, Spain and Ireland triggered a sovereign debt crisis. Not all of the central bank’s 22 policy makers support the bond program, with Germany’s Axel Weber openly criticizing the move for its inherent “stability risks.” Honohan, 60, who joined the ECB’s Governing Council in October last year, said he’s “solidly behind” the decision to buy assets. “It’s not in the normal course of the ECB’s traditional approach to a toolbox, but it’s not outside the range of the toolbox of standard central banking around the world in history,” he said. Budget Deficits “There’s obviously a divide within the council,” said Karsten Junius , a senior economist at Dekabank in Frankfurt. “It’s controversial because they’re not sure how to get out of it and it’s not clear where it’s going. Still, we don’t know whether risks would have been even bigger without the program.” Ireland’s budget gap widened to 14.3 percent of gross domestic product last year, more than four times the European Union limit. Germany’s was 3.3 percent. The yield premium investors demand to buy Irish debt over comparable German bonds, the European benchmark, was at 215 basis points today. It widened to 306 basis points before the ECB announced its bond- purchase plan on May 10. The ECB’s announcement came hours after European leaders unveiled a 750 billion-euro rescue package to contain the fiscal crisis. While the ECB says its aim is to restore normal functioning on markets, the purchases have exposed it to claims it is financing profligate nations at the behest of governments. The program entails “stability risks” and “must be precisely targeted and limited,” Weber, who heads Germany’s Bundesbank, said earlier today. ‘Very Effective’ The ECB bought 35 billion euros ($43 billion) of bonds in the first three weeks of the program. It is countering the effect on money supply by draining the same amount of liquidity through one-week deposits from banks. “It’s a very effective way of ensuring that it doesn’t leak over and have an impact on overall average liquidity conditions,” said Honohan, previously an economics professor. He declined to say whether the ECB has already started purchasing private-sector debt or whether there’s a timeframe for the bond program. “We can consider it on an ongoing basis,” he said. “It’s been operated in a very professional, effective way.” As the mounting debt crisis undermines confidence and forces countries to step up spending cuts, threatening growth, economists say they don’t expect the ECB to increase its main interest rate from a record-low 1 percent anytime soon. Goldman Sachs Group Inc. on May 24 pushed back its forecast for the first increase to the second quarter of 2011 from the first. Euro Area ‘Safe’ “It seems to me that the current stance of interest rates can hardly be questioned,” Honohan said. “The events over the last couple of weeks have not brought forward the likely increase. It’s not surprising that markets would react in this way and I suppose without necessarily endorsing exactly what the market is doing, one has to be realistic.” Honohan also said the euro area is “safe” and he expects it to continue to expand. “I don’t have any doubt in my mind that the euro and the euro area are permanent features of the landscape,” he said. There have been “pressures” on markets, “but not in a way that makes any difference to my firm opinion that the euro will continue to have an even growing membership of countries.” So far, investors seem unconvinced by the efforts of the ECB and European governments. The euro has slumped 14 percent against the dollar this year on concern rising budget deficits will lead to a default by a euro-area nation and a possible breakup of the single currency union. “Restoring market confidence in the solidity of governments’ finances is absolutely crucial,” Honohan said. “Doomsday discussions are actually beside the point because governments have committed themselves to viable fiscal plans.” The ECB will hold its next rate decision on June 10 in Frankfurt. The central bank that day will also publish its latest economic forecasts. To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net

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Geithner Says European Leaders Are Acting to Revamp `Unsustainable System’

May 25, 2010

By Rebecca Christie May 25 (Bloomberg) — U.S. Treasury Secretary Timothy F. Geithner said Europe needs to revamp its fiscal policies to avoid crises like the one triggered by Greece’s budget woes. European leaders face “the difficult challenge of trying to restore sustainability to an unsustainable system,” Geithner told a group of mid-career Chinese government officials in Beijing today. He said the European Union launched its common currency with a budgeting framework that put restraints on borrowing without tools needed to deal with country-specific imbalances. “Europe’s leaders recognize that and now are acting forcefully to put strong reforms in place,” Geithner told about 30 students at the Central Party School, an advanced training facility in Beijing for government officials from other parts of China. One of the officials at the school asked Geithner whether the Securities and Exchange Commission’s probe of Goldman Sachs Group Inc. had the potential to hurt market stability. The Treasury chief declined to comment, instead responding with the broad goals of U.S. efforts to overhaul financial regulation to prevent future crises. Geithner emphasized similarities between U.S. and Chinese policy approaches, such as a tendency to act rather than hold back out of excessive caution. He also affirmed the U.S. pledge to rein in its long-term budget deficits from the $1 trillion- plus annual gaps caused by efforts to fight the global recession and financial-market meltdown. “We have a huge mutual interest in developing a more balanced global economic system,” he said. “That’s the great challenge of our time.” Geithner also said matters like interest rates and foreign-exchange policy ought to be influenced by market conditions. He touched on U.S. priorities such as improving intellectual property protections and making sure the Chinese market is open to U.S. companies. “You want the marketplace to work with you and not against the objective of promoting innovation,” he said. To contact the reporter on this story: Rebecca Christie in Beijing at rchristie4@bloomberg.net ;

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Dollar Closes in on 12-Month Highs Despite Trade and Budget Deficits as Risk Appetite Fades

May 13, 2010

Dollar Closes in on 12-Month Highs Despite Trade and Budget Deficits as Risk Appetite Fades

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Japan Stocks Fall, Sending Nikkei Down 10% From January Peak; Nikon Drops

February 8, 2010

By Masaki Kondo Feb. 9 (Bloomberg) — Japanese stocks fell, driving the Nikkei 225 Stock Average down 10 percent from its peak in January, on renewed concern ballooning budget deficits will worsen Europe’s economy. Nikon Corp., a camera maker that gets 25 percent of its sales from Europe, lost 1.9 percent. Toshiba Corp., the nation’s biggest supplier of nuclear reactors, fell 1 percent after the Nikkei newspaper said the company and its partners lost a bid for Vietnam’s power project. Sumitomo Mitsui Financial Group Inc. jumped 1 percent after posting higher-than-estimated earnings. The Nikkei 225 Stock Average declined 0.5 percent to 9,905.57 as of 9:08 a.m. in Tokyo. The broader Topix index fell 0.4 percent to 879.41. The Nikkei opened at 9,876.61, compared with this year’s high of 10,982.10 reached on Jan. 15. A 10 percent decline from a recent peak is a so-called correction. “Investors are concerned budget deficits will trigger a slowdown in Europe’s economy and that will spread worldwide,” said Fumiyuki Nakanishi , a senior strategist at SMBC Friend Securities Co. “People are looking not into earnings but into the global economy and selling Japanese shares. We have no strong catalyst for individual stocks that can resist a decline in the broad market.” Credit-default swaps, or the cost of insuring against losses on sovereign debt, for Spain and Portugal jumped to a record, according to CMA DataVision. Those for Greece also hovered around an all-time high. The costs were driven up amid concern those nations’ governments will not be able to impose spending cuts to reduce budget deficits. To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net .

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Japan Stocks Fall, Sending Nikkei Down 10% From January Peak; Nikon Drops

February 8, 2010

By Masaki Kondo Feb. 9 (Bloomberg) — Japanese stocks fell, driving the Nikkei 225 Stock Average down 10 percent from its peak in January, on renewed concern ballooning budget deficits will worsen Europe’s economy. Nikon Corp., a camera maker that gets 25 percent of its sales from Europe, lost 1.9 percent. Toshiba Corp., the nation’s biggest supplier of nuclear reactors, fell 1 percent after the Nikkei newspaper said the company and its partners lost a bid for Vietnam’s power project. Sumitomo Mitsui Financial Group Inc. jumped 1 percent after posting higher-than-estimated earnings. The Nikkei 225 Stock Average declined 0.5 percent to 9,905.57 as of 9:08 a.m. in Tokyo. The broader Topix index fell 0.4 percent to 879.41. The Nikkei opened at 9,876.61, compared with this year’s high of 10,982.10 reached on Jan. 15. A 10 percent decline from a recent peak is a so-called correction. “Investors are concerned budget deficits will trigger a slowdown in Europe’s economy and that will spread worldwide,” said Fumiyuki Nakanishi , a senior strategist at SMBC Friend Securities Co. “People are looking not into earnings but into the global economy and selling Japanese shares. We have no strong catalyst for individual stocks that can resist a decline in the broad market.” Credit-default swaps, or the cost of insuring against losses on sovereign debt, for Spain and Portugal jumped to a record, according to CMA DataVision. Those for Greece also hovered around an all-time high. The costs were driven up amid concern those nations’ governments will not be able to impose spending cuts to reduce budget deficits. To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net .

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Max Fraad Wolff: New Decade and Decades Old Imbalances

January 7, 2010

As we stride, or stumble, forward into a new decade we are burdened by several significant imbalances inherited from the recent past. These imbalances will be addressed either by policy, or in panicked responses to threatening disasters. One of the most powerful lessons of the last decade is that imbalances left to grow blossom into serious crises. The tech/telecom bubble, the housing debt bubble, growing inequality, health care, the trade deficit, the government budget deficit, industrial policy, environmental policy … The new decade affords an opportunity to screen our baggage and decide what we do and don’t want to bring with us as we travel into the future. Below is a cursory overview of some leading imbalances that can be addressed. The US Trade Balance has been dramatically negative for many decades. Our average annual trade deficits doubled many times across the last 2 decades. In the early years of the new millennium we were importing about $1 billion more than we were exporting in goods and services every single day. By 2008 we were importing more than $2billion more than we were exporting every single day. This is how our trade deficits ballooned from around $100 billion per year in the 1990s to around $700 billion per year by the middle of the last decade. We have been reducing savings, selling assets to and borrowing from the rest of the world at between $1 billion and more than $2 billion every day for over a decade. This is a tremendous imbalance. We are long past the point of pretending this is not influencing our lives, jobs, politics and place in the world. The US Net International Investment Position (NIIP) is another way to measure this process. The NIIP adds up all the foreign assets owned by Americans and subtracts all the American assets owned by foreign interests. It is a measure of how much of the world America owns versus how much of America the world owns. The NIIP was positive until 1986, America owned more of the rest of the world than the rest of the world owned of America. We went negative in 1986 and never looked back. In 1990 our NIIP was negative$225 billions. In 2000 it was negative $1.3 trillion. As we started 2009, the NIIP is a negative $3.5 trillion. Government Budget Deficits have been large and growing for many decades. The chart below is taken from the Congressional Budget Office (CBO) and is worth trillions of words and Dollars as an image. This is not a rant against the government or an indictment of aid programs. It is high time we moved away from ideological generalities about “the government.” As soon as we reground debate it will be clear that we simply cannot spend at the present levels indefinitely without raising revenues and cutting costs. Government deficit spending can be an essential tool to get out of recession driven by large and sudden declines in private economic activity. Perpetual and massive budget deficits are another story. Rising inequality has been with us since the mid 1970s. For the better part of the last 4 decades we have seen a nearly constant rise in inequality. One in eight American adults and nearly one in four American children relay on food stamps at some point in the year. The US Census reported in 2008 that the number of Americans in poverty has jumped in the present recession. 40 million Americans, nearly 14% of the total population, live at or under the very, very low Federal poverty level. Over 50 million Americans, nearly 18% of the US population, live in households that earn less than 125% of the poverty income level. Real median US household has not risen since the late 1990s. The US Census tells us that the middle 20% of Americans took home 17% of the nation’s income in 1974 and 14% of the nation’s income in 2008. The wealthiest 20% of Americans took home 43% of the nation’s income in 1974 and 50% of the nation’s income in 2008. The poorest 20% of Americans were struggling to get by on 4.3% of the nation’s private income in 1974; today they have 3.4% to work with. The wealthiest 1 on five Americans takes home 14.7 times the share of income taken home by the poorest 1 in 5 Americans. This list could be extended and future articles will take up some of the imbalances left out here. The above three central imbalances will define and reduce our prosperity if we do not begin to confront and respond to them. All of these imbalances figured into the last 10 years being the first to see no increase in wages, stock market performance or prosperity in America. We can’t afford another lost decade. The new decade and easing of the downturn’s speed and ferocity offer as good an opportunity as we are likely to see. 2007-2009 taught us a harsh lesson in what happens when structural economic problems are ignored.

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EU faces soaring budget deficits in 2010

January 3, 2010

EU faces soaring budget deficits in 2010

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Deterioration Slows in U.S. States’ Tax Collections: Chart of the Day

December 8, 2009

By Pete Young Dec. 8 (Bloomberg) — A slowdown in the deterioration of tax collections may make it easier for U.S. states to close $350 billion in budget deficits forecast in the next two years. The CHART OF THE DAY shows taxes for 44 states declined at a slower rate in the third quarter, the best performance in six months, according to data from the Rockefeller Institute of Government in Albany, New York. The gap between state revenue and spending will widen to $350 billion in the next two years, the Center on Budget and Policy Priorities said last month. More than 40 states have cut spending, and more than 30 increased taxes or fees, the Washington-based center said. “The worst is hopefully behind us,” Lucy Dadayan , a senior policy analyst who co-wrote the Rockefeller report with Donald Boyd , said in an interview. “If you’re comparing to last year, yes, it’s going to be better, but if you’re comparing to pre-recession, it’s still bad.” Third-quarter tax collections slid 10.7 percent to $119.7 billion compared with a year earlier, after falling 16.6 percent in the second quarter. Personal income tax collections, which fell 27.5 percent in the second quarter from a year earlier, lost 11.4 percent in the third quarter. Sales taxes, down 9.5 percent in the second quarter, were off 8.2 percent in the third. To contact the reporter on this story: Pete Young in New York at pyoung13@bloomberg.net .

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Video: Ahamed Says High Unemployment May Provoke Nationalism: Video

November 13, 2009

Nov. 13 (Bloomberg) — Liaquat Ahamed, author of “Lords of Finance,” talks with Bloomberg’s Carol Massar and Erik Schatzker about the potential for rising unemployment to foster “the worst sort of populism and nationalism.” Ahamed, speaking from Washington, also compares the current financial crisis to the Great Depression and discusses the implications of budget deficits for economic recovery. “Lords of Finance” won the Financial Times and Goldman Sachs Business Book of the Year Award book last month. (Source: Bloomberg)

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Geithner Says Strong Dollar `Important,’ Pledges to Maintain Confidence

October 3, 2009

By Rebecca Christie Oct. 3 (Bloomberg) — Treasury Secretary Timothy Geithner said it’s “very important” for the U.S. to have a strong dollar and pledged to preserve its role as world currency. The U.S. will do “everything necessary” to maintain confidence in its currency, he told reporters after attending a meeting of counterparts and central bankers from the Group of Seven in Istanbul. This includes reining in budget deficits over time to put the country on a more “sustainable” path, he said. “It is very important to the United States that we continue to have a strong dollar,” Geithner said. “We recognize that the dollar’s important role in the system conveys special burdens and responsibilities on us and we are going to do everything necessary to make sure we sustain confidence.” The G-7 policy makers met at the end of a week in which officials from France to Canada signaled concern a sliding dollar is threatening to impede their economic recoveries from the deepest global recession since World War II. The dollar has dropped 14 percent against a basket of seven currencies since early March. Geithner pledged that the U.S. would live up to its promises to “bring our broad fiscal imbalances back to a sustainable position” as soon as economic recovery is assured. When asked about the dollar falling as a result of international efforts to reduce global imbalances, Geithner said he wouldn’t go beyond what was in the official G-7 communique. “I carefully crafted a statement on that important issue,” Geithner said. “The important thing is that we want to make sure the world is growing.” To contact the reporter on this story: Rebecca Christie in Istanbul at rchristie4@bloomberg.net

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