As concerns about U.S. finances multiply, Treasury Secretary Geithner makes the first move in the looming showdown
On Thursday. The U.S. Treasury released a terse announcement:
“Beginning on February 3, 2011, the balance in the Treasury’s Supplementary Financing Account will gradually decrease to $5 billion, as outstanding Supplementary Financing Program bills mature and are not rolled over. This action is being taken to preserve flexibility in the conduct of debt management policy.”
The Treasury’s Supplementary Financing Program is designed to help counteract some of the negative effects of the Federal Reserve’s efforts to inject liquidity in the economy. It’s basically an accounting mechanism that aims to absorb some of the excess reserves created when the Fed buys assets — like crappy mortgage-backed securities. Right now, the account holds around $200 billion.
But as of Tuesday, according to the Treasury, the U.S. government is only $279 billion away from hitting the debt ceiling. So for the time being, the Treasury is rolling up the Supplementary Financing Program so as to free up some cash, and postpone the debt ceiling reckoning for a little while longer. The Treasury did exactly the same thing the last time the U.S. threatened to hit the ceiling, so there’s nothing particular striking or unusual about the move.
However, two other news items in the last 24 hours underscore how serious the longterm budget situation is, and are likely to affect the outcome of negotiations between the White House and Republicans over extending the debt ceiling. Standard & Poors downgraded Japan’s credit rating and the Congressional Budget Office reported that, largely as a result of the tax-cut deal, the budget deficit this year will be $1.5 trillion.
Japan’s downgrade is a warning shot: At some point, $1.5 trillion deficits will finally begin to upset the markets. In their explanation of the downgrade S&P cited Japan’s lack of political will to deal with their government finances. The same is abundantly true for the U.S. Any realistic appraisal of the U.S. fiscal situation has to conclude that a mixture of revenue increases and spending cuts is imperative for the long run. Instead, we’re busily decreasing revenue and making only trivial cuts.
I’ve been arguing here for years that it is critical not to go overboard on fiscal austerity when the economy is still fragile, because that would be entirely self-defeating. If you remove government demand from the economy, you could have slower growth, which means even less tax revenue, which puts even more strain on government finances. But the question then becomes, when? When is the right point to trim sails?
Yesterday’s upbeat new home sales data inspired the private forecasting firm Macro Advisers to double down on their prediction that GDP growth for the first quarter will be a very robust 4 percent. On Friday, the government will release its first stab at estimating fourth quarter growth, and the consensus prediction right now is around 3.7 percent. If that level of growth is sustained for a two or three quarters, then the pressure to deal with the U.S. fiscal imbalance will ramp up considerably. And maybe it should.
On the other hand, Thursday’s huge 51,000 jump in jobless claims injects a new note of uncertainty into the equation. The Labor department is blaming snow for a backlog of claims, but that’s still a horrible number, no matter how bad the weather.
And so we march forward, into a pea soup-thick fog of baffling uncertainty.
More Related Stories
- Slave descendants seek equal rights from Cherokee Nation
- Peace Corps to allow gay couples to volunteer together
- Is abortion about to doom Republicans again?
- Anti-voter-fraud Tea Party group sues the IRS
- The Bachmann-inspired romance novel
- Nate Silver: Why the scandals aren't hurting Obama
- How to oust Michele Bachmann from Congress
- Rand Paul: Congress should apologize to Apple, not the other way around
- Who is Toronto Mayor Rob Ford?
- Colorado judge rules Abercrombie parent company violates Disabilities Act
- When America became a third-world country
- Inhofe and Coburn: Red state hypocrites
- It's Whitewater all over again
- Teen activist to meet with Abercrombie CEO
- Anyone regret slashing National Weather Service budget now?
- Oklahoma senator: Tornado aid "totally different" from Sandy aid
- Aloof, shifty Obama: Nixon times ten thousand!
- Obama: Moore "needs to get everything it needs right away"
- California Tea Party group files first IRS lawsuit
- Still no polling backlash for Obama
- Oklahoma senator wants to offset tornado aid with other cuts
Featured Slide Shows
The week in 10 picsclose X
- 1 of 11
Lisa Montgomery embraces her nephew Thursday after a tornado tore apart her home in Cleburne, Texas. The twister killed six people and destroyed entire swaths of the North Texas town.
Credit: AP/LM Otero
Jack McMahon, the defense attorney for abortion doctor Kermit Gosnell, speaks outside the Criminal Justice Center in Philadelphia Tuesday. His client was convicted of killing three babies in his clinic, and will serve multiple life sentences.
Credit: AP/Matt Rourke
A photo taken Monday captures Vice President Joe Biden's response to a Milwaukee second-grader's innovative proposal to end America's epidemic of gun violence. This guy!
Credit: AP/Jenny Aicher
Sen. Rand Paul, R-Ky., flanked by a grouper-eyed Michele Bachmann, addresses the IRS' admission that it targeted Tea Party groups in advance of the 2012 election. In an op-ed for CNN Thursday, the Kentucky senator slammed the president for his faux outrage.
Credit: AP/Molly Riley
Ousted IRS chief Steven Miller is sworn in on Capitol Hill Friday. Miller testified before the House Ways and Means Committee on the extra scrutiny the agency gave conservative groups applying for tax-exempt status.
Credit: AP/J. Scott Applewhite
Attorney General Eric Holder pauses as he testifies on Capitol Hill before the House Judiciary Committee Wednesday. Holder is under fire, among other things, for the Justice Department's gathering of phone records at the Associated Press.
Credit: AP/Carolyn Kaster
O.J. Simpson sits during an evidentiary hearing at Clark County District Court in Las Vegas, Nev., Thursday. Simpson, who is currently serving a nine-to-33-year sentence in state prison for armed robbery and kidnapping, is using a writ of habeas corpus to seek a new trial.
Credit: AP/Las Vegas Review-Journal/Jeff Scheid
Major Tom to ground control: On Sunday astronaut Chris Hadfield recorded the first music video from space, a cover of David Bowie's "Space Oddity."
Credit: AP/NASA/Chris Hadfield
When it rains it pours. President Barack Obama speaks during a news conference Thursday with Turkish Prime Minister Recep Tayyip Erdogan, inexplicably inspiring an #umbrellagate Twitter meme.
Credit: AP/Jacquelyn Martin
A smoke plume rises high above a road block at the intersection of County A and Ross Road east of Solon Springs, Wis., Tuesday. No injuries were reported, but the the wildfire caused evacuations across northwestern Wisconsin.
Credit: AP/The Duluth News-Tribune/Clint Austin
Recent Slide Shows
- 1 of 11