U.S. Raises Estimate for 10-Year Deficit to $9 Trillion as Bernanke – Tapped by Obama to Continue as Fed Chairman??

Congressman John Campbell often shares his opinion(s) with his constituents when he believe the President is doing the wrong thing or when he has new information and updates. Here is today’s update:

Bernanke: As readers of this missive know, I frequently voice my opinion when I believe the President is doing the wrong thing.That has been the case with virtually everything he has done thus far. However, when he takes action that I believe to be correct or helpful, I will point that out as well. Such is the case this week when the President announced that he will reappoint Ben Bernanke as Chairman of the Federal Reserve for another 4 year term. This is a hugely important and very positive decision for the following reasons:

1. Independence: The Federal Reserve should make decisions for economic reasons and remain independent of the White House so as not to politicize those decisions. I would say this regardless who the President is. Bernanke is independent and will have been appointed by both Bush and Obama. Replacing him could have sent a sign that the Administration was trying to control the Fed which would have been a terrible message and precedent.

2. Past performance: With the benefit of hindsight, one can criticize some of Bernanke’s moves and statements during his first term. Certainly, he can be criticized for not identifying the depth of last year’s crisis sooner, among other things. But virtually none of us foresaw the severity of the crisis or offered a solution that would have prevented it. Bernanke’s swift and decisive action contributed to saving the economy from what would have been a complete collapse last October. He has done a good job so far and we should let him see the job through back to a normal economy.

3. Continuity: Markets hate uncertainty, this is particularly true now. Continuing Bernanke’s Chairmanship until January 2014 gives the markets some confidence that monetary policy will be consistent and measured towards the Fed’s mission of growth with low inflation.

4. No Debt Monetization: This is probably the single most positive sign from the Bernanke reappointment. The federal debt and deficits are huge, unsustainable, and a major risk to future economic growth. Not to mention, it continues to grow. One way to deal with these problems is to “monetize” the debt. That means that the Fed would print money and buy all the new debt issues from the Treasury rather than sell them in the marketplace. Whenever any government has done this on any meaningful scale, it has resulted in uncontrolled inflation and a precipitous decline in the value of the currency. Bernanke has been clear that he thinks this is disastrous economic policy, and he is entirely correct. But it can be a politically easy way out of the mess without raising taxes or cutting spending. But it can’t be accomplished without the Fed Chairman’s 'OK.' Make no mistake; the debt/deficit is still a huge problem. But by reappointing Chairman Bernanke, one of the worst ways to deal with it appears to be off the table. I would also argue that without debt monetization, future inflation prospects are muted somewhat.

I remain respectfully,

Congressman John Campbell
Member of Congress

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By EDMUND L. ANDREWS – L.A. Times

Published: August 25, 2009

WASHINGTON — The Obama administration, citing an economic downturn that has been deeper than it had first thought, raised its estimate on Tuesday of the government’s deficit over the next decade to $9 trillion from $7.1 trillion.

The Office of Management and Budget also said that it expected the economy to contract 2.8 percent this year, substantially more than previously estimated, and that unemployment would peak at around 10 percent.

Even as the new projections cast a shadow over efforts in Washington to steer a middle course between rekindling inflation with too much fiscal and monetary stimulus or risking another recession with too little, President Obama announced that he would nominate Ben S. Bernanke to another four-year term as Fed chairman.

The announcement was made by Mr. Obama while on vacation on the island of Martha’s Vineyard, Massachusetts. It was aimed at maintaining an air of stability in the financial markets as the United States moved toward a recovery credited in part to unprecedented actions by the Fed to help avoid an even worse disaster.

“As an expert on the causes of the Great Depression, I’m sure Ben never imagined that he would be part of a team responsible for preventing another,” Mr. Obama said at a news conference also attended by Mr. Bernanke. “But because of his background, his temperament, his courage, and his creativity, that’s exactly what he has helped to achieve.”

On Wall Street, stocks moved higher in afternoon trading, bolstered not only by the news of Mr. Bernanke’s reappointment, but also by the release of the Case-Shiller home price index, compiled by Standard & Poor’s, which showed that home prices in 18 of 20 top U.S. metropolitan areas were beginning to inch up and new figures showing that consumer confidence had bounded back in August after slipping in July. A Conference Board survey of consumers found that fewer people said that business conditions were bad, and that consumers detected some hints of thaw in the job market.

Despite the budget shortfall, White House officials said they saw no reason to back away from President Obama’s ambitious and costly goal of overhauling the health care system. The new amount includes the cost of the health care overhaul as well as about $600 billion in additional revenue that the administration hopes to raise, two initiatives Congress has yet to approve.

“I know there are going to be some who say that this report proves that we can’t afford health reform,” said Peter R. Orszag, director of the Office of Management and Budget. But he said the opposite was true: the only way to control spiraling Medicare costs, he said, was to get control of overall health care costs by overhauling the system.

“The size of the fiscal gap is precisely why we must enact fiscally well designed health care reform now,” Mr. Orszag said.

Republicans are certain to attack that argument. Indeed, they are already doing so.

Analysts at the Congressional Budget Office put their 10-year deficit estimate slightly lower, at $7.14 trillion, though the agency uses a slightly different method to reach its number. The budget office takes into account only policies already in place, while the administration can consider policies and budget decisions that it hopes to install.

White House officials predicted that the budget deficit this year would peak at $1.58 trillion, though they said the 2009 shortfall would be about $261 billion lower than they had predicted in May. The main reason is that officials have decided that they will not need another round of bailout money for the nation’s banks. The Congressional Budget Official also estimated a deficit this year of about $1.6 trillion.

In the earlier budget forecast, administration officials had created a “placeholder” of $250 billion to cover possible costs of additional bank bailouts. They also assumed higher costs for the Federal Deposit Insurance Corporation’s expansion of deposit insurance and debt guarantees.

Even so, the administration is projecting that annual deficits will remain above $1 trillion through 2011 and will be bigger than any since World War II, even when measured conservatively as a share of the nation’s economic output.

The government’s total debt would roughly triple by 2019, to $17.5 trillion, under the new estimate, almost $2 trillion more than the White House estimated in May. Measured as a share of the nation’s economic output, public debt would hit 76.5 percent of gross domestic product by 2019 — by far the highest percentage in the past half-century — from about 56 percent this fiscal year. This year will be the first time the number has exceeded 50 percent since World War II. The previous estimate was about 67 percent.

The biggest reason for the additional red ink is the administration’s recognition that the recession has been deeper and unemployment has been much higher than White House forecasters assumed in their first budget estimate in May.

The added depth of the downturn is expected to increase payouts for unemployment benefits and other safety-net programs, while reducing tax receipts more than originally expected.

The administration had originally assumed that the economy would shrink 1.2 percent and that unemployment would average about 8.1 percent this year. Instead, the economy is expected to shrink 2.8 percent while unemployment is expected to average 9.3 percent in 2009 and 9.8 percent in 2010. The administration expects growth of 2 percent next year and 3.8 percent in 2011.

In contrast, the Congressional Budget Office expects a 2.5 percent contraction this year, followed by growth of 1.7 percent in 2010 and 3.5 percent in 2011. For the first time, administration officials officially predicted on Tuesday that unemployment would climb above 10 percent by early next year, from 9.4 percent in July.

The costs of the additional unemployment and the slower growth extend beyond the next year or two, not just because the economy will take longer to return to normal but also because the government’s interest expense will be compounding more rapidly.

Mr. Orszag estimated that, by 2019, interest expenses would account for more than 80 percent of the projected deficit of $917 billion.

Without offering any details, the White House budget director said that President Obama would soon unveil plans to reduce long-term deficits tied to soaring costs of Medicare, Social Security and other entitlement programs.

There are only two ways to do that:

1. Finally listen to the American People and Conservatives in Congress and dump Obamacare while over-hauling entitlement programs by attacking Fraud and major Tort Reform

(or)

2. Ration and short-change old people and people with special needs…

For gosh sakes… how long can we really believe that a government who is $2 Trillion off on their debt projection can run anything, let alone efficiently?? Now we should trust them to manage our healthcare, one-sixth of the U.S. Economy…?

Posted: Knowledge Creates Power – Cross Posted: Daily Thought Pad