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Entries in Federal Debt (13)

Tuesday
Jan082013

New Wrinkle in Looming Debt Ceiling Battle

Stephen Chernin/Getty Images(WASHINGTON) -- The fight over whether to raise the debt ceiling, which is already on the fast track, may have to get on a faster track.

An analysis by the Bipartisan Policy Center now predicts that the government won't be able to pay its bills by as soon as Feb. 15.

That's two weeks earlier than originally projected and the White House has warned GOP lawmakers that if the debt ceiling isn't lifted above the $16.4 trillion statutory limit, the government will default on its debt.

Republicans say that any increase will have to be matched with equal spending cuts -- a position President Obama finds untenable.

The Bipartisan Policy Center says that since Dec. 31, when the statutory limit was reached, the Treasury Department has used "extraordinary measures" to postpone default.

Copyright 2013 ABC News Radio

Thursday
Sep062012

Bob Woodward Book: Debt Deal Collapse Led to 'Pure Fury' from Obama

MANDEL NGAN/AFP/Getty Images(WASHINGTON) -- An explosive mix of dysfunction, miscommunication, and misunderstandings inside and outside the White House led to the collapse of a historic spending and debt deal that President Obama and House Speaker John Boehner were on the verge of reaching last summer, according to revelations in author Bob Woodward's latest book.

The book, The Price of Politics, on sale Sept. 11, 2012, shows how close the president and the House speaker were to defying Washington odds and establishing a spending framework that included both new revenues and major changes to long-sacred entitlement programs.

But at a critical juncture, with an agreement tantalizingly close, Obama pressed Boehner for additional taxes as part of a final deal -- a miscalculation, in retrospect, given how far the House speaker felt he'd already gone.

The president called three times to speak with Boehner about his latest offer, according to Woodward.  But the speaker didn't return the president's phone call for most of an agonizing day, in what Woodward calls a "monumental communications lapse" between two of the most powerful men in the country.

When Boehner finally did call back, he jettisoned the entire deal.  Obama lost his famous cool, according to Woodward, with a "flash of pure fury" coming from the president; one staffer in the room said Obama gripped the phone so tightly he thought he would break it.

"He was spewing coals," Boehner told Woodward, in what is described as a borderline "presidential tirade."

"He was pissed…. He wasn't going to get a damn dime more out of me.  He knew how far out on a limb I was.  But he was hot.  It was clear to me that coming to an agreement with him was not going to happen, and that I had to go to Plan B," Boehner continued.

Accounts of the final proposal that led to the deal's collapse continue to differ sharply.  The president says he was merely raising the possibility of putting more revenue into the package, while Boehner maintains that the president needed $400 billion more, despite an earlier agreement of no more than $800 billion in total revenue, derived through tax reform.

Obama and his aides argue that the House speaker backed away from a deal because he couldn't stand the political heat inside his own party -- or even, perhaps, get the votes to pass the compromise.  They say he took the president's proposal for more revenue as an excuse to pull out of talks altogether.

"I was pretty angry," the president told Woodward about the breakdown in negotiations.  "There's no doubt I thought it was profoundly irresponsible, at that stage, not to call me back immediately and let me know what was going on."

The failure of Obama to connect with Boehner was vaguely reminiscent of another phone call late in the evening of Election Day 2010, after it became clear that the Republicans would take control of the House, making Boehner Speaker of the House.

Nobody in the Obama orbit could even find the soon-to-be-speaker's phone number, Woodward reports.  A Democratic Party aide finally secured it through a friend so the president could offer congratulations.

While questions persist about whether any grand bargain reached by the principals could have actually passed in the Tea Party-dominated Congress, Woodward issues a harsh judgment on White House and congressional leaders for failing to act boldly at a moment of crisis.  Particular blame falls on the president.

"It was increasingly clear that no one was running Washington.  That was trouble for everyone, but especially for Obama," Woodward writes.

For all the finger-pointing now, Obama and Boehner appear to have developed a rapport during the negotiations.  The Illinois Democrat bonded with the Ohio Republican, starting with a much-publicized "golf summit" and continuing through long, substantive chats on the Truman Balcony and the patio right outside the Oval Office.

Tune in to World News with Diane Sawyer and Nightline on Monday, Sept. 10, 2012, to see Diane Sawyer's exclusive interview with Bob Woodward.

Copyright 2012 ABC News Radio

Wednesday
Dec282011

Obama to Request Another Debt Ceiling Hike

Stephen Chernin/Getty Images(WASHINGTON) -- With the federal government now coming within $100 billion of the current $15.2 trillion ceiling, President Obama is expected to request an increase this week as he wraps up his family vacation in Hawaii.

Before he returns to Washington next week to face a grueling re-election campaign, Obama will ask Congress to raise the debt ceiling by $1.2 trillion to $16.4 trillion.

The latest hike request comes after a heated debate in Washington this past summer over the same topic.  Lawmakers eventually came to an agreement to increase the debt ceiling in August but the back-and-forth led Standard & Poor's to downgrade the nation's credit rating from AAA to AA+

This time around, it would take both the House and the Senate to oppose raising the borrowing ceiling, but that probably won't happen given that it's an election year and the public is discontent with Congress.

Copyright 2011 ABC News Radio

Thursday
Aug252011

CBO Calls for Major Steps to Slash Federal Deficit

Stephen Chernin/Getty Images(WASHINGTON) -- The U.S. is running a deficit this year of $1.3 trillion, the third largest on record.  But, as the nonpartisan Congressional Budget Office said Wednesday, things could get markedly better if those much-disputed 2001 Bush-era tax cuts are allowed to expire.

According to the CBO, the tax breaks should end along with the payroll tax reduction, federal emergency unemployment benefits and reduced Medicare payment rates to physicians.

If that all happens, the CBO says projected deficits would be trimmed by $3.3 trillion over the next decade, provided that the debt-reduction agreement signed earlier this month also comes into play.

All this is a best-case scenario.  While President Obama wants tax breaks for the rich and corporations to expire by the end of 2012, Republicans are fighting him at every turn, charging him with hurting the job creators and fueling class warfare.

Copyright 2011 ABC News Radio

Wednesday
Jul272011

Debt Default: How Soon Could the Country Recover?

Stephen Chernin/Getty Images(WASHINGTON) -- While legislators describe the potentially catastrophic effects of a U.S. default on its debt or its growing budget deficit, past examples of sovereign default show other countries can recover in shorter periods than expected.

Jamaica, the only country to default in 2010, compares "favorably" with its peer countries in terms of Gross Domestic Product (GDP) per capita and Human Development Indicators, according to credit rating agency Fitch Ratings.

The Caribbean country has a population of 2.7 million and a GDP of $13.8 billion.  The total debt of its central government as a percentage of its GDP is 107.6 percent, according to Fitch.

Sovereign default events are rare.  Since the mid 1990s, Fitch has recorded a total of eight sovereign defaults, including the Jamaican default event.  The list of sovereign defaults includes Indonesia and the Russian Federation, both in 1998; Argentina in 2001, Moldova in 2002, Uruguay in 2003, the Dominican Republic in 2005, and Ecuador in 2008.

Even more infrequent are municipal or local governments defaulting on their debt.

Guy LeBas, chief fixed income strategist with Janney Capital Markets, said Orange County, California, which defaulted in 1994 following some financial mismanagement, may be the most prominent county that has defaulted in recent history.  He said several municipalities defaulted during the Great Depression.

Eduardo Borensztein, regional economic advisor at the Southern Cone department of the Inter-American Development Bank, said there is "a lot of confusion about defaults."  He said the traditional definition of a default is when a country fails to make a payment on time or there is a change in the terms of original debt that implies a loss of value for its creditors.

"So if it can't make payment according to original terms, it's considered a default," he said.

In a paper for the International Monetary Fund, Borensztein found that from 1824 to 2004, Latin America was the region with the highest number of defaults: 126.  Africa had 63 episodes of defaults during that period.

Analyzing these cases, he found that default episodes do not have a long-term impact on credit ratings or borrowing costs.  Of course, for the United States, a default would be a different story because of the sheer size of its economy, among several other factors, Borenzstein said.

"It has the highest credit rating, so going down even one notch has big implications," he said. "U.S. debt is used as collateral for other contracts and considered pretty much risk free. I don't think anyone can have a good sense of the consequences of a default."

Richard Zeckhauser, professor of political economy at the Harvard Kennedy School, said it is also unlikely that United States will default on its debt.  He said Greece, which many credit agencies had predicted would default, at least has Germany, or other European Union countries, to possibly help "bail it out."

"We unfortunately don't have a Germany.  There's no one else to rescue us," Zeckhauser said.  "Our biggest creditor is China and I don't think they'll come to our rescue."

Copyright 2011 ABC News Radio

Monday
Jul252011

Debt Debate: What Can You Do to Protect Your Money?

Comstock/Thinkstock(NEW YORK) -- The phones were hot Monday at America's largest 401(k) manager, Vanguard, in Philadelphia.  Main Street was calling Wall Street to ask what a deadbeat government would mean to their future.

"By and large," said Karin Risi of Vanguard, the biggest question is: What should I do with my portfolio? Should I get out? Should I reduce my equity exposure?

The stakes are high, and Americans know it. Stocks fell almost one percent Monday.

"Why are we even talking about a potential risk to the U.S. credit rating?" asked Kenneth Polcari of ICAP Equities on the floor of the New York Stock Exchange.  "This should not have happened."

Even if Washington avoids an actual default with a short-term solution, that could still be expensive, with credit agencies downgrading America's AAA rating, which would cost banks and then everyone more to borrow. Citibank is warning its customers, "The kick the can down the road path," now option A in Washington, "would not impress the ratings agencies."

"If they downgrade the U.S. Treasury, that will be the most significant downgrade in the history of rating agencies," said Jim Kessler of Third Way, a non-partisan economic think tank in Washington, D.C.

What would the downgrade alone mean to you?

Analysts forecast a six-percent drop in the stock market. The average 401(k) of $140,000 would lose $9,000. Mortgage rates would likely rise at least a half-point. That's a $19,000 hike on the average $172,000 home loan. And the overall economy would be hit with a one-percent drop in GNP, translating into 640,000 lost jobs. And that's just the immediate damage.

"I would compare it to a marriage where one spouse cheats on the other," Kessler said. "The marriage may survive, but it will never be the same again.  And if there is a downgrade on U.S. treasuries, our economy will survive but it will never be the same again, as well."

So should you move your money?

Several analysts told ABC News that, no, it's best to ride it out because it's too difficult to know when to get back into the market. But if you are just too nervous, foreign bonds in stable countries like Germany or Switzerland may be somewhere to ride the storm.

Copyright 2011 ABC News Radio

Monday
Jul182011

Gold Price Hits New Record

Ablestock.com/Thinkstock(NEW YORK) -- Strong demand for gold drove prices for the precious metal to record highs Monday, even as stocks sank and Washington remained mired in debate over what to do about the nation's debt ceiling.

The price of gold is being driven up by the debt deadlock in Washington, said one expert.

"Investor confidence isn't there," says Jonathan Corpina, senior managing partner of Meridian Equity Partners in New York City. "People are looking at the debt debate and not getting any new information. What we're seeing is impatience, I think. It's time for the politicians to put party aside and find some sort of resolution."

Uncertainty, he says, is always bad for markets: "Investors flee the market when there's uncertainty." Their move into gold is "the same thing as if they were putting their money underneath their mattress," he says.

As for traders, the same holds true, Corpina thinks. "Volatility is high right now. They'll wait to get back into the market until they get more information."

Though Monday's price per ounce closed at $1,602.40, an all-time high, Corpina says gold's price "will continue that way" until Washington resolves its crisis.

He said traders are also spooked by unemployment, which Corpina calls "all-important." Despite the government's stimulus efforts, "We haven't seen the unemployment numbers move in the direction we want."

People turning to gold, he thinks, are doing the right thing.

"You need to have a balanced portfolio," and having some of your money in gold is a way to diversify. Plus, gold always has had the status as a safe haven.

"It's one of the safest bets out there. The value has always been there. On Main Street, people see its value rising higher. They're no longer sure that cash is their safest bet," Corpina said.

Investor confidence, he predicts, will return. "It'll be back, but only after this debt debate has been resolved." For now, though, "It's a cloud hanging over us."

Copyright 2011 ABC News Radio

Friday
Jul152011

American Debt: Is 'Grand' Deal Not Very Grand?

Stephen Chernin/Getty ImagesANALYSIS
By Daniel Arnall, ABC News

(WASHINGTON) -- If you're like me and almost everyone else, these numbers are numbing.  I don't have a clue what $4 trillion is -- it's just too big.

As a point of personal privilege, I wanted to offer a bit of perspective on the relative size of the $4 trillion grand deal that is apparently too much for our government to swallow over the course of the next decade.

What would the grand deal mean -- in percentage terms -- compared to what Uncle Sam is expected to spend during the next decade?

The $4 trillion that was the focus of early debt deal negotiations represents about 8.7 percent of the federal government's total projected spending between 2012 and 2021.  The Office of Management and Budget says Uncle Sam will spend $46 trillion in the next decade.

So what would an 8.7 percent cut look like next year based on the White House's current spending projections?

It would lop off $324 billion from the budget.  Sounds like a lot, until you realize that this level of reduction would take federal government spending to just 1.5 percent less than the level we saw in 2010.  Total spending in this hypothetical scenario would be $3.4 trillion.

That's right -- taking the big leap proposed in the "grand deal" (and assuming the pain would be equally distributed to all 10 years) would push spending to a level we were willing to accept a year ago.

Is that really too much for our politicians to swallow?  Are Americans unwilling or unable to head back to the spending levels of 2010?

It gets even less daunting assuming you could find some way to share the budget fix equally with both spending and revenue changes.  The decrease in spending would represent a 4.4 percent reduction for the next 10 years.  A $2 trillion increase in revenues would represent a 5.2 percent increase in the $38.7 trillion in expected revenues for the 2012 to 2021 period.

Copyright 2011 ABC News Radio

Tuesday
Jul122011

Lawmaker Concerned Debt Deal Could Mean Income Tax Increases

Creatas/Thinkstock(WASHINGTON) -- Sen. Jim Webb, D-VA., says he has "serious concerns" about income tax increases as part of debt limit deal.

"As the Congress works to resolve the current impasse on the deficit, I must again emphasize my belief that revenues should be raised by other means, including ending costly subsidies and tax loopholes or by adjusting such measures as capital gains," Webb wrote in a paper statement Tuesday.

Webb says that he has consistently opposed the notion of increasing revenues through raising taxes on “ordinary, earned income."  Rather, he has introduced and supported legislation for numerous proposals that do otherwise -- such as closing the “carried interest” tax loopholes, eliminating counterproductive ethanol subsidies, ending costly agricultural subsidies, and a one-time windfall profits tax on bonuses over $400,000 that were paid to executives benefiting from the taxpayer bailout of companies who received more than $5 billion from the Troubled Asset Relief Program (TARP).

“Taken together, such provisions could reduce the federal deficit by hundreds of billions of dollars and restore a measure of fairness to the tax code,” Webb says. “I believe these and other similar approaches should be taken by Congressional and Administration leaders, rather than increasing the tax burden on Americans whose paychecks are coming from earned income as the result of their direct services.”

Copyright 2011 ABC News Radio

Monday
Jul112011

How Would Failure to Raise Debt Ceiling Affect 401(k)s?

Photodisc/Thinkstock(WASHINGTON) -- If Congress fails to raise the U.S. debt ceiling, what will be the consequences for U.S. savers and investors?

Two economists at the Center for American Progress, a progressive advocacy group, believe the consequences could be dire. The stock market, they say, could drop by 20 percent to 30 percent. And 401(k)s, which in the past two years have rebounded from losses suffered earlier in the recession, could see those gains largely erased.

A report by financial services company Fidelity Investments found that by the end of the first quarter, the average 401(k) balance had surged past where it had been before the recession.  It's exactly these gains, said the two economists, that are in jeopardy if the nation's debt ceiling isn't raised.

Heather Boushey and Christian Weller expressed their views, respectively, in testimony before Congress in July and in a May white paper.

Boushey predicts that allowing the economy to "slam into the debt ceiling will undoubtedly create an immediate economic shock," with disastrous consequences for the job market.  Government, unable to borrow, would need to reduce spending immediately by 40 percent.  The same shock, she believes, would trigger a sharp fall in the stock market.

"Families with 401(k)s would likely lose all the gains they have made in 2010 and much of their gains in 2009, moving them further below where they were at the end of 2007 after the stock market fell sharply," she said.

The blow would be felt most painfully by baby boomers of retirement age, since this generation, unlike previous ones, is more dependent on market-sensitive 401(k) savings than on fixed pensions.

The hit to 401(k)s, coupled with what she said would be a further decline in home prices, will deal the middle-class a double whammy.  Near record-breaking unemployment rates would make it difficult for older, unemployed boomers to work their way out of their retirement hole.

Of the ongoing struggle in Congress over what to do about the debt ceiling, Boushey's colleague Weller wrote: "What may seem like an esoteric debate far removed from people's lives could in the end become a major setback for families' economic security."

Given that almost 60 percent of 401(k) money, he said, is invested in stocks, a 20 percent market drop would cost the average saver $7,911; a 30 percent drop would cost almost $12,000.

How much any individual's 401(k) would be affected by a market drop would depend, of course, on how the money had been invested.

Copyright 2011 ABC News Radio







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