2008 deficit forecast soars to $407B – Sep. 9, 2008

NEW YORK CNNMoney.com — The budget deficit will jump by $246 billion to $407 billion this year, the Congressional Budget Office estimates in a report released Tuesday.

“Over the long run, growing budget deficits and the resulting increases in federal debt would lead to slower economic growth,” the agency said.

Last year, the budget deficit was $161 billion. The governments fiscal year ends Sept. 30. The agency attributes the jump to “a substantial increase in spending and a halt in the growth of tax revenues.”

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And jobs…

Not only are home foreclosures at a record high in the US, but national unemployment also climbed above the psychologically important 6 percent level last month for the first time in five years – and it’s likely to go even higher in the months ahead, possibly throwing the economy into a tailspin as Americans pick a new president. The rate has steadily climbed this year from a cycle low of 4.4 per cent and now sits just below the peak of 6.3 per cent seen during the last recession. (See: Home foreclosures at record high in the US)

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And our failed bank de-regulation experiment…

One part of the cure for the nation’s credit crisis is transparency. We cannot work our way out of our debts until we know how much we owe. That is a simple fact. We need an absolute ban on accounting shenanigans that range from off-budget operations to fictional asset values. No more Enron-style books. Now, could someone tell those who run the country?

The Bush administration still hasn’t resolved how to account for the takeover — they say, conservatorship — of mortgage giants Fannie Mae and Freddie Mac.

Peter Orszag, director of the Congressional Budget Office, said at a news conference, “Fannie Mae and Freddie Mac should be directly incorporated into the federal budget.”

Absolutely. Only this won’t be popular because its implementation would add big numbers to an already huge deficit. The most recent CBO budget and economic forecast is for a deficit of about $407 billion this year, growing to a record-breaking $438 billion in the fiscal year that starts Oct. 1. Those numbers don’t include what it will cost to bail out Fannie Mae and Freddie Mac.

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The simple fact of the matter is that Republican leadership and economic policy and international policy has led us directly to the place where we currently find ourselves.

Read on for the full story and understanding where the money went….

Their idea that cutting taxes always increases tax revenue is both idiotic and historically inaccurate.  This godlike worship of the Laffer Curve is a joke reaching apocalyptic proportions.   The concept that an unregulated market is going to serve the interests of the populace at large, and not only those that play in that market, has been proven false time and again.

Wall Street is expected to pay out $23.9 billion in bonuses in 2006, surpassing last year’s record of $20.5 billion, according to a forecast released today by State Comptroller Alan G. Hevesi.

“The securities industry had another great year in 2006, with some of the largest firms having their best year ever. This translates into record year-end bonuses and great news for the region’s economy,” Hevesi said.

The State Comptroller forecasts that bonuses paid to workers in the securities industry in New York City will total $23.9 billion in 2006, which surpasses last year’s record of $20.5 billion by 17 percent. The forecast reflects the strength of traditional Wall Street activities, but also an expansion into global markets and increased demand for other services, such as hedge funds. The estimate does not include stock options that have not yet been exercised, which could increase the value of bonuses realized by employees by billions of dollars.

Bonuses will average $137,580 in 2006 or 15 percent higher than last year. These estimates represent an average for all securities industry employees.

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To put in in a nutshell, what happened on the housing front was first the deregulation of the banking industry. With the newly relaxed rules on who could lend money to who, where, and what they could do with the resulting loans, a whole new and very profitable segment of the market developed.  This is what led to those record profits mentioned above, back in 2005 and 2006.  The mortgage brokers figured out how to jump through hoops and get anyone a big loan.  These loans, because they were so risky, had huge interest rates or complex structures (ARM, interest-only) that would often hide the true cost of the loan.

What these loans looked like on paper to investors and traders was pure gold.  Here was a huge loan, with a huge interest rate, that was going to be generating tons of money for a long time.

These “securities” where then packaged and sold.   The bad loans begin to circle and circle around the banking industry, moving to shadier and shadier outfits, with the pseudo-private entities Fannie Mae and Freddie Mac having, by law, to take all the crap loans.

Eventually it became evident with the rising foreclosure rates that the loans they thought were gold, were shit.  So it turns out both the investment banks and the mortgage banks didn’t have the money they thought they did.  This is very bad for business.  Particularly when you are in the money business.

If they have been regular companies they would have filed for Chapter 11 and tried to re-organize or sell off everything.

However, since these companies now owned upwards of half the mortgages in the U.S.   And are currently financially broken.

So the U.S. prints up more money and buys them.  Now *we all pay for the effects of securities deregulation*, and we all get to pay off those bonuses mentioned previously.

And on another side note….the only…and I mean the only….reason the U.S. isn’t right now in a Depression is largely due to the fact of the curbs we put after the Great Depression.

Banks are failing across the country, with most happening in the hardest hit part of the country, economy-wise (rust belt).

If we hadn’t had the Great Depression, and set up government regulators like the FDIC, people would be freaking the fuck out right now, as their savings would have been wiped out by the excesses of Wall Street.  And the run on the banks would happen, and the banks don’t have enough money pay, since they bought these huge home loans and now the value of the home doesn’t come close to matching the value of the loan.  The banks don’t *have* the money, and if people ran on them, the little they do have would quickly be distributed.

So, given all that….what do the Republicans wants to talk about, since it is their governing philosophy that led us here….

Lipstick.

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Mugabe would be proud.

Any economic analysis of Zimbabwe and US will yield the same results pointing to a tale of two economies in the woods, even though the magnitude may differ slightly.

In both countries there is no doubt that the populations are hurting yet there is no end in sight.

What has caused such economic disasters for these once-prosperous nations? Bad emperors! The stewardships of Robert Mugabe and George Bush, respectively, have been unsatisfactory and disappointing.

With a crisis approaching the magnitude of the Great Depression of the 1930’s, the once mighty US dollar (greenback) has been crumbling for six straight years against major currencies and so has been the Zimbabwe dollar. Looking into the near future, it is inconceivable that the US dollar will maintain its integrity and status as the leading international banking currency. The euro is earmarked to replace the US dollar in the not-so-distant futur.

George Bush’s economic record is pathetic. He is leaving a budget deficit of approximately US$500 billion ($482 billion to be exact) having inherited a budget surplus of approximately US$500 billion (though figures may slightly vary). Other economic ills include a devastating mortgage crisis that has culminated in 2,5 million households facing foreclosures this year alone and an energy crisis where gas prices have jumped to over $4 a gallon compared to under $2 when Bush took office in 2001.

Clinton, (even after his impeachment had an approval rating of 73%) left office with an approval rating of 68% while George Bush’s approval rating is the lowest in US history under 30%. In addition health care costs have severely soared (add that to over 45 million Americans without health insurance, poorly funded education system, loss of jobs (compare with 22 million that the Clinton Presidency ushered in), etc  have all come to be part of the Bush legacy.