Obama Predicts Years of Deficits Over $1 Trillion

President-Elect Says Budget Reform Is ‘Absolute Necessity’

Slowing tax revenues and a historic bailout of the U.S. financial system will send the budget deficit soaring toward $1 trillion this year, President-elect Barack Obama said yesterday, and the red ink stands to get substantially deeper if Obama wins approval of a massive economic stimulus plan.

Even if the package of spending and tax cuts helps restore the nation’s immediate economic health, Obama said, the government is likely to be left with “trillion-dollar deficits for years to come” unless policymakers “make a change in the way that Washington does business.”

“We’re going to have to stop talking about budget reform. We’re going to have to totally embrace it. It’s an absolute necessity,” the president-elect told reporters a day before the Congressional Budget Office is set to release its outlook for the coming year.

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Barack Obama says US economy is ‘very sick’

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Besides, Keynesianism is so outdated and wrong.

President-elect Barack Obama has described the US economy as “very sick” and predicted the situation will worsen.

Barack Obama - Laser warplanes
The American economy will be Barack Obama’s primary challenge Photo: EPA

His comments came before a meeting with Congressional leaders in an attempt to get them to back the $300 billion measures aimed at people on lower and middle income, assuring opposition Republicans their views would be considered.

“The economy is very sick,” he said before meeting with Senate Democratic Leader Harry Reid. “The situation is getting worse. … We have to act and act now to break the momentum of this recession.”

He said he expected that the latest US unemployment figures, due out later this week, would be sobering.

The complete recovery package would cost between $750 billion and $1 trillion [£630 billion] and include tax cuts for lower and middle income groups and relief for businesses over two years.

Obama: Trillion-Dollar Deficits ‘for Years to Come’ (The Washington Post)
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If passed, it would more than double the savings tax payers received in George W Bush’s tax reforms of 2001 and 2003. In real terms the cost would exceed that of the Vietnam War, which drained the treasury of $682 billion in current dollars, according to the Congressional Research Service

Read moreBarack Obama says US economy is ‘very sick’

Willem Buiter warns of massive dollar collapse

Americans must prepare themselves for a massive collapse in the dollar as investors around the world dump their US assets, a former Bank of England policymaker has warned.

MPC founder member Willem Buiter.
MPC founder member Willem Buiter. Photo: CHRISTOPHER COX

The long-held assumption that US assets – particularly government bonds – are a safe haven will soon be overturned as investors lose their patience with the world’s biggest economy, according to Willem Buiter.

Professor Buiter, a former Monetary Policy Committee member who is now at the London School of Economics, said this increasing disenchantment would result in an exodus of foreign cash from the US.

The warning comes despite the dollar having strengthened significantly against other major currencies, including sterling and the euro, after hitting historic lows last year. It will reignite fears about the currency’s prospects, as well as sparking fears about the sustainability of President-Elect Barack Obama’s mooted plans for a Keynesian-style increase in public spending to pull the US out of recession.

Writing on his blog , Prof Buiter said: “There will, before long (my best guess is between two and five years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury bills and bonds are still viewed as a safe haven by many. But learning takes place.”

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Peter Schiff: Our economy is broken and there is nothing the government can do to fix it

As recession fears cause the nation to embrace greater state control of the economy and unimaginable federal deficits, one searches in vain for debate worthy of the moment. Where there should be an historic clash of ideas, there is only blind resignation and an amorphous queasiness that we are simply sweeping the slouching beast under the rug.

With faith in the free markets now taking a back seat to fear and expediency, nearly the entire political spectrum agrees that the federal government must spend whatever amount is necessary to stabilize the housing market, bail out financial firms, liquefy the credit markets, create jobs and make the recession as shallow and brief as possible. The few who maintain free-market views have been largely marginalized.

Taking the theories of economist John Maynard Keynes as gospel, our most highly respected contemporary economists imagine a complex world in which economics at the personal, corporate and municipal levels are governed by laws far different from those in effect at the national level.

Read morePeter Schiff: Our economy is broken and there is nothing the government can do to fix it

Going Bankrupt: The US’s Greatest Threat

The military adventurers of the George W. Bush administration have much in common with the corporate leaders of the defunct energy company Enron. Both groups of men thought that they were the “smartest guys in the room”, the title of Alex Gibney’s prize-winning film on what went wrong at Enron. The neo-conservatives in the White House and the Pentagon outsmarted themselves. They failed even to address the problem of how to finance their schemes of imperialist wars and global domination.

Read moreGoing Bankrupt: The US’s Greatest Threat

Why the US has really gone broke

Global confidence in the US economy has reached zero, as was proved by last month’s stock market meltdown. But there is an enormous anomaly in the US economy above and beyond the subprime mortgage crisis, the housing bubble and the prospect of recession: 60 years of misallocation of resources, and borrowings, to the establishment and maintenance of a military-industrial complex as the basis of the nation’s economic life

Read moreWhy the US has really gone broke