July 28. CBO: “Fedl Debt and the Risk of a Fiscal Crisis”

July 28,  Consumer confidence lower than expected at 50.4, 
–Today’s news includes Durable Goods Orders (+1.0% expected)   Beige Book and 5 year note auction. 
–Yields rose a bit in a concession to this week’s supply.  Stocks were firm.  Precious metals fell and appear to be in top formations as buying associated with the european banking crisis has abated.
–However, we seem to lurch from one “crisis” to another.  I ran across this piece from yesterday with the headline “Fedl Debt and the Risk of a Fiscal Crisis”.  It wasn’t from zerohedge or financial blog, but none other than the Congressional Budget Office. http://www.cbo.gov/doc.cfm?index=11659
Says steps must be taken or debt could rise to unsupportable levels. 
–The US government is leaning more toward removal of stimulus before it is really clear that deleveraging of the household sector has ended.  

 
From the CBO July 27. 2010
http://www.cbo.gov/doc.cfm?index=11659
Unless policymakers restrain the growth of spending, increase revenues significantly as a share of GDP, or adopt some combination of those two approaches, growing budget deficits will cause debt to rise to unsupportable levels.
 
Although deficits during or shortly after a recession generally hasten economic recovery, persistent deficits and continually mounting debt would have several negative economic consequences for the United States. Some of those consequences would arise gradually: A growing portion of people’s savings would go to purchase government debt rather than toward investments in productive capital goods such as factories and computers; that “crowding out” of investment would lead to lower output and incomes than would otherwise occur. In addition, if the payment of interest on the extra debt was financed by imposing higher marginal tax rates, those rates would discourage work and saving and further reduce output. Rising interest costs might also force reductions in spending on important government programs. Moreover, rising debt would increasingly restrict the ability of policymakers to use fiscal policy to respond to unexpected challenges, such as economic downturns or international crises.

Posted on July 31, 2010 at 9:04 am by alexmanzara · Permalink
In: Eurodollar Options

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